Telecom Italia 3Q 2012 Results – Operations – Marco Patuano

TELECOM ITALIA GROUP

9M 2012 ResultsMilan, November 9th, 2012

Telecom Italia 9M 2012 Results

MARCO PATUANO

1MARCO PATUANO

TELECOM ITALIA GROUP9M 2012 Results

Safe HarbourThese 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.Some data for the 2011 financial year used in comparisons included into this presentation are restated as a result of the early adoption of the revised IAS 19 (Employee Benefits) version and the reclassification of Matrix from the Business Unit Domestic–Core Domestic to the Business Unit Other Activities

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Agenda

Domestic 3Q12 Progress Report

Fixed BusinessMobile Business

Appendix

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Domestic Results: 3Q12 vs 1H12 EvolutionEuro mln, Organic data, %

Domestic Service Revenues

EBITDA 3Q12 vs 1H12: EBITDA Bridge

3Q12 vs 1H12: Revenues Bridge

-7.7%

-2.9%

-7.0%

-3.3%

1H

3Q

1H

3Q

Δ-616 M€-4.5%

-321 M€-4.6%

% on Total Revenues

50.0%0.0 p.p.50.0%

13,552 12,936

7,034 6,713

Mobile: -0.7ppFixed: -0.2pp Mobile: -1.9pp

WH&Transit: -1.2pp

Operating Performance

Δ Revenues Efficiency

Total Revenues FY Target Confirmed

EBITDAFY Target Confirmed

-0.8 pp

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Euro mln, Reported Data

1 32

Domestic Operating Free Cash Flow Evolution

+61 mln

% on Revenues 28.3% 30.1%+1.8 pp

Δ EBITDA Δ Capex ΔWC

1 2 3

Cost Control Accelerating Right Spending ΔWC Improvement

(335)

1H12 (82)3Q12 (79)

(22)

DaysReceivables

Turnover

Cash Cost

+0.2

+0.2

-0.1

€ bln

ΔWC impact

Euro mln, Organic Data

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Source: ISTAT and Prometeia

Consumer Segment Trend – YoY% change

Service Revenues Trend by Segment: Consumer & Corporate

Corporate Segment Trend – YoY% change

Consumer Confidence

* 1Q12 & 2Q12: Data Normalized for bad weather and calendar discontinuities – 3Q12: Excluding Regulatory impact (Δ MTR and price cap Roaming UE)

Corporate Confidence

Index: 2005=100

Index: 2005=100

Δ% YoY

Italian GDP

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Delivering Domestic Targets during an Economic SlowdownDelivering our Targets for 2012… …while working for the Future

Traditional Services

Innovative Services

Traditional Services

Innovative Services

• Traditional Services under pressure• Fixed Market weak, but TI holds a stable

Market Share

• Mobile BB: Small Screen Penetration up• LTE Launched (Nov. 7th)• Fixed UBB ready to go

• Cloud & ICT Portfolio enriched

ManteningTightExpensesControl

Commercials•No subsidy increase•Advertising expenses reduced but «Top of Mind» confirmed•Cost of caring under control while CSI improvedIndustrial

Human Resources

Well on Track

• Bundling is the way to defend ARPU• Leveraging on Fixed and Mobile Customer Base• Explore Regulatory opportunities

• Best UBB experience• Enrich connectivity• Multi-devices approach• Extract value from the Cloud (Consumer & Corporate) • ICT offering upgrade

Working on non-core activities in order to further benchmark with «best-in-class» players

Maintaining high level of Efficiency

Focus on:•New technologies•Architectural simplificationRight-Spending on:•Day-by-day operations•Commercial CapexPursue Group Synergies

Introduce Discontinuities

Efficiencies and Right-Spending on Investments confirmed, notwithstanding LTE & NGN deployment

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Agenda



Appendix

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Euro mln, Organic Data, %

Domestic Fixed: Focus on core Service Revenue Performance

3,343 -6.2%

Total Fixed Revenues Domestic Service Revenues Trend – YoY % change

3,136Sparkle

Core Service

-9.5%

-4.9%

Spa

rkle

*C

ore

Serv

ice

*net of elim. & adj

Highlights

Elim.

Equipment-39.7%

Core Service Revenues Trend – YoY % change

Ret

ail

Dom

estic

W

hole

sale

Core Services down to -4.9% YoY due to:expected worse comparison effect on Consumerworse Macro scenario on Corporate segmentunexpected retroactive reduction of WLR

Sparkle:New round of low-margin transit contracts discontinuation, with no impact on Ebitda

Positive support from monthly rental fee increase

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Domestic Fixed: TI Access Performance

Fixed Access Line Losses Trend

-187k

21,789 21,562 21,195

TI R

etai

lW

hole

sale

TI R

etai

lW

hole

sale

Voice ARPU Highlights

65.8%66.2%67.2%M/Son total Mrk

Line Losses neither caused nor caught by OLO’s

Our competitors are continuing to increase churn among each other

Consumer ARPU stable as the CB reduction affected low-end clients and slow-down mainly impacted the Corporate segment

21,382

65.9%

9M11+190 9M12

+3

9M11-524

9M11-519

Consumer Retail

Flat-1.6%

% YoY

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‘000

TI retail accesses

M/S 53.9% 52.0% 51.9%

Broadband Accesses BB Lines Evolution

Domestic Fixed: Broadband Figures

Broadband Retail Highlights

TotalMarkets 13,313 13,527 13,544

Italian Fixed Broadband:Stability in TI’s Market Share.

Constant decline in OLO’s net acquisitions.

TI’s ARPU upbeat trend confirmed.

Increase in Superinternet and Flat Offers on CB without leveraging on promos.

