TI 3Q’13 Results & 2014-16 Plan Outline - Gruppo TIM · 2021. 7. 4. · TI 3Q’13 Results & 2014-16 Plan Outline . MARCO PATUANO 1 TELECOM ITALIA GROUP Morgan Stanley ... 2Q'12

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TELECOM ITALIA GROUP

Morgan Stanley - Thirteenth Annual Technology, Media & Telecoms Conference Barcelona, 20 November 2013

MARCO PATUANO

Telecom Italia Group

TI 3Q’13 Results & 2014-16 Plan Outline

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MARCO 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 statements.

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.

The accounting policies and consolidation principles adopted in the preparation of the Condensed Consolidated Financial Statements

as of, and for the nine months ended, 30 September 2013 have been applied on a basis consistent with those adopted in the Annual

Consolidated Financial Statements at 31 December 2012, to which reference can be made, except for the new standards and

interpretations adopted by the Group, which, other than for the prospective adoption of IFRS 13 ( Fair Value measurement), didn't

impact on the Condensed Consolidated Financial Statements as of, and for the nine months ended, 30 September 2013.

Some data for the first quarter 2012, used in comparisons, included into this presentation have been restated as a result of the early

adoption, starting from the first half 2012, of the revised version of IAS 19 (Employee Benefits) and the reclassification of Matrix

(company that was disposed of on October 31, 2012) from the Business Unit Domestic–Core Domestic to the Business Unit Other

Activities.

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MARCO PATUANO

Agenda

TI 3Q’13 Results & Progress Report

TI 2014-2016 Plan Outline

Appendix

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MARCO PATUANO

Telecom Italia Group results

Group Revenues

Group Ebitda

Group Net Income

Net Debt

3Q’13 9M’13

6.6 €bln Organic: -1.1%- YoY

Reported: -8.8%- YoY

2.7 €bln

Organic: -7.1% YoY

Reported: -10.1% YoY

0.5 €bln -27.4% YoY

28.2 €bln;-1.3 €bln YoY

20.4 €bln Organic: -2.1% YoY

Reported: -7.6% YoY

8.0 €bln Organic: -6.9% YoY

Reported: -10.5% YoY

-0.9 €mln writedown -2.2 bln € (accounted in 1H)

Organic data,

€mln, %YoY

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MARCO PATUANO

Telecom Italia performance by markets

Revenues

Ebitda

Ebitda-Capex

Group Domestic Brazil

20.4 €bln -2.1% YoY

8.1 €bln -6.9% YoY

4.6 €bln -15.9% YoY

12.1 €bln -10.0% YoY

6.0 €bln -10.9% YoY

4.0 €bln -16.3% YoY

5.3 €bln +7.3% YoY

1.3 €bln +2.0% YoY

0.3 €bln -25.9% YoY

Argentina

2.9 €bln +23.7% YoY

0.8 €bln +17.5% YoY

0.4 €bln +4.5% YoY

Weight

Weight

Weight

59% 26% 14%

74% 17% 10%

86% 7% 8%

9M’13

Organic data,

€mln, %YoY

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MARCO PATUANO

3.090 2.598

1.639

1.362

9M'12 9M'13

1.333 1.345

649 677

9M'12 9M'13

Domestic performance dashboard

9.055 8.104

4.361 3.965

9M'12 9M'13

-9.1%

-10.5%

13,416 12,069

-10.0%

3Q

1H

Revenues Ebitda

4.423 3.943

2.288 2.039

9M'12 9M'13

3Q

1H

-10.9%

-10.9%

-10.9% 6,711 5,982

on revenues 50.0% 49.6%

Capex Ebitda-Capex

3Q

1H

3Q

1H

1,982 2,022 +2.0% -16.3% 4,729

3,960 +4.3%

+0.9%

-16.9%

-15.9%

Organic data,

€mln, %YoY

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MARCO PATUANO

Domestic Mobile KPIs

Total SIM cards Active SIM cards

TIM MNP Balance Highlights

32,1 32,2 31,9 31,7 31,6

2Q'12 4Q'12 1Q'13 2Q'13 3Q'13

+36 -152 -152 -301

‘000, QoQ

-157

-127

-74

+78

-12 -12

April May June July Ago Sept

Op.2 Op.3 Op.4 Cum.

