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TELECOM ITALIA GROUP 1Q 2012 Results Milan, May 10 th , 2012 Telecom Italia 1Q 2012 Results MARCO PATUANO

Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

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Page 1: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP

1Q 2012 ResultsMilan, May 10th, 2012

Telecom Italia 1Q 2012 Results

MARCO PATUANO

Page 2: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

1MARCO PATUANO

Safe Harbour

These presentations contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company and the Group. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a result of various factors. Consequently, Telecom Italia S.p.A. makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward looking statement.Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results.Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia S.p.A. undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia S.p.A. business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company's Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.

Page 3: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

2MARCO PATUANO

Agenda

Domestic 1Q12 Progress Report

Fixed BusinessMobile Business

Cash Cost Rationalization & Operating Model

Appendix

Page 4: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

3MARCO PATUANO

Domestic Results: Trend still improvingEuro mln, Organic data, %

3,330 3,235

1,679 1,650

1Q11 1Q12

4,595 4,486-109 M€

-2.4%

-1.7%

-2.9%Wireline

Mobile

Total Domestic Revenues Domestic Service Revenues

-7.6%

-6.2%

-3.7%-3.2%

-2.3%

1Q11 2Q11 3Q11 4Q11 1Q12

1Q11 1Q12

EBITDA

-78 M€-3.4%

49.5% 49.0%-0.5 p.p.% on Revenues

2,2742,196

1Q11 1Q12

EBITDA-Capex

1,611 1,607

35.8%+0.7 p.p.% on Revenues 35.1%

-4 M€-0.2%

Page 5: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

4MARCO PATUANO

Agenda

Domestic 1Q12 Progress Report

Fixed BusinessMobile Business

Cash Cost Rationalization & Operating Model

Appendix

Page 6: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

5MARCO PATUANO

Tariff simplificationprocess begins

-6.3% -6.0%

-3.8% -4.0% -3.8%

1Q11 2Q11 3Q11 4Q11 1Q12

+5.0%

-1.0% -1.1%

1Q11 4Q11 1Q12

-4.5% -2.8% -2.9%

1Q11 4Q11 1Q12

1Q11 1Q12

Euro mln, Organic Data, %

Domestic Fixed: Revenue Dynamics

3,330 -2.9%

Wholesale Revenues Trend – YoY % change

Total Fixed Revenues Fixed Revenues Trend – YoY % change

3,235

-4.9%-1.9% -1.7%

Tota

lS

ervi

ces

Retail Service Revenues Trend – YoY % change

Dom

estic

+9.8%-15.3%

-38.6%Equi

pmen

t

Spa

rkle

Gro

up*

-18.5%

+5.5% +8.8%

*Gross of Elim. & Adj.

Page 7: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

6MARCO PATUANO

15,145 14,652 14,457

6,952 7,060 7,105

1Q11 4Q11 1Q12

Domestic Fixed: TI Access Performance

Telecom Italia Access TI Line Losses

-150k22,098 21,712 21,562

TI R

etai

lW

hole

sale 181

9845

-206 -175 -195

1Q11 4Q11 1Q12

TI R

etai

lW

hole

sale

Stable

Voice ARPU – YoY % change Highlights

-25k -77k -150k

Reduction

66.2%66.6%67.7%M/Son total Mrk

Access Market reduction as result of stable TI’sline losses and decreasing OLO’s net adds

TI’s access market share above 66%

Line erosion driven by In Consumer, disconnections in secondhomes (low potential, voice only) In Business Segment, multi-line contractsrationalization and increasing number of Companies exiting the market

-3.8%

-3.1%

-1.1% -1.2%+0.1%

1Q11 2Q11 3Q11 4Q11 1Q12

Page 8: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

7MARCO PATUANO

18.4 18.2 18.3

1Q11 4Q11 1Q12

‘000Euro/month/line

Flat (%)

TI retail accesses

M/S 54.3% 53.2% 52.6%

TI Retail Broadband Accesses Broadband Retail ARPU

Domestic Fixed: Focus on Broadband

1Q11 4Q11 1Q12

88%87%87%

7,194 7,125 7,092 -0.6%

+0.3%

BB Service Revenues Highlights% YoY

+0.3%

+0.5%

+0.8%

1Q11 4Q11 1Q12

TotalMarkets 13,248 13,394 13,485

Confirming the right direction in TI’s Value Strategy:

Continued positive BB Service Revenues trend

QoQ ARPU increase

+1.0 p.p. of Flat offers on TI’s BB CustomerBase

Increasing BB penetration (+1.5 p.p.) on fixed CB, confirming the low value of TI’s line losses