Euro/month/line

BB OLO

13,263

53.8%

TI R

etai

lB

B O

LO

‘000

ARPU Service RevenuesEuro mln

+0.9%

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Agenda



Appendix

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Euro mln, Organic Data

Mobile Revenues: 3Q12 Results at a Glance

Total Mobile Revenues

Business Generated

Business Received

Handsets

Retail Services

Total Service Revenues

Wholesale &others

Total Mobile Revenues

-7.9%

-51.6%

1,624

1,419

1,7271,502

1,7901,584

-12.6%

-19.3%

-13.0%

+29.5%

-11.5%

% YoY

-5.9%

Excluding Roaming UE impacts

Retail Business Generated Trend – Δ YoY

Excluding Roaming EU impacts

Handset Revenues Trend – Δ YoY

Positive effects from bad weather and calendar discontinuities

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‘000

TIM’s MNP 9M12

Total SIM cards Annualized Market Churn

+0.4 mln

Domestic Mobile: Customer Base TrendO

UT/

IN Aggressive Summer Campaignby some competitors

Launch of new TIM Portfolio offers:More Value for Money

3Q2Q1Q

1.0 x as of May

-102

Tota

lM

NP

Avg Market

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Domestic Mobile Retail: Focus on VAS

Retail VAS

TIMxSmartphone: Focus on ARPU VAS

-4.0%

+0.1% -8.4%

1 2

Messaging2

Bundles on MBB+VAS (e.g. “TIMxSmartphone”) are the right Value Proposition for the Market: no cannibalization effect on VAS Consumer ARPU

Negative balance between decreasing average SMS price and steady number of SMS user

Increasing number of active smartphone users**

(+49% YoY) enables alternative messaging services July 2011 July 2012

Without TIMxSmartphone

With TIMxSmartphone

Messaging

Data

0.9x

3.0x

vs ARPU 2011

-4.7%

*Excluding Roming UE Cap

Browsing1

Negative impact of Roaming EU Cap on data, occurred by July 1st

+12.1%241

271

Browsing Revenues Normalized*

**Usage 1x per week at least

+1.6%*

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LTE: a Growth Opportunity, starting from Large Screens

4G Pricing Strategy…

Avg PricePremium

…beyond Early Adoption

Avg Price Premium: LTE offers vs 3G 42MB offers

Pop

ulat

ion

Cov

erag

e

Large Screens

Italian Price Premium aligned to other operators, notwithstanding the «early adoption» phase

Fit Data to Device:Large Screen, Large PackEntry giga size to be adjusted to UBB Mobile attitude

Source: Internal Estimates

Bundles without Boundaries

Diversify offer portfolio to fit customers’demand

Cross-check coordination in pricing vs ADSL

Quality of Services

Traffic Segmentation for a «Priority Service»

Speed availability is key to ensure a real «Ultra Mobile Broadband Experience»

“Tailor-made” VAS Content

Exclusive VAS Content to make best use of the strong increase of network performance

Market Approach

Coverage: Selective and Focused, aimed at maximizing the Return on LTE Investments

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Agenda



Appendix

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Domestic Wireline RevenuesEuro mln, Organic Data, %

102

2,932

1,385

396

302

789

60

3Q11

3,343

377

(68)

Products

Domestic Core Services

Voice & Access

Internet

Business Data

National Wholesale

Other & Subs

Total

Sparkle Group

Elimination

62

2,789

1,287

396

281

763

62

3Q12

3,136

341

(56)

YoY %

(39.7)

(4.9)

(7.1)

-

(7.0)

(3.3)

n.m.

(6.2)

(9.5)

n.m.

9M12vs11YoY %

(38.3)

(3.6)

(5.8)

1.0

(5.8)

(2.0)

n.m.

(4.0)

2.1

n.m.

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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

3Q11

1,790

1,624

103

1,687

524

176

63

1,448

924

3Q12

1,584

1,419

83

1,501

503

85

82

1,334

831

Δ % YoY

(11.5)

(12.6)

(19.3)

(11.0)

(4.0)

(51.6)

29.5

(7.9)

(10.1)

o/w Handsets

9M12vs11YoY %

(6.2)

(7.6)

(17.7)

(5.6)

1.8

(27.0)

46.6

(4.8)

(8.4)

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Personnel

-4G&A &Other 376

Progress on Domestic Efficiency PlanEuro mln, Organic Data, %

Δ Abs9M 12 YoY9M12

-174

1,982Total Capex

1,331

793

-99

+83

6,709Total Opex* -335

1,533

Delta Cash Cost9M12 vs 9M11

Industrial

2,103 -116

Mktg &Comm.

ITX

Cash Cost

EfficiencyVolume Driven

-1749,048 -395

Intercon-nection

Target FY : -0.5 Bn

9M11 9M12

8,691

+212

Efficiency

8,691

64.8%+ 0.5 p.p.

-357TotalCash Cost

573 -24Handset

FixedOpex -37

-22

- 357

64.3%% on Revenues

FY12 Trend

Euro Bln, Organic Data

ITX

2.3

FY11 FY12 E

-0.3

Handset

Other External Cost*

Personnel Cost

1.0

FY11

Stable

FY12 E

FY11

3.4 Stable

FY12 E

FY11

3.0 -0,2

FY12 E

* Mktg&Comm.+Industrial+G&A & others

Δ Abs3Q12 YoY

-2

-124

-28

+34

-203

-54

-29

-22

-206

-3

FY13-14

FY12

1.2x FY12Target

>80% FY Target

Confirmed

Confirmed

Confirmed

Improved

Total FY 12 ~9.2Bln€