-0,1

+0,2

-0,6

-0,2

+0,2

2Q'12 4Q'12 1Q'13 2Q'13 3Q'13

• slight reduction in Mobile SIM cards due to strictly

disconnection policies

• improved trends in active CB set the groud to better

forthcoming results

• MNP: Positive balance in the last quarter, due to effective

summer strategy on Consumer Segment . Gross flows

reduction put less pressure on prices

• while guard on competition is kept high, TIM's focus is shifting

to LTE roll-out pace and related services adoption, enabled by

p/l-wise smartphone strategy

mln, QoQ

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MARCO PATUANO

Moving back to a more rational market behavior

Convergence

Premium offer

Pure price

1Q'13 2Q'13 3Q'13 4Q'13

market

offers entry level

price

market

offers

1 2

3 4

less content on

entry level price

15

€/month

10

€/month

increasing price on

most important offers

>400 min/sms & >1GB

1

3

2

4

Rational approach by TIM, maintaining price

premium gap versus pure price operators.

Fighting on ‘no price' levers, launching TIM

Sconta e Raddoppia offer and paving the way for

an attack strategy.

TIM sharp reaction via frontal attack, through

TIM Special proposition, the most competitive &

rich offer in the market for the entry level price.

Market awareness of need to preserve P&L.

Bundle size reduction (min., SMS & giga) on

entry level plans, both by TIM and main

competitors.

http://www.google.it/url?sa=i&rct=j&q=tim&source=images&cd=&cad=rja&docid=SrizdOADuQuhxM&tbnid=n8B9u0b8xytirM:&ved=0CAUQjRw&url=http://www.key4biz.it/Mappamondo/Europa/2013/07/Telecom_Italia_TIM_LTE_Copertura_Campania_219458.html&ei=1Yb3UZebFs22PaavgSA&bvm=bv.49967636,d.ZWU&psig=AFQjCNHUCdPNWxz76KmpjqmphWKp1xMJrQ&ust=1375262785227818



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MARCO PATUANO

Domestic Mobile Revenues

Revenues Service Revenues Trend

Innovative vs Traditional Service

Organic data,

€mln, %YoY

1.335

1.159

168

121

81

88

3Q'12 3Q'13

business generated

business received

service 1,503

1,280

handsets

total 1,584

1,368 +8.2%

-13.1%

-13.6%

-14.8%

-28.1% -17,9%

-18,3%

-14,8%

1Q'13 2Q'13 3Q'13

€mln

-35

-27

+1

1Q'13 vs 1Q'12 2Q'13 vs 2Q'13 3Q'13 vs 3Q'12

D YoY Browsing Revenues plus SMS Revenues

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MARCO PATUANO

Domestic Fixed KPIs

Fixed Access Line Losses Trend

Fixed BB Access BB Revenues Perfomance & Arpu Trend

14.133 13.978 13.777 13.555 13.372

7.063 7.175 7.238 7.233 7.164

3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

21,195 21,153 21,016 20,788 20,536

OLO

TI

reta

il

M/S 65.3% 64.0% 63.5% 63.4% 64.6%

-43

112 63

-5 -69

3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

-144 -155 -201 -222 -183

OLO

TI

reta

il

OLO

TI

reta

il

7.030 7.020 6.984 6.933 6.892

6.630 6.737 6.828 6.872 6.866

3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

M/S 51.5% 50.6% 50.2% 50.1% 51.0%

13,660 13,757 13,812 13,805 13,758

+107 +44 -6 +91

-10 -51 -41 -36

18,6 18,9 18,9 19,1 19,2

3Q'12 4Q'12