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PART III
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 20-F

Date of event requiring this shell company report
Commission file number 333-12032

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

Not Applicable
(Translation of Registrant's name into English)

RUSSIAN FEDERATION
(Jurisdiction of incorporation or organization)

4 Marksistskaya Street, Moscow 109147 Russian Federation
(Address of Principal Executive Offices)

Joshua B. Tulgan
Director, Corporate Finance and Investor Relations
Mobile TeleSystems PJSC
5 Vorontsovskaya Street, bldg. 2, 109147 Moscow Russian Federation
Phone: +7 495 223 20 25, Fax: +7 495 911 65 67
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:

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 1,190,401,6541,129,245,695 ordinary shares, par value 0.10 Russian rubles each and 398,248,937391,398,362 American Depositary Shares as of December 31, 2016.2017.

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

            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. o Yes    ý No

            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. ý Yes    o No

            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 file, orfiler, a non-accelerated filer.filer, or an emerging growth company. See definitionthe definitions of "large accelerated filer," "accelerated filer," and large accelerated filer""emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):

            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:

            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. o Item 17    o Item 18

            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). o Yes    ý No

(1)

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

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        Unless otherwise indicated or unless the context requires otherwise, references in this document to (i) "MTS," "the Group," "we," "us," or "our" refer to Mobile TeleSystems Public Joint Stock Company and its subsidiaries; (ii) "MTS"Vodafone Ukraine" isand "VF Ukraine" are to Private Joint Stock Company "MTS"Vodafone Ukraine" (formerly CJSC Ukrainian Mobile Communications), our Ukrainian subsidiary which works under Vodafone brand;PJSCMTS Ukraine); (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 K-Telecom Closed Joint-Stock Company, our Armenian subsidiary; and (viii) "UMS" is to Universal Mobile Systems LLC, our former subsidiary in Uzbekistan which was deconsolidated in 2016; (ix) NVision our subsidiaries which provides integration services and (x) "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." We refer to MTS Bank PJSC, our 26.6% owned equity investee as "MTS Bank." As MTS Belarus and MTS Bank are equity investees, our revenues and subscriber data do not include MTS Belarus and MTS Bank.

        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.

        The exchange rate between the ruble and the U.S. dollar quoted by the CBR for April 21, 201727, 2018 was 56.4262.60 rubles per U.S. dollar.

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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—Organizational Structure—B. Business Overview," "Item 5. Operating and Financial Review and Prospects"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

        See also "—Legal Risks and Uncertainties—Changes in Ukrainian telecommunications legislation have caused uncertainty in relation to the regulation of the Ukrainian telecommunications industry and may adversely affect our business, financial condition and results of operations."

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If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices, and therefore losewhich 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 linefixed-line and mobile operators in Russia, Ukraine and other countries in which we operate. Fees for interconnectingInterconnect fees are established by agreements with network operators and vary depending on the network used, the nature of the call and the call destination. In Ukraine, the connection fees for the SMP operators' networks and interconnect ratesfees for the termination of traffic on the network of SMP operatorssuch networks are established and regulated by the NCCIR.

        FromSince 2014, the NCCIR has planned to substantially lower interconnect ratesfees for the termination of traffic on the network of SMP operators.operators' networks. By the resolution dated August 4, 2015 "On the introduction of traffic transmission rates over the network of telecommunicationtelecommunications operators with significant competitive

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advantage on traffic transmission services market," the NCCIR approved new rates valid from October 1, 2015. As a result, interconnect rates both for the termination of both national traffic on fixed line telecommunicationfixed-line networks and termination of traffic on mobile networks were lowered, and the rates for the termination of traffic on local networks remained unchanged. The "Rules for setting traffic transmission rates to the networks of telecommunicationtelecommunications operators with significant market advantage" were adopted by the NCCIR and sentforwarded for state registration by the Ministry of Justice of Ukraine on June 7, 2016 (after they had been approvedfollowing their approval by the relevant government bodies).bodies. The rules were registered, published and came into force on July 26, 2016. Based on theIn accordance with these rules, mentioned above, new rates for access to the networks of SMP operators, both at national and international levels, were introduced and approved by the NCCIR on August 30, 2016 and came into force on January 1, 2017.

        The reduction of interconnect ratesfees for the termination of traffic on the networks of SMP operators may adversely affect MTS UkraineVF Ukraine's revenues.

        Although Russian legislation requires that operators of public switched telephone networks that are deemed to be "substantial position" operators operators" cannot refuse to provide interconnectsinterconnect 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, andwhich started its operations in 2015 under the Tele2"Tele2" brand. As Svyazinvest controlled regional fixed linefixed-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. It is currently unclear how the establishment of the fourth federal mobile operator may influenceimpact our interconnect agreements and our expenses. 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."

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We may not realize the benefits we expect to receive from our investments in 3G and 4G wireless services and Internet of Things (IoT) technologies, which could have a material adverse effect on our business and results of operations.

        In May 2007, the Federal Service for Supervision in the Area of Communications and Mass Media awarded MegaFon, VimpelCom and us a license to provide 3G services in the Russian Federation. In July 2012, these three companies and Rostelecom were awarded licenses to provide 4G services.

        Following the integration of Rostelecom's mobile assets and Tele2 Russia in 2014, Tele2 Russia got control over licenses to provide 3G and 4G services. The 3G license allows us to provide mobile radio telephoneradiotelephone services using the International Mobile Telecommunications-2000 ("IMT-2000/UMTS") standard. The 4G license allows us to provide services using the LTE standard. The 4G wireless services are expected to provide faster, higher quality data transfer and streaming capabilities, as compared to 2G and 3G, and may pose additional competition for 3G providers. In December 2017, the State Commission for Radio Frequencies issued a decision allowing the use the frequency bands

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previously allocated for LTE mobile communications for NB-IoT technology. Historically, mobile operators that have developed 3G and 4G networks have experienced various difficulties and challenges, including a limited supply of compatible handsets, limited international roaming capabilities, as well as various 3G and 4G software and network-relatednetwork related problems. We may experience similar problems or encounter new difficulties when developing our 3G and 4G 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 and NB-IoT network in a timely manner or within the time frame stipulated by the license terms;



•

our 3G and 4G networknetworks and services (including NB-IoT) will deliver the quality and level of service that our customers demand or prefer;expect;



•

we will be able to provide all contemplated 3G and 4G services (including NB-IoT) at reasonable prices and within a reasonable timeframe;



•

manufacturers and content providers will develop and offer new marketable products and services for our 3G and 4G networknetworks (including NB-IoT) on a timely basis;



•

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



•

our 3G and 4G networknetworks will be commercially viable in all of the locations we are required to operate pursuant to our 3G and 4G 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 authorities also use frequencies in the 3G and 4G spectrum, which may limit the availability of 3G and 4G frequencies for commercial use in certain areas. During the construction of our 3G and 4G network,networks, there is also a risk that the frequencies assigned to us for commercial use may overlap with frequenciesthose used by the Russian military.military authorities. For example, conflicts over the availability of frequency reserved for military use in Moscow caused delay in the commercial launch of 3G services in Moscow by all 3G license holders, althoughlicense-holders in Moscow, despite the fact that some of these frequencies were cleared for commercial use in 2009. If additional overlapa similar conflict were to occur, it could cause problems or delays in the development and operation of our 3G and 4G networknetworks in Russia.

        Potential competition from other 3G and 4G providers, together with any substantial problem withproblems relating to the rollout of our 3G and 4G networknetworks and provision of 3G and 4G 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 2014,2017, the State Commission for Radio frequenciesFrequencies 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) and, 1800 MHz (LTE) and 2100 MHz (LTE), and also included the imposition of certain additional obligations on network operators. Pursuant to these modifications, in the event that we receive new bandwidth allocation, and also as a result of the renewal of the current decisions of the State Commission for Radio Frequencies or in case of using frequencies on the terms of technological neutrality principle, we are 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 networknetworks and consequently may therefore adversely affect our business, financial condition and results of operations.

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If we are unable to successfully develop and/or deploy 4G wireless services in the countries in which we operate, or one of theif any operators in the market obtainsthose markets obtain a significant technological and/or commercial advantage over us in 4G 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 deployment of 4G/LTE networks. The cost of 4G/LTE network development and quality of services (data(including data speed and quality of coverage) depends on the band and the width of frequency range given to an operator.

        In September 2011, the Russian government announced its intention to auction frequencies for LTE use on a national level in 2012. Additionally, outside of the auction process, the State Commission for Radio Frequencies Commission granted Scartel (operating the Yota"Yota" retail brand) a paired range of LTE frequencies (2x30 MHz), in the 2.5-2.7 GHz band for use onin the wholeentire territory of Russia in exchange for the 4G frequencies held by Scartel for Wi-Max technology with a total widthbandwidth of 70MHz. Four sets of frequencies in the 791-862 MHz band were planned to be sold during the auction in 2012, after which the winners of the frequenciessuccessful bidders would receive frequencies in the 2.5-2.7 GHz band. The remaining frequencies, 40 MHz of the 2.5-2.7 GHz band, were allocated evenly during the tenderauction among four major market participants (us, VimpelCom,(VimpelCom, MegaFon, Rostelecom and Rostelecom)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. In March 2011, MTS, MegaFon, VimpelCom and Rostelecom signed a non-binding memorandum of understanding with Scartel, according to which MTS, MegaFon, VimpelCom and Rostelecom were to receive access to Scartel's 4G network infrastructure (which was yet to be built) and were to receive options to purchase shares in Scartel in 2014 at a price determined by an independent appraisal. MTS considered athe preliminary value assessment of Scartel to be unduly high.

        In July 2012, Alisher Usmanov and Scartel shareholders (Telconet Capital and Rostechnologyi) formed a telecommunications holding company, Garsdale. In exchange for an 82% intereststake in Garsdale, AF Telecom, which is controlled by Alisher Usmanov, contributed 50% of MegaFon's shares into Garsdale's share capital. Rostechnologyi and Telconet Capital, which held 25.1% and 74.9% stakes in Scartel, respectively, contributed 100% of Scartel shares into Garsdale's share capital, in return for which they received an 18% stake in Garsdale, which was split equally between Rostechnologyi and Telconet Capital. On July 12, July 2012, the Federal Service for Supervision of Communications, Information Technology and Mass Media ("Roskomnadzor"(the "Roskomnadzor") awarded each of MTS, MegaFon, VimpelCom Rostelecom and usRostelecom a license to provide 4G services using LTE and its subsequent modifications in the frequency range of 791-862 MHz.

        On October 1, 2013, MegaFon acquired Maxiten Co Limited, which in turn ownedhad acquired 100% of the shares in Scartel and Yota Ltd. from Garsdale. The transaction was approved by thea general

shareholders shareholders' meeting of MegaFon and by the Federal Antimonopoly Service ("FAS"(the "FAS"). At present, MegaFon holds a 4G/LTE network through Scartel as well as controlling the continuous spectrum of frequencies 2 × 402-40 MHz in the band of LTE FDD 2600 MHz. 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 thethis deal, MegaFon consolidated the financial and operational indicators of Scartel/Yota, which increased its formal market share in the mobile communications market.

        On September 18, 2013, the mobile operator Altyn Asyr, our major competitor in Turkmenistan, brought into operation a 4G network using LTE technology. In July 2015, MTS Turkmenistan was granted a telecommunication license valid until 2018. The license provides for the possibility of rendering 4G services, however, launch and service quality are limited with frequency band and width of the frequency range, which may lead to the loss of revenues from its data service and could have an adverse effect on the results of our 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. 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.

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        According to the Decree of the President of Ukraine No. 445/2015 dated July 21, 2015, "On Ensuring Conditions for the Introduction of the Fourth-Generation Mobile Communication System," the Cabinet of Ministers of Ukraine was assigned to develop and approve the 2015-2017 Action Plan for the introduction of the fourth-generation mobile communicationcommunications system in Ukraine in 2017, in cooperation with the NCCIR and other state authorities. The Action Plan was approved by the Cabinet of Ministers of Ukraine inat the end of 20152015.

        In 2017, a number of government documents and providesdecisions of the NCCIR regarding the preparation of a tender for material changes to technologies4G licenses in the 1800 MHz band was adopted. The government announced two tenders for 4G/LTE frequencies: for the 2600 MHz band (was held at the end of 2017, significantJanuary 2018) and the 1800 MHz band (was held in March 2018). Significant material resources for the introduction of such new technologies may be required from operators whichthat could have a material adverse effect on our business and results of operations. In addition, there is a number of risks associated with holding tenders for 4G/LTE frequencies in Ukraine, for example, the results of the tender for the 1800 MHz band might be challenged, which could result in additional costs we would have to incur to prevent the degradation of our mobile networks.

Service disruptions on our networks could lead to a loss of subscribers, damage to our reputation, violations of the terms of our licenses and subscriber contracts and penalties.

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

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

        While we maintain back-up systems for our telecommunications equipment, network management, operations and maintenance systems, these systems may not ensure recovery in the event of a network failure. 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. 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.

        Our computer and communications hardware is protected through physicaltechnical and software safeguards. However, it is still vulnerable to fire, storm, flood, loss of power, telecommunications

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failures, interconnect failures, physical or software break-ins, viruses and similar events. Although our computer and communications hardware is insured against fires, stormsfire, storm and floods,flood, we do not carryhave 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 network capacity and territorial coverage to be reached by specified dates.

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        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. The license requirements applicable to our fixed line businesses include participation in a federal communications network, adherence to technical standards, investment in network infrastructure, employment of Russian technical personnel and the provision of certain services to the federal government and PSTN subscribers at regulated tariffs, among others. If we fail to comply with the requirements of Russian, Ukrainian or other applicable legislation or we fail to 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 causeconstitute an event of default under certain of our debt obligations and cause certain of our debt to be accelerated. 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.

        For example, in February 2015, MTS Ukraine won the bid for the use of the 1950-1965/2140-2155 MHz frequency bands in a tender allocating 3G licenses. On March 24, 2015, MTS Ukraine paid the entirefull amount due for the license and received the UMTS license that is valid for a period of 15 years.

        According to the tender terms, all regional centers of Ukraine have to be covered with 3G communication (within the bands granted to the successful bidder) within 18 months from the date of the license issuance, all settlements with a population of over 10,000 have to be covered with 3G communication within the period of 6six years.

        Our inability to comply with the license conditions may negatively affect our business. In addition, supplementaryAdditional investment mightmay also be required for the conversion of radio frequencies and the deployment of 3G services. Either of the foregoing may have a material adverse effect on our business, financial condition, results of operations and prospects.

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 from 2017 to 2030.years. For a list of the telecommunications licenses held by us, see "Item 4. Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation and Ukraine—Licenses."

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

        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 subjectintroduced when deciding whether to renew a license. These new conditions will require additional conditions, such as payment obligations or the mandatory modernization of our network.

        In addition,investment. Moreover, we may be subject to penalties or our licenses may be suspended or terminated for non-compliance with theany 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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        The license to construct and maintain the telecommunication networktelecommunications networks and provide services withwithin them was granted to MTS Ukraine on July 12, 2010 and terminated on December 3, 2013. On October 15, 2013, the NCCIR refused to renew the license and recommended that MTS Ukraine receive a new license to provide operations in the telecommunications sphere.sector. Receiving a new license involves additional costs in comparison with the renewal of the current one and MTS Ukraine filed a lawsuit against NCCIR seeking to declare the failure to renew the license as unlawful.NCCIR. On November 19, 2013, the claims of MTS Ukraine were satisfied and, on January 28, 2014, the NCCIR prolonged the terms ofextended MTS Ukraine's license for 5 years. At the same time, however,

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on January 27, 2014, the NCCIR filed an appeal against the decision of the District Administrative Court of Kiev.

        Taking into account possible long-term lawsuits onregarding the extension of the license for rendering cellular network services in 2G standard, MTS Ukraine has asked the NCCIR to provide a new license with no restrictions in special conditions (technologically neutral), which may be used for different technologies—technologies, including GSM, UMTS and LTE. On January 27, 2015, the NCCIR made a decision on grantingto grant the license for a 15-year period. Obtaining such license will make it possible for MTS Ukraine to reduce expenses and simplify the process of introduction of new technologies.

        On January 22, 2015, the High Administrative Court of Ukraine considered the appeal submitted by the NCCIR and cancelledoverturned the decisions of the Court of Appeals and the District Administrative Court, and issued a new court decisionan order rejecting the claim of MTS Ukraine. In March 2015, the High Administrative Court of Ukraine satisfied the application of the NCCIR to overturn the execution of theannul its decision on prolongation ofto extend our license for rendering cellular network services in 2G standard. Later, the High Administrative Court made a ruling on refusalrefusing to overturn the execution of the NCCIR's decision to extend the license and ordered a retrial on the grounds of breach of procedural rules in the first instance court. The District Administrative Court of Kiev decided to reject the claim of MTS Ukraine on March 25, 2016. On April 22, 2016, MTS Ukraine filed an appeal claim against this decision, which was rejected by the Court of Appeals on May 30, 2016. On June 29, 2016, MTS Ukraine filed a cassation petition to the High Administrative Court of Ukraine that issued a ruling on the cassation petition consideration. The date of consideration has not been scheduled yet.

        Due to the change of the legal entity name from MTS Ukraine to VF Ukraine, the NCCIR refused to reissue the foregoing license considering judicial decisions in its favor that are currently in force (namely, the decisions dated January 22, 2015, March 25, 2016 and May 30, 2016 described above) and canceled the license. This decision has no material impact on the operational activities of VF Ukraine. Since this cancelation, the main telecommunications license that VF Ukraine use is the license granted by the NCCIR on January 27, 2015.

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

        Until March 2014, telecommunications operators carried out activities and received licenses in Crimea in compliance with Ukrainian legislation. However, following the referendum in Crimea on March 16, 2014 where a vote in favor of Crimea joining the Russian Federation was declared and consequentthe subsequent developments in the region, variouscertain countries recognized Crimean secession whereas others did not, therefore,which means that our licensing status in Crimea as well as theand ability to receive continuous cash flow was subject to uncertainty.has been uncertain. In addition, due to technical issues that have curtailed our ability to provide telecommunicationtelecommunications services to our customers, we suspended our operations in Crimea on August 6, 2014. In October 2014, MTS Ukraine sold its base stations, network infrastructure, IT and telecom equipment and certain other assets located in Crimea through an open tender procedure.

        See also "—Political and Social Risks—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations" and "—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, and prospects and the value of our shares and ADSs."

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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 lower revenues.

        There is a limited number of frequencies 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, as well as 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). 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 lower revenues.

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

        The terms of our licenses in Russia and the CIS require that we make payments for frequency spectrum usage. 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. A number of projects implemented by MTS in 2016 and 2017, as well as a number of normative acts previously adopted by the Ministry of Communications, resulted in the expansion of the frequency range of frequencies that have to be paid for.

        On December 31, 2014, a new procedure offor payment for frequency spectrum usage came into force. According to the newly adopted amendments, 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.

        Furthermore, the order of the Ministry of Communications No. 279 dated September 4, 2014 introduced corresponding amendments into the "Methodology of calculation of a single fee and annual fee for the use of the radio spectrum of the Russian Federation,"Federation" approved by the order of the Ministry of Communications dated June 30, 2011 No. 164. Fees are directly calculated according to this methodology. Under the new order, rates and coefficients are subject to revision at least once every two years. There were no changesIn December 2017 the State Duma approved the Law on federal budget for 2018 and the planned period of 2019 and 2020, which assumes the need of a 25% increase in ratesrent payments for the radio spectrum by the relevant governmental authorities in 2018, 2019 and coefficients2020. To comply with this Law in 2015March 2018, the Ministry of Communications prepared order No. 98, which provides for increase of rent payments for the radio spectrum usage in 2018. Any such increase in payments for the radio spectrum will likely increase our costs and 2016. In case the rates are raised in 2017, this could result in additional costs.may adversely affect our results of operations.

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        CommencingWith effect from January 1, 2015, the fee for radio spectrum usage in Ukraine has beenwas transformed into a rent payment. When adopting a state budget for 2016, the Verkhovna Rada introduced a number of amendments to the Tax Code of Ukraine, including the increase in rent payment for radio spectrum usage by 13.35% commencing January 1, 2016.

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        The laws of Ukraine "On State Budget of Ukraine for 2017" and "On amendments to the Tax Code for Budget Stability in 2017" that provide for,inter alia, the reconsideration of both rent payments for radio frequency usage and fees payable for frequency licensing were adopted on December 21, 2016 and December 20, 2016, respectively. The amount of rent payments is expectedin 2017 increased insignificantly as compared to increase, whichthe previous years. If these rates are raised further, it may adversely affect theour financial and operating results of MTS Ukraine.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 thisour brand image, which could lead to a loss of market share and revenues. Our failureFailure 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.

We engage in transactionsMTS is a part of the Sistema group and may potentially enter into agreements with other members of the group (i.e. related parties which may present conflicts of interest, potentially resulting in the conclusion of transactionstransactions) on terms, not determined by market forces.which are different from those that would be obtainable on an open market.

        We have purchased interests in various companies from Sistema and entered into agreements with affiliatesother companies within the Sistema group for the provision of advertising services ("Maxima Advertising" JSC), connectivity facilities and telephone numbering capacity (MGTS), IT services and hardware purchases ("STS" JSC, SITRONICS CAMS JSC, "SST" LLC and NVG JSC), banking services (MTS Bank, formerly Moscow Bank of Reconstruction and Development ("MBRD"MBRD")), telecommunicationtelecommunications services (Stream LLC), medical services ("Medsi Group" JSC), tourismtravel services (VAO "INTOURIST"), the billing system development and IT integration services (NVG JSC and "STS" JSC), maintenance of the residential and commercial real estate ("SITTEL" CJSC) and other services. Related partyAccording to the applicable Russian legislation and notwithstanding certain control procedures in respect of related parties transactions, related parties transactions with Sistema and otherthe companies within the Sistema group may present conflicts of interest, potentially resulting in the conclusion of transactionsbe concluded on terms, not determined by market forces.which are different from those that would be obtainable on an open market. See "Item 7. 7—Major Shareholders and Related Party Transactions—B. Related Party Transactions."

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

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past have carried out,entered into, and continue to carry out,enter into, transactions that may be considered to be "interested party transactions" underfor 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"Joint Stock Companies Law"Law"), related relating to "interested party transactions" have recently been amended and may be subject to different interpretations taking into account,inter alia, the lack of court practice in relation torespect 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 challenges,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.

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. AlsoIn addition, a 95% andor 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"interested party transaction'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. As a result, we attempt to 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 or dismissal of our key personnel. 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 loss or decline in services of members of our senior management team 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.

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"MVNOs"). MVNOs are companies that provide mobile communications services but do not own the radio frequencies and, often, in some cases,

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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. There is no requirement thatHowever, existing frequency holders haveare under no obligation to obligatory transact and enter into such agreements with the MVNOs.

        The aim ofBy introducing this regime, the Ministry in establishing the legal framework for MVNOs to operate isaims to increase competition in the Russian mobile services market, which is currently dominated by us,MTS, VimpelCom and MegaFon. While existing frequency holders, including us, may receive revenues from MVNOs for the use of our frequencies and network infrastructure, we expect these revenues to be lower than the

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revenues we would receive if providing services directly to subscribers. In addition, in the event we lose subscribers to MVNOs that lease their frequencies and infrastructure from an operator other than us,operators, 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.

        In December 2011, Scartel reached an agreement with MegaFon andFor example, Skartel (under the "Yota" brand), MGTS, Rostelecom, to allow them to provide LTE services through Scartel's network in exchange for permitting Scartel to use the two companies' network infrastructure. In February 2012, Scartel and MegaFon received the necessary licenses to allow MegaFon to provide such services over the Scartel LTE network.

        In February 2014, the Russian Government approved a "Development of competition in telecommunications" roadmap, which provides for the preparation of a report on realization of the MVNO business model. Following the Government Commission on Communication meeting, which was held on June 6, 2014, regarding "development of "virtual operators" institute of mobile radio telephone communicationTinkoff Bank operate as MVNOs in the Russian Federation," the deputy Minister on Communication noted that MNVO operators should be regulated by the market and that no additional restrictive regulation is required. At the same time, the Ministry of Communication of the Russian Federation proposed to develop and adopt an order stipulating requirements on rendering data transmission services and telematics communication services when using a business model of virtual data transmission networks. As of April 1, 2017, this order of the Ministry of Communications of the Russian Federation has not been adopted.

        In April 2014, it was announced that Scartel launched the federal mobile operator (under the Yota brand), providing subscribers with 2G, 3G and 4G coverages. The operator provides voice and SMS services on MegaFon's network via MVNO. In September 2014, MGTS started to provide mobile services in Moscow on the basis of our infrastructure.

        In the fourth quarter of 2016, Rostelecom launched a MVNO based on the infrastructure of Tele2. In addition, according to press reports, the Russian bank Sberbank and the Russian social network VKontakte are also planning to launch MVNOs in 2017.communications market.

        It is currently unclear how the emergence of new MVNO operatorsMVNOs 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 operation.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 findsfind our actions insufficient to rectify past violations of antimonopoly laws, or issuesissue new warnings and requests in the future, 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.

        DuringIn recent years, the FAS has been investigating mobile operators, including us,MTS, for suspected violations of antimonopoly laws.

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For examples,example, see "Item 8. 8—Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Antimonopoly Proceedings.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 fidsfinds 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.

A finding by the Antimonopoly Committee of Ukraine (the "AMC")AMC that we have acted in contravention of antimonopoly legislation could have a material adverse effect on our business, financial condition and results of operations.

        Under Ukrainian legislation, a company whichthat is found to have acted in contravention toof antimonopoly legislation may be subject to fines and claims from the AMC. FromAntimonopoly Committee of Ukraine (the "AMC"). The AMC may investigate us from time to time we may become subject to investigations by AMC and, subsequently, should such investigations identify any violations, subject toimpose penalties including fines.(including fines).

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        Based on the complaint filed by Astelit LLC concerning illegal establishment of regional tariffs, in April 2016, the AMC initiated proceedings relating to a violation of legislation on the protection of economic competition. The case is awaiting consideration.

        In July 2016, the AMC sent requests to the big three operators asking to provide it with the information on the establishment of settlement rates for international roaming and interconnect fees with foreign telecommunicationtelecommunications operators.

        In August 2016, the AMC began an investigation in relation to monopolyantimonopoly restrictions that affect content services market. The case is currently under consideration.

        Based on the complaint filed by Lifecell LLC, in April 2017, the AMC initiated proceedings relating to a violation of legislation on the protection of economic competition. The case is currently under consideration.

        If we are found by the AMC to have violated antimonopoly legislation in thesethe above or any other matters, we may be subject to fines, which may have a material adverse effect on our business, financial condition and results of operation.operations. In addition, we may be required to adjust our current marketing practices. See also "—GovernmentalChanges in the governmental regulation of SMP operators in Ukraine could adversely affect our results of operations" and "Item 4. 4—Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation and Ukraine—Regulation in Ukraine—Competition" for additional information.

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 influencebe entitled to regulate our subscriber tariffs and impose certain restrictions on our operations.

        Under Russian legislation, a company controlling between 35%-50%35-50% or over 50% of a market may be found by the FAS asto hold a dominant position in such market. In case of collective dominance of legal entities, a company could be also categorized by the FAS as dominant even if its share of the corresponding market is less than 35%. 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 intoto the Federal Law No. 135 "On the Protection of Competition"Competition," the register of business entities having more than 35% of a certain commodity market or otherwise occupying a dominant position onin the marketmarkets in which they operate, which previously listed usMTS as occupying a dominant position in certain markets, was repealed. At the same time, the FAS is still allowedcontinues to conduct market analysis in order to establish theidentify entities holding a dominant position of a business entity.in the markets in which they operate.

        Companies recognized as natural monopolies are also considered to have a dominant position on thein their respective market.markets. One of our subsidiaries, MGTS, was 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 subject of natural monopoly, MGTS is obliged to comply with the rules of non-discriminatory third party access to its infrastructure. See also "—MGTS is subject to extensive

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regulation of tariffs, and these tariffs may not fully compensate us for the cost of providing required services."

        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 onin the market / toand/or concluded anti-competitive agreements, the FAS will have concluded antimonopoly agreement, FAS would have thea right to impose certain restrictions on our operations in such markets. See "Item 4. 4—Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation and Ukraine—Regulation in the Russian Federation—Competition, Interconnect and Pricing" for additional information.

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        In caseIf we are found to have violated antimonopoly legislation, we can also be subjectan order requiring us to penalties and a turn-over based finetransfer any illegally obtained revenue to the federal budget may be imposed on usissued in relation to certainsuch violations. The level of fine ranges from 5% to 15% of revenue in the market where the violation is conducted for cartel agreements and from 1% to 15% of revenue on the market where the violation was conductedfor other violations (with 8% being the base level of the fine), but not more than 2%fine for all types of gross revenues.

        Additionally, MTS Ukraine, was found to be a company with a SMP position in the telecommunications market and is subject to certain regulator (NCCIR) imposed restrictions, including limitations on the interconnect rates it can charge other operators. See "—Governmental regulation of SMP operators in Ukraine could adversely affect our results of operations" and "Item 4. Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation and Ukraine—Regulation in Ukraine—Competition" for additional information.violations).

        If we or any of our subsidiaries were to be found by the competition authority to be business entities occupying a dominant market position, the competition authority would have thea power to impose certain restrictions on our or theirour 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 to be found by the FAS to be business entities occupying a dominant market position with a market share exceeding 70% and are determined to abuse thesuch dominant position, the Russian Governmentgovernment would have thea right to determine the rules of nondiscriminatorynon-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," 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.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. Refusal of such operators to conduct an interconnect agreement is prohibited, except in cases where such agreement would contradict the cases that contradictterms of their license terms or other regulatory acts onin respect of the unified communicationcommunications network in the Russian Federation.

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

        At present, the foregoing regulations apply only to fixed linefixed-line operators in Russia, and therefore apply toincluding our fixed linefixed-line business. Draft legislation was introduced in 2008 that would extend the law to

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apply to mobile operators. Although the proposed law was not adopted, the risk that similar legislation will be introducedproposed and adopted in the future remains. If any legislation whichthat extends the foregoing regulations to apply 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 linefixed-line operator occupying a substantial position in the Moscow telecommunications market and therefore its interconnect tariffs are therefore subject to state regulation. In February 2013, Comstar-UTS was excludedremoved from the Listlist of "substantial operators" in Moscow and MTS was not included therein. There is however a probabilitypossibility that we could be categorized as fixed linefixed-line operator occupying a substantial position"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 interconnectioninterconnect rates, substantialwe, as "substantial operators," may be unable to increase these in line with

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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 "—MGTS is subject to extensive regulation of tariffs, and these tariffs may not fully compensate us for the cost of providing required services."

MGTS is subject to extensive regulation of tariffs, and these tariffs may not fully compensate us for the cost of providing required services.

        In addition to holding a substantial position"substantial position" in the Moscow telecommunicationtelecommunications market, MGTS is included in the Registerregister 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 telecommunicationtelecommunications 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 costcosts of providing services, theour 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.

        SeveralIn June and July 2017, several draft laws were submitted for consideration to the State Duma, which were intended to change the regulation of roaming services in Russia by eliminating/ reducingeliminating (or reducing) intra-network roaming tariffs and national roaming tariffs for incoming and outgoing calls.calls as well as the regulation of international roaming charges between Russia and Belarus. In January 2016,addition, in July 2017, the FAS requested mobile operators to cancel roaming fees across Russia. Any revision of roaming charges may lead to a reduction in our revenues.

        Moreover, a resolution was adopted at a meeting of the Supreme State Duma rejectedCouncil of the Union State on June 30, 2017 to examine a matter regarding the cancelation of international roaming charges between Russia and Belarus. The implementation of this initiative in its first reading. However, if similar draft laws are proposed and adopted in the future, we believe thatmay adversely affect our revenues from roaming charges in Belarus and increase our expenditure incurred in connection with the provision of these services.

        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). The revision of tariffs may lead to a reduction of income of MTS and other mobile carriers in Russia.

        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 would decline,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. Àn administrative case is expected to be initiated, which could have a material adverse effect on our financial condition and results of operations.

will result in an administrative fine. The case related to inter-operator roaming agreements against MTS was canceled. See also "—A finding by the FAS that we have acted in contravention of

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antimonopoly legislation could have a material adverse effect on our business, financial condition and results of operation.operations."

        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 International Mobile Equipment Identity ("IMEI")IMEI numbers may present us with technical difficulties and may lead to the expenditure of significant resources.

        A draft law that enables each mobile communications subscriber to register thea user terminal free-of-chargeunder certain conditions on aan International Mobile Equipment Identity ("IMEI") numbers database maintained byof the operator, chieflyUkrainian State Center of Radio Frequencies, primarily to prevent their unlawful use, was

previously consideredproposed in Ukraine. Aimed at discouraging theft, the draft law obligatedrequired operators to suspend or block the traffic transmission of the terminal upon the application of a subscriber. In July 2015, the draft law was withdrawn from consideration. A similar draft law was rejected by the Russian State Duma.

        Additionally, the Cabinet of Ministers of Ukraine adopted the decision "On introduction of amendments to the Regulation of the Cabinet of Ministers of Ukraine "On introduction of rules relating to rendering and using telecommunications services," which,inter alia, cancels a requirement to block IMEI numbers of terminals not included in the database of the Ukrainian State Center of Radio Frequencies ("USCRF").

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

The accession of Russia intoto the World Trade Organization ("WTO"(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 the increase ofincreased competition onin the markets where we operate. Although during 2012-2016During the period of 2012 to 2016, Russia adopted certain changes to its legislation related to the accession to the WTO, for example, regarding intellectual property regulation,laws; however, it is still unclear yet 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 (inter aliatechnology.

        One of our subsidiaries, for example MGTS).

MGTS, accomplisheshas devised a number of projects aimed at developing communicationcommunications networks and expanding availability of telecommunicationtelecommunications services for customers. Possible deficiencyThe likely shortage of free cash flow during the current economic downturn might lead to freeze ofcould halt such investment programs for the development of new products and services, upgrade of the existing network,and possibly lead to a decrease in quantitythe number of construction objects,projects and cutbacks in development programs in the New Moscow and Moscow region.regions. The company finished thehas recently completed its project on construction of broadband optical networks employing the Gigabit-capable Passive Optical Network ("GPON"GPON") technology with a direct connection of subscribers to an optical network. The applied part of the GPON projectproject's progress is the creation of a digital platform of IMS core, which enables MGTS to render an enlargeda larger range of services, including services for the B2G segment. See "Item 4—Information on Our Company—A. History and Development—Capital Expenditure" for further information.

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        MGTS invested approximately RUB 11.980 billion in 2014, RUB 8.861 billion in 2015 and RUB 7.119 billion in 2016 to upgrade its infrastructure.        MGTS attracts contractors for the construction and upgrade of its network. Due to the currently unfavorable market conditions, some of MGTSMGTS' contractors may face a lack of own current assets and / and/or external finance sources which in may in some cases lead to the contractor's inability to fulfill contract obligations or, evenin some cases, lead to bankruptcy. This may negatively affect the terms of MGTS projectsprojects' implementation and lead to higher expenses for arrangement of purchases from other market participants.costs. If MGTS is not able to expand and upgrade its network infrastructure in a timely manner and to 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.

Our intellectual property rights are costly and difficult to protect.

        We regard our copyrights, trademarks, trade secrets and similar intellectual property, including our rights to certain domain names, as importantessential to our continued success. We rely upon trademark, and copyright law,and trade secret protection andlaws, as well as confidentiality and/or license agreements with our employees, customers, partners and others, to protect our proprietary rights. Nonetheless, intellectual property rights are especiallyparticularly difficult to protect in the markets where we operate. In these markets, the

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regulatory agencies charged with protectingresponsible for the protection of intellectual property rights are inadequately funded, legislation is underdeveloped, piracy isand infringement are commonplace, and enforcement of court decisions is difficult.problematic.

        A special court for intellectual property began operatingrights was established in July 2013 as a new body in the system of the Arbitrazh courtCourt for dealing with cases relating to the protection of intellectual property.property rights.

        Litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of theany proprietary 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 and results of operations.business. We also may incur substantial acquisition or settlement costs where doing soto the extent that it would strengthen or expand our intellectual property rights or limit our exposure to intellectual property claims of third parties. See also "Item 8. 8—Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Other litigation."

        Due toThe rules regarding intellectual property rights regulation changed following the adoption of the Federal Law No. 35 dated March 12, 2014, which introduced significant amendments to the fourth part of the Civil Code of the Russian Federation,Federation. However, the rules of intellectual property rights regulation changed. Lacklack of extensive law enforcement practice of the changed provisions of the Civil Code may cause difficulties in protection of our rights and legitimate interests.

Changes that are being implemented into our current sales and customer care processes of MTS,procedures, the creation of new information technology services and the migration of fixed B2B and B2C subscribers to a single information technology solution may destabilize our information technology solutions, which could have a material adverse effect on our business and results of operations.

        Changes into our current sales and customer care processes,procedures, the creation of new information technology services and the migration of fixed B2B and B2C subscribers to a single information technology solution may increase our operational risks and expenses and inconvenience subscribers. The failure or breakdown of key components of our infrastructure in the future, including our billing system and its susceptibility to fraud, could have a material adverse effect on our business and results of operations.

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If leaks of confidential information including(including any information relating to our subscribers,subscribers) occur, it may negatively impact our reputation and our brand image and lead to a loss of market share, which could materially adversely affect our business, financial condition, results of operations and prospects.

        Although we makeDespite our continuous efforts to protect confidential information, breaches of security and leaks of confidential information, including information relating to our subscribers, may negatively impact our reputation and our brand image and result in a loss of market share or otherwise have a material adverse effect on our business, financial condition and results of operations. 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 us,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—Our failureRussian 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 new personal data protection laws and with the regulations of state authorities regarding information security in the telecommunications networks in Russiarequirements may have a material adverse effect on our business, financial condition and results of operations.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 thesesuch emissions. The actual or perceived health risks of

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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 inof obtaining or maintaining sites for base stations and/or reducing the financing available to the wireless communications industry. Each of these potential circumstancesrisks may adversely affect our business, financial condition, results of operations and prospects.

        Under the draft law on "Defending against negative electromagnetic emissions from base stations of mobile network" which was proposed in Ukraine in December 2013, a mobile phone base station was classified as a potentially hazardous object. To date the draft law is excluded from the agenda. The installation of base stations was assumed to be made taking into account an environmental impact assessment at the expense of operators and a base station's operations could be terminated if a hazardous effect on health was established. If a similar initiative is proposed and adopted in the future it may lead to an increase in the costs of deploying base stations and raise the maintenance costs of MTS Ukraine.

Risks Relating to our Financial Condition

We may be adversely affected by the current economic environment.

        As a result of the 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 macro-economic challenges currently affecting many of the economiesmarkets in which we operate, our subscribers' disposable incomes and our vendors' cash flows may be adversely impacted.

        Consequently, subscribers may modify or decrease their usage of our services or fail to pay the outstanding balances on their accounts, and vendors may significantly increase their prices, eliminate vendor financing or reduce their output.

        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.

        The strained political situation in Ukraine coupled with an economic downturn resulted in financial difficulties in the banking system, including, notably, increased liquidity risks. As we hold the bulk of excess hryvnia and foreign currency cash in Ukrainian banks, a banking crisis or the bankruptcy or insolvency of the banks fromthrough 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 Ukraine and other countries, which could have a material adverse effect on our business, financial condition and results of

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operations. For example, we incurred a charge to operating income forrealized losses in the fourth quarter of 2014 due to lossesan impairment of cash balances stemming from the insolvency of DeltaBank in Ukraine. During the year ended December 31,In 2015, the Group created additional reserve forwrote off certain cash balances deposited in distressed Ukrainian banks. These banks which was included as a component of operating expenses in the accompanying consolidated statement of profit or loss. See also Note 28 to our audited consolidated financial statements.are currently being liquidated.

        See also "—Inflation could increase our costs and adversely affect our results of operations."

        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

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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 downswrite-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. A majority

        Currently, the situation relating to funding has become more stable as the key rate has been decreasing since 2016. In spite of Russian companies continue to experience difficulties accessing their cash equivalents, trading investment securities, drawing on revolvers, issuing debt and raising capital generally. For the period of 2015, 2016 and 2017,this, although funding by the Central Bank of Russia cutis available for a large number of banks, it is characterized by high volatility during periods of economic instability. For example, certain Russian banks have in the key rate from 17%past experienced difficulties that have caused them to 9.75%, however its further reduction is aggravated by stressful economic situationbecome insolvent and high inflationary risks.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.

        A continuation or repetition of this 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 on foreigndomestically or domestic marketsoverseas, 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 a substantialan amount of outstanding indebtedness, primarily consisting of the obligations we entered into in connection with our notes and bank loans. As of December 31, 2016,2017, our consolidated total debt, including capital lease obligations, was RUB 284,320303,570 million. Our finance cost for the year ended December 31, 20162017 was RUB 27,13626,064 million, net of the amounts of interest expense capitalized.

        Our ability to service, repay and refinance our indebtedness and to fund planned capital expendituresexpenditure 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,

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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 serviceservicing is becoming more complicateddifficult due to our dependence on floating interest rates onin the financial markets.

        We may not be able to generate sufficient cash flow or access internationaldomestic or domesticinternational 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; forreasons. 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, we are delisteda delisting of our shares or a drop in our retained earnings drop below a certain level. This, in turn, may force us to sell assets, reduce or delay capital expendituresexpenditure 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. 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources."

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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.

        OverThe ruble has weakened significantly against the U.S. dollar during the period of 2014-2016, there has been a significant weakening of the ruble against the U.S. dollar,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.

        For example, on December 31, 2014, the official exchange rate published by the CBR was 56.26 rubles per U.S. dollar. The ruble continued to depreciate against the U.S. dollar reaching 72.88 rubles per one U.S. dollar on December 31, 2015, whereas on December 31, 2016, it amounted to 60.66 rubles per one U.S. dollar. On December 31, 2017, ruble amounted to 57.60 per one U.S. dollar.

See also "—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, could adversely impact our revenues reported in Russian rubles 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 costs in terms of the Russian ruble and local currencies.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.

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        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. DepreciationAny 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 theour ADSs. See also "Item 11. 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, could adversely impact our revenues reported in Russian rubles 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 costs in terms of the Russian ruble and local currencies.financial results.

        A significant portion of our expendituresexpenditure and liabilities, including capital expendituresexpenditure 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 Russian ruble and local currencies of the countries where we operate decline against the U.S. dollar and/or euro and price increasesour 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

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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 CIS countries where we operate (for example, Ukraine or Turkmenistan)Ukraine) 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 thatthose countries. Further, a portion of our cash balances is held in jurisdictions 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.

        The Ukraine's economic crisis combined with political unrest and events in the Eastern part of Ukraine have led to the weakening of the hryvnia, with itthe exchange rate rising from 15.77 hryvnias per one U.S. dollar on December 31, 2014 to 24.00 and 27.19 hryvnias per one U.S. dollar on December 31, 2015 and on December 31, 2016, respectively, reflectingas a result of substantial capital outflow in response to the continuing political instability in Ukraine. As of December 31, 2017, the exchange rate amounted to 28.07 hryvnias per one U.S. dollar.

        See also "—Political and Social Risks—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations."

        The Belarusian ruble depreciated against the U.S. dollar, reachingwhereby the exchange rate increased from 11,850 Belarusian rubles per one U.S. dollar on December 31, 2014, to 18,569 Belarusian rubles per one U.S. dollar on December 31, 2015. On July 1, 2016, Belarus redenominated its currency on a scale of 10,000:1. As of December 31, 2016, the official exchange rate published by the National Bank of the Republic of Belarus amounted to 1.96 Belarusian rubles per one U.S. dollar. As of December 31, 2017, the official exchange rate published by the National Bank of the Republic of Belarus amounted to 1.97 Belarusian rubles per one U.S. dollar. The possible devaluation of the Belarusian ruble in the future may adversely affect our revenues from this market.

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

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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 expenditures,expenditure, particularly in connection with the development, construction and maintenance of, and the purchasing of necessary software for, our mobile and fixed linefixed-line networks. We spent RUB 91,929 millionhad capital expenditure in 2014 andthe amounts of RUB 96,111 million (excluding costs of RUB 3.382 billion related to the acquisition of a 4G license in Russia)Russia and RUB 7.044 billion related to the acquisition of a 3G license in Ukraine in 2015) in 2015, and RUB 83,551 million (excluding costs of RUB 2.598 billion for the acquisition of a 4G license in Russia) in 2016 for the fulfillment of our capital spending plans. In addition,and RUB 76,431 million in 2017. 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 expenditures.expenditure. See "Item 4—Information on Our Company—A. History and Development—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;

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•

changes in existing interconnect arrangements; or



•

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

        In 2014-2016During the period of 2014 to 2018, the United States and the European Union announced sanctions applying to a number of Russian and Ukrainian individuals and associated institutions which were considered to have contributed to the situation in Ukraine and Crimea. The sanctions may be extended and our ability to gain external funding may be affected. See also "—Political and Social Risks—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations" and "—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, and 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. Also, currentlyIn addition, we are not ablecurrently unable to raise equity financing through newly issued depositary receipts, such as ADSs, due to Russian securities regulations 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.

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

        The Russian and Ukrainian economies have 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. According to

        In 2014, the Federal Statistics Service,Bank of Russia implemented an inflation reached 11.4% and 12.9%targeting program. As a result of this, inflation in Russia in 2014 and 2015, respectively. Inflation in Russiaamounted to 5.4% in 2016, amounted to 5.38%, which was significantly lower as compared to 12.9% in 2015. Over previous periods,2015, according to the Federal Statistics Service. In 2017, inflation decreased to lower than 3% as compared to the target level of 4%. By the end of 2017, consumer inflation reached its historically lowest level of 2.5% year-to-year. 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 a trend towards inflation-driven increasessalient during rubble depreciation in certain2014 and 2015; and



•

low monetization of our costs, which are sensitivethe 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 risesincrease 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 generalRussian banking system.

        According to the State Statistics Service of Ukraine, in December 2017, the inflation index was 13.7% for 2017 (as compared to 12.4% for 2016). According to the National Bank of Ukraine latest outlook, the consumer price level in Russia.index will stabilize at 7.3% by the end of 2018.

        In addition, higha 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 level in Russialevels may lead,inter alia,, to higherincreased marketing expenditures by usexpenditure that could, in order to remain competitive, which couldturn, affect our operating margins.

        In 2015, growth of consumer prices in Ukraine reached 43.3% compared to 24.9% in 2014, according to the "Inflation Report" of the National Bank of Ukraine. In 2016, inflation in Ukraine reached 12.4%, according to the "Inflation Report" of the National Bank of Ukraine as of January 2017. Key reasons of high inflation rate in Ukraine are weakening of the national currency, increase in prices for energy carriersmargins and utility payments.profitability.

        At the end of 2014, 2015, 2016 and 2016,2017, inflation in Belarus amounted to 16.2%12.0%, 12.0%10.6% and 10.6%4.6%, respectively.

        High rates of inflation in Russia, Ukraine and other countries of our operation could increase our costs and decrease our operating margins. See also "Item 5. 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, could adversely impact our revenues reported in Russian rubles as well as changes in the exchange rate of the Russian ruble and local currencies against the U.S. dollar and/or

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euro could adversely impact our costs in terms of the Russian ruble and local currencies"financial results" and "Item 11. 11—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk."

If Apple Sales International lodges a claim against us as a resultTable of our failure to fulfill our iPhone handset purchase commitment, this could have a material adverse effect on our financial condition and results of operations.Contents

        In 2008, we entered into an unconditional purchase agreement with Apple Sales International to buy certain quantities of iPhone handsets at list prices at the dates of the respective purchases for the three year period. The purchase agreement terminated on September 30, 2012. Pursuant to the agreement, we were also to incur certain iPhone promotional costs. We did not fulfill our total purchase installment contemplated by the agreement. As a result of not having fulfilled our required purchase commitments under our agreement with Apple Sales International, it is possible that Apple Sales International may bring a claim against us, which could have a material adverse effect on our financial condition and results of operations. A reasonable estimate of any potential loss with respect to the remotely possible claim cannot be made.

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. Additionally, the indentures governing our U.S. dollar-denominated notes due 2020 contain covenants limiting our ability to incur debt, create liens on our properties, enter into sale and lease-back transactions, merge or consolidate with another person or convey our properties and assets to another person, as well as our ability to sell or transfer any of our or our subsidiaries' GSM licenses for the Moscow, St. Petersburg, Krasnodar and Ukraine license areas. 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 48.94% of our total charter capital directly and through its subsidiaries (50.03% excluding treasury shares)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 theits indentures, Sistema undertakes that it will not, and will not permit its restricted subsidiaries (including us) to, incur indebtedness unless a certain indebtedness level/level / EBITDA (as defined therein) 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.

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If aA change in control occurs, our noteholders and other debt holders may require us to redeem notes or other debt, which 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 2020, 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;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

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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.

        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/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 Risks

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 CIS countries where we operate have experienced periods of considerable instabilityinstability. For example, GDP level significantly impacted basic commodity prices as was detected during the crisis in 2008 and have been subject to abrupt downturns. Most notably, following the Russian government's default on its ruble denominated securities in August 1998, the CBR stopped its support of the ruble and a temporary moratorium was imposed on certain hard currency payments. These actions resulted in the immediate and severe devaluation of the ruble and a sharp increase in the rate of inflation, a substantial decline in the prices of Russian debt and equity securities, and an inability of Russian issuers to raise funds in the international capital markets. These problems were aggravated by the subsequent near collapse of the Russian banking sector, with the termination of banking licenses of a number of major Russian banks. This crisis had a severe impact on the economies of Russia and the other CIS countries.