Page 9: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

8MARCO PATUANO

Agenda

Domestic 1Q12 Progress Report

Fixed BusinessMobile Business

Cash Cost Rationalization & Operating Model

Appendix

Page 10: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

9MARCO PATUANO

1,634 1,573

45 77

1Q11 1Q12

Euro mln, Organic Data

Mobile Revenues: 1Q12 Results at a Glance

Total Mobile Revenues

Mobile Service Revenues Trend – YoY % change

Handsetrevenues

Service revenues

1,650-29

-1.7%1,679

Normalized (*)

~-2.5%

Total Mobile

-3.7%

Normalized (*)

~-4.5%

+71.1%

(*) Leap year

Mobile Handsets Revenues Trend – YoY % change

-22.4%

+26.2%+34.0%

+96.5%+71.1%

1Q11 2Q11 3Q11 4Q11 1Q12

-11.7%

-8.7%-7.5% -7.1%

-3.7%

-10.1%

-7.0%-5.5%

-4.1%

-1.0%

1Q11 2Q11 3Q11 4Q11 1Q12

Total Mobile Service Revenues Retail Business Generated

Page 11: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

10MARCO PATUANO

31,038 31,260 31,679 32,227 32,328

1Q11 2Q11 3Q11 4Q11 1Q12

Euro mln, Organic Data

‘000‘000

Balance MPN 2012

Total SIM cards Net Adds

+1,290

20

222

419

548

101

1Q11 2Q11 3Q11 4Q11 1Q12

X5

Domestic Mobile: Customer Base Trend

Highlights

Sound customer base growth in spite of weakseasonality

Progressive improvement in MNP balance, and lowerpromo agressivness

Best in class churn rate supported by CRM focus

Jan Feb Mar

TIM Operator 1 Operator 2

Page 12: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

11MARCO PATUANO

Domestic Mobile – Defending Value of our Customer Base

BusinessGenerated

BusinessReceived

1Q11 1Q12

Lower exposure to MTR cuts

Options benefit Consumer Churn

More Value from Options – Consumer Segment Consumer Calling ARPU

Business Generated Consumer Revenues

w/o Options with Options

-8 p.p.

Progressive improvement on

quarterly basis

-9.4%

-7.2%

-5.0%-3.5%

-1.8%

1Q11 2Q11 3Q11 4Q11 1Q12

% YoY

Avg ARPU Ex-ante/Ex-post

+

+

-

Positive blended impact

Spontaneous migration by clientsfrom pay-as-you-go profile

to bundle and options

CRM activity on existing CB

14% 12%

86% 88%

Page 13: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

12MARCO PATUANO

Content

Domestic Mobile – Focus on Mobile VAS Consumer

Browsing

Messaging

2011

2012

VAS+7.3%

VAS Consumer Revenues Trend

% YoY

Successful strategy pushing on bundle offers aiming atmessaging revenues protection and CB fidelization: Messaging Volumes: +25% YoY CB with Messaging Bundle Offers: +44% YoY

Continued solid growth in active

users and browsing revenues

underpinning Mobile recovery trend

~70% of Smartphone on Handsets sold

Solid ARPU increase: +9.4% YoY

MBB Users

1Q11 1Q12

+32%

Browsing Revenues

1Q11 1Q12

+21%

Small Screen Large Screen

Leadership confirmedon dongle: M/S ~38%

Double digit growth in users (+11.5% YoY)

Marketing strategy focused on bundling data & SMS to avoid

cannibalization

-5.2% -7.4% -5.2%-1.6% -2.5%

1Q11 2Q11 3Q11 4Q11 1Q12

Messaging Revenues – YoY % change

-

++

Page 14: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

13MARCO PATUANO

SME Segment: TI-Microsoft Partnership

Server SideSoftware

Ospit@ Suite Cloud

Partner

Partner

CRM/Web

SME Client

Cloud ServiceBilling

ProfessionalServices

Partner Management

Bus

ines

s M

odel

and

Con

tent

sB

asic

Pill

ars

Cha

nnel

Ben

efit

s

1 2 3 4 5 6

Sinergy&

Positioning

FirstMover

Strategy

DistributionChannel

Qualityof

ServicesPortfolio Innovation

~2000Potential Partners

10-15% Microsoft PartnersRedemption Expected

Page 15: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

14MARCO PATUANO

Ultra Broadband in MotionUltra Broadband in Motion

42 Mbps coveragein progress in 50cities

Ongoing Trials extended to Turin, Milan, Rome and Naples

FTTC (covering 30 main cities) and FTTH (in Milan) Retail commercial launch expected in 4Q

Reference Offer for wholesaleNGAN Access Services submittedto Agcom in March, final approvalexpected by September

Fixed Mobile

Maintaining a fixed & mobile coordinated approach

Page 16: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

15MARCO PATUANO

Agenda

Domestic 1Q11 Progress Report

Fixed BusinessMobile Business

Cash Cost Rationalization & Operating Model

Appendix

Page 17: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

16MARCO PATUANO

2,274 2,196 (109) +23 (6) +29 (15)