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        The economies of Russia and the other CIS countries where we operate currently experience negative trends.        In 2016, the decline ofin the GDP inof Russia was 0.2% in comparison with, compared to 3.7% in 2015, according to the Federal State Statistics service. AccordingService. The Ministry of Economic Development revised its forecast for Russian GDP up to a2.1% in 2017 from the previous forecast of 2.0%, and its current forecast for the GDP of Russia for 2018, 2019 and 2020 is in the range of 2.1-2.3%, compared to just 1.5% in its previous forecast.

        In January 2018, the Ministry of Economic Development forecasted that the Russian GDPeconomy would grow 1.4-1.8% in 2017, and not 2.1%, as previously forecasted. This rate corresponds with the monthly and quarterly data of the Federal State Statistics Service. The Ministry of Economic Development expects that the economy will increase by 0.6%accelerate to a rate of about 2% in 2017.2018, and a budget surplus will be 1%.

        A financial downturn, as well as anyAny future economic downturns or slowturns in Russia or the other CIS countries where we operate, could lead to decreaseda decrease in demand for our services decreasedand, consequently, in our revenues, and negatively affect our liquidity position and ability to obtain further debt financing, which wouldcould 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 other 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

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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 are 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, 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. During 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 a crisis.

        The recent disruptions in the global markets have generally led to reduced liquidity and increased cost of funding in Russia. Borrowers have generally experienced a reduction in available financing both in the inter-bank and short-term funding market, as well as in the longer term capital markets and bank finance instruments. The non-availability of funding to the banking sector in the Russian Federation has also negatively affected the anticipated growth rate of the Russian Federation. During the course of 2014 and the first quarter of 2015, the credit rating of the Russian Federation was placedIn 2014-2017, for review and downgraded by each of Moody's, Fitch Ratings and Standard & Poor's several times. As of April 1, 2017, Russia has a Ba1 sovereign credit rating with a stable outlook from Moody's, BBB- long-term sovereign rating with a stable outlook from Fitch Ratings and BB+/B foreign currency sovereign credit rating with a positive outlook from Standard & Poor's. See also "—Political and Social Risks—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations."

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        The Russian government and the CBR provide financial support only to a limited number of banks, which may result in the liquidation of other banks and financial institutions. In 2014-2016,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.

        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, Ukraine and the other countries where we operate is in poor condition, which could disrupt our normal business activities and adversely impact our results.

        The physical infrastructure in Russia, Ukraine and the other countries where we operate largely dates back to Soviet times and has not been adequatelyalways funded and maintained over the past two decades.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 a transformer explosion 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 are poor with many roads not meeting minimum quality standards, causing disruptions and delays in the transportation of goods to and within these countries. The Russian and Ukrainian governments 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 of the physical infrastructure in Russia, Ukraine and the other countries where we operate harms the national economies, adds costs to doing business in these countries and generally disrupts normal business activities. These difficulties

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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 Ukraine as well asand 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.

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, Ukraine and elsewhere in the CIS,other countries where we operate, and businesses in these countries could consequently face severe liquidity constraints, further adversely affecting their economies.constraints. Additionally, becauseas Russia produces and Turkmenistan produce and exportexports large amounts of oil and gas, the Russian and Turkmen economies areeconomy is especially vulnerable to the price of oil and gas on the world market and a decline in

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the price of oil and gas could slow or disrupt the Russian and Turkmen economies.negatively impact its economy. Recent military conflicts and international terrorist activity have also significantly impacted the oil and gas prices globally, and pose additional risks to the Russian economy. Both Russia and Ukraine are also major producers and exporters of metal products and their economies are vulnerable to world commodity prices and the imposition of tariffs and/or antidumpinganti-dumping measures by the United States, the European Union or by other principal export markets.

        The disruptions recently experienced in the internationaldomestic and domesticinternational 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 EUEuropean Union and the on-goingongoing volatile economic conditions. Other countries where we operate may pose similar challenges. Forchallenges, for example, the referendum in Crimea in favor of joining the Russian Federation and consequent developments in the region contribute toUkraine, where political tensiontensions and uncertainty in Ukraine, seeare continuing. See also "—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations." Current and future political changes in Russia and the Russian and other CIS governments,countries where we operate, major policy shifts or a lack of consensus between the various branches of the governmentpower and powerful economic groups could disrupt or reverse economic and regulatory reforms. Any disruption or reversal of reform policiesThis could, in turn, lead to further political or governmental instability or the occurrence of conflicts among powerful economic groups, which could have a material adverse effect on our business, financial condition, results of operations, and prospects and the value of our shares and ADSs. 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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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 sub-federal political 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. LackA 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, andas well as governmental and administrative decisions implementing them as well asand 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.

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        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. For example, violence and attacks relating to the Chechen conflict have spread to other parts of Russia and several terrorist attacks have been carried out in other parts of Russia, including Moscow. 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 allthe 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. In Ukraine, the political instability and the tensions in eastern Ukraine may also have negative effect on our business operations.

        See also "—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations."

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, and 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.Georgia The political and economic relationships between Ukraine and Russia have also been strained in recent years, culminating in the current geopolitical crisis with respect to Crimea.

        Seesee also "—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations" and "—Risks Relating to our Financial Condition—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, could adversely impact our revenues reported in Russian rubles 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 costs in terms of the Russian ruble and local currencies.financial results."

        In connection with the ongoing events in Ukraine, theThe 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 by 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 inwithin our group, will not be affected by future sanctions designations.

        Non-compliance with any potential sanctions could result in, among other things, the inability of the relevant group entities to contract with the U.S. and/governmental authorities of the United States or E.U. governmentsthe

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decision-making and executive bodies of the European Union, or their agencies, potential civil or criminal liability offor the sanctioned individuals and entities and their associates under the US and/or related personnel under U.S. and/or E.U.EU law, the imposition of significant fines and potential reputational damage.

        Further tensions between Russia and other countries and any escalation of relatedthe 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, 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.

        The Ukrainian Cabinet of Ministers initiated adoption of the Law "On Sanctions" by the Verkhovna Rada of Ukraine which came into force on September 12, 2014. The law provides for special economic and other restrictive measures (sanctions) against foreign states, foreign legal entities

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and individuals involved in activities threatening the national security, sovereignty and territorial integrity of Ukraine and the rights and freedoms of its citizens. The law stipulates 25 types of sanctions which include, among others:

•

asset freezing;



•

temporary limitation of a right to use or dispose of property;



•

cancellation or suspension of licenses and other permits, including special permits for subsoil use;



•

prohibition to use radio frequency resources in Ukraine; and



•

termination or suspension of rendering telecommunicationtelecommunications services or utilizing telecommunications networks of general use.

        A draft law expanding the list of sanctions, stipulated by the Law "On sanctions" was introduced on July 13, 2015. It includes,inter alia, the seizure of the objectsany assets of the Russian proprietary rights as well as objects ofand any assets or private property of its residents in case of social necessity forin the state's benefit.interests of the state. In addition, the Presidential Decree No. 549/2015 dated September 16, 2015 approved the decision of the National Security and Defense Council of Ukraine as ofdated September 2, 2015 "On the application of personal special economic and other restrictive measures (sanctions)," whereby the list of individuals and legal entities to which these sanctions were applied for a one-year term was specified. Based on the Presidential Decree No. 467 dated October 17, 2016The list of sanctions against individuals and legal entities effective from September 16, 2015 were prolonged for one more year; the previous sanction list was extended to cover more individuals and legal entities, including, among others,several times during the major beneficial owner of MTS Ukraine (individual). Although we believe thatperiod under current legislation, the introduction of these personal sanctions by public authorities of Ukraine does not imply they apply to the companies directly or indirectly controlled by such individual or to any of his affiliated parties, including MTS Ukraine that has not been subject to any similar sanctions by Ukrainian authorities, however taking into account uncertainties in the future law enforcement practice, it cannot be ruled out that introduction of the aforementioned personal sanctions will have an adverse effect on business, financial position and results of MTS Group in Ukraine.review.

        Pursuant to the Law of Ukraine "On the legal status of martial law" dated June 8, 2015, military command together with military administrations are permitted to temporarily limit certain rights, freedoms and legal interests of individuals and legal entities within specific territories where martial law is introduced. On June 28, 2015, amendments to the Law of Ukraine "On licensing of certain types of economic activity" came into force expanding the terms of license cancellation, including adoption of an "act on documentary proof of control over licensee actions by other states, carrying out armed aggression against Ukraine or whose actions create preconditions either for military conflict or use of military force against Ukraine." With effect from January 1, 2018, the licensing of certain activities in the telecommunications sector has been canceled in accordance with the Law of Ukraine "On licensing of certain types of economic activity."

        Furthermore, a numberthe Law of draft laws were introduced in Ukraine during 2015 and 2016 in connection with sanctions, such as, for example, the draft law "On amendments to the Law of Ukraine "On the protection of economic competition" came into force and is aimed to improve the procedures offor control over the concentration of economic entities, and provides for special economic and other restrictive measures (sanctions) to a concentration's participant according to the Law of Ukraine "On Sanctions"Sanctions."

        The Law of Ukraine "On Amendments to the Law of Ukraine "On the protection of economic competition" regarding the improvement of control over the concentration of economic entities" is

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expected to be signed by the President of Ukraine and it will give the Antimonopoly Committee of Ukraine the right to refuse to consider applications for concentration submitted by companies included in the sanctions list. The draft law "On amendments to Article 9 of the Law of Ukraine "On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations" provides for an obligation of anwas introduced in Ukraine, which requires economic entityentities to publish information relating to itstheir beneficial ownerowners in the Unifiedunified state register (in casethe event that the beneficial owner of the company is a resident of a country carrying out armed aggression against Ukraine). In addition, the draft law "On amendments to some legislative acts relating to labeling of products (services)(or services) produced by suppliers tied with an aggressor country" stipulates that the suppliers of goods (services)(or services) might be obliged to mark the advertising of products (services)(or services) with the information on their ties with

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an aggressor country. The draft laws have not been considered by functional committee of the Verkhovna Rada and the Parliament of Ukraine yet.

        The Presidential Decree No. 133/2017 "On the decision of the National Security and Defense Council of Ukraine "On the imposition of personal special economic and other restrictive measures (sanctions)" dated May 17, 2017 imposed new sanctions and determined a new sanction list against 1,228 individuals and 468 legal entities. MTS Ukraine was not subject to these sanctions.

        According to that Decree:

•

mobile operators and providers of telecommunications services must restrict access to a number of Internet resources listed in the annexes to the Decree;



•

software usage of a number of legal entities listed in the annexes to the Decree is prohibited; and



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rendering of telecommunications services and access to telecommunications networks is prohibited for a number of legal entities listed in the annexes to the Decree.

        In November 2016, NBU adopted a resolution that is aimed to,inter alia, impose restrictions on operations with persons/ institutionspersons and entities targeted by sanctions.

        Furthermore,On February 13, 2017, the Decree of the President of Ukraine No. 32/2017 provided the directions of legislative changes, that could lead to restriction of the use of software and telecommunications equipment produced in Russia and simplification for the regulators to access data from communication channels (for the purposes of the identification of service providers, blocking of certain information resources and facilitating the storage of telecommunications data by operators). These decisions may affect our operations to the extent that they allow access to information resources of Russian origin, using billing equipment and storing data from communication channels. Pursuant to this Decree, the draft law "On Amendments to the Law "On Sanctions" was submitted for public discussion on July 7, 2017, which proposes to impose additional sanctions, in particular, with regard to the prohibition or restriction of the use of Russian software on sensitive infrastructure objects, as well as software developed by companies that are subject to sanctions. This draft law was adopted by the Cabinet of Ministers of Ukraine on February 14, 2018.

        In March 2017, pursuant to the Resolution of the National Security and Defense Council of Ukraine dated March 15, 2017 "On the Imposition of Personal Special Economic and Other Restrictive Measures (Sanctions)," as approved by the Decree of the President of Ukraine No. 63/2017, NBU introduced sanctions aimed at Ukrainian subsidiaries of a number of Russian banks in order to prohibit financialsfinancial operations, including paymentany payments of dividends, in favor of the parent banks. This supplements a set of measures in respect of Russian entities subject to the sanctions introduced in accordance with the NBU Board Resolution No. 654 dated October 1, 2015 "On Ensuring the Implementation and Monitoring of the Effectiveness of Personal Special Economic and Other Restrictive Measures (Sanctions) and the Resolution No. 399 dated November 1, 2016 "On

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Amendments to the Resolution of the Board of the National Bank of Ukraine No. 654 dated October 1, 2015."

        The Administration of the State Service of Special Communications and Information Protection of Ukraine developed a draft government resolution which provides further actions of authorized state bodies when blocking access to the information resources designated in the sanction list. The project provides, inter alia, connection to operators' networks of equipment to monitor the blocked information resources. Regarding the draft law special equipment might be connected to the operator's network, which may lead to additional costs. The document is under consideration.

        In June 2017, the Board of the National Bank of Ukraine adopted Resolution No. 46 "On Amendments to the Resolution of the Board of the National Bank of Ukraine No. 654 dated October 1, 2015." The Resolution set out the requirements for banks dealing with persons designated in the sanctions list, in particular, prohibiting them from executing payment documents of any customers designated in the sanction list and transferring any funds to their accounts.

        On October 5, 2017, the Law of Ukraine "On the basic principles of ensuring the cybersecurity of Ukraine" was adopted. The law provides the requirements and procedures for identifying critical infrastructure objects to ensure cybersecurity. All enterprises in the field of information and communications technologies might be recognized as objects of critical infrastructure that can bear the risks of additional costs and additional responsibility for ensuring cybersecurity.

        On October 19, 2017, The Ministry of Economic Development and Trade developed and submitted for public discussion the draft law "On Amendments to the Law of Ukraine "On foreign economic activities," which proposed to grant the Ministry of Economic Development and Trade a right to suspend foreign economic activities for a period of one year according to a submission of the Security Service of Ukraine if subjects of foreign economic activity carry out activities connected with the financing of terrorism and encroachment of national interests, national security and territorial integrity of Ukraine.

        There is still significant uncertainty regarding how these measures might affect MTSVF Ukraine and our group, the Group, extent orand timing of any further sanctions, or the ultimate impact of these sanctions on our operations. Potentially theseThese measures and any further measures and sanctions may have a negative effect on our business, financial condition, results of operations, and prospects and the value of our shares and ADSs.

        See also "—Legal Risks and Uncertainties—The inability of MTS-Turkmenistan to sustain its operations in Turkmenistan on commercially acceptable terms or at all may adversely affect our business, financial condition and results of operations" and "—The"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 "—Political"Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations."

Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of operations.

        Economic crisis, deterioration of key aspects of the economy and the lack of investment into the social infrastructure, has, amongst other things, led to the instability of the political situation in Ukraine where we have significant operations. Furthermore, the refusal of the Ukrainian Government to enter into an association agreement with the European Union in November 2013, incited mass protests in Kiev and other regions of the country. These protests caused, amongst other things, a downgrade of Ukraine's international ratings and significant depreciation of the national currency, see "—Risks Relating to our Financial Condition—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble could adversely impact our revenues reported in

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Russian rubles 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 costs in terms of the Russian ruble and local currencies.financial results."

        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 and caused uncertainty in our operation in the region of the armed conflict. It has also led to damage of our network equipment in the region followed by related losses. Should the economic and political situation in Eastern Ukraine become further destabilized, should local operators enter the market or other external factors affect the region, this may adversely affect our business, financial condition, corporate image and results of operations as well as cause regulatory uncertainties.

        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. Furthermore, should the tensions between the Russian Federation and Ukraine continue or increase, or should the economic, social and political situation in Ukraine become further destabilized, our business interests in Ukraine and other impacted regions may be

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adversely affected or targeted. The continued impact of these events and any continuing or escalating military action, public protests, unrest, political instability or further sanctions could have a further adverse effect on our business in Ukraine, our financial condition and reputation.

        See also "—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 and prospects and the value of our shares and ADSs."

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 corruptdishonest officials or claims that we have been involved in official corruption 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.

        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.

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

        A decrease in the price of oil, as well as increased unemployment rates, theThe 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

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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. See also "—Political instability in Ukraine could have a material adverse effect on our operations in Ukraine and on our business, financial condition and results of 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;



•

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

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•

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.

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 MTS' wholly-ownedour 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