1Q11 Revenues Interconn. Costs Handsetscosts

Mktg&Comm.Opex

Fixed Opex* 1Q12

Euro mln, Organic Data, %

Personnel Cost reduction from lay-off program (-3% yoy) offsets the negative impact from market prices increase in energy and real estate**

•ITZ Wholesale: -36M€ due to gross Voice revenues increase

•Retail: +59M€ reflecting MTR cut impact

Push on Mobile Smartphone with limited impact on SAC/Subsidy

•Robust growth on Mobile Gross Adds managed through Acquisition Costs Control

•Efficiency program on Fixed Commercial Costs turned into yoy positive contribution to margins

1

2

3

4

* Industrial + Personnel + G&A = Fixed Opex

Focus on 1Q12 Domestic EBITDA

2 3 41

-78M€, -3,4%

** Energy unitary price (including taxation) and inflation adj (ISTAT), IMU on Real Estate

Page 18: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

17MARCO PATUANO

Domestic 1Q12 TakeawaysAccess Market reduction continues and refers to low value lines. Only 25% of TI line losses recovered by OLOs

Broadband: Slight increase in overall market, with OLO’s aggressive promos still continuing. TI stays on its value driven strategy

Business and Corporate Market continues to suffer, as a consequence of Italian economic scenario

Strong improvement on Mobile recovery trend, also supported by one-off events (leap year) and a more rational competition

Healthy TIM Customer Base growth, driven by Consumer segment

Browsing Revenues growth (>20%) driven by small screens, sustained by a winning smartphone strategy

Mobile Service Revenues declined 3.7% YoY (-3.1% in Retail perimeter, and only -1% if we consider Retail Business Generated, net of MTR drag)

Wireline

Mobile

Ongoing tariff simplification process has continued, first including Business segment as of Jan. 1st,, and regarding Consumer again from July 2012, as announced

Further increase in TI Broadband Services Revenues (+0.8% YoY in 1Q12 vs +0.5% YoY in 4Q11)

Page 19: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

18MARCO PATUANO

Agenda

Domestic 1Q12 Progress Report

Fixed BusinessMobile Business

Cash Cost Rationalization & Operating Model

Appendix

Page 20: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

19MARCO PATUANO

Domestic Wireline RevenuesEuro mln, Organic Data, %

101

2,977

1,420

407

295

795

60

1Q11

3,330

319

(67)

(38.6)

(3.0)

(4.5)

0.5

(5.8)

(1.1)

n.m.

YoY %

(2.9)

8.8

n.m.

Products

Domestic Core Services

Voice & Access

Internet

Business Data

National Wholesale

Other

Total

Sparkle Group

Elimination

62

2,887

1,356

409

278

786

57

1Q12

3,235

347

(61)

4Q11 vs 10 % YoY

(15.3)

(3.2)

(6.0)

(1.9)

(4.4)

(1.0)

n.m.

(2.8)

5.5

n.m.

Page 21: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

20MARCO PATUANO

Domestic Mobile RevenuesEuro mln, Organic Data, %

(*) Including Visitors(**) Total Retail Services Revenues net of Incoming

Total

o/w Services

Wholesale (*)

Retail

o/w VAS

o/w Incoming

o/w Business Generated (**)

o/w Outgoing Voice)

1Q11

1,679

1,559

75

1,604

474

209

45

1,349

875

1Q12

1,650

1,511

62

1,588

510

176

77

1,335

825

% YoY

(1.7)

(3.1)

(17.3)

(1.0)

7.6

(15.8)

71.1

(1.0)

(5.7)

o/w Handsets

4Q11 vs 10 % YoY

(2.2)

(6.1)

(24.4)

(1.1)

5.1

(19.5)

96.5

(4.1)

(8.9)

Page 22: Telecom Italia 1Q 2012 Results - Operations - Marco Patuano (10/05/2012)

TELECOM ITALIA GROUP1Q 2012 Results

21MARCO PATUANO

Progress on Domestic Efficiency PlanEuro mln, Organic Data, %

Delta Cash Cost1Q12 vs 1Q11

Cash Cost

EfficiencyVolume Driven

-232.984

- 105

-134

Intercon-nection

Target FY : -0,5 Bn

1Q11 1Q 12

2.879

+52

Cash Cost on Revenues %

1Q11 1Q12

64.9%

64.2%- 0.7 p.p.

**Includes Other Operating cost/Income and Capitalized Costs* Costs related to credit management are reclassified from G&A & Other to Mktg & Sales

Abs’12 vs ‘111Q12

-23

589Total Capex

442

250

- 29

757

+18

-20

+17

2.290Total Opex* -31

556

Industrial

Personnel

Mktg &Comm.

ITX

G&A &Other ** 120

2.879 -105TotalCash Cost

165 +6Handset Efficiency

FixedOpex

+151Q12

134

Opex Capex

% on FYTarget ~30%

-74

~25% ~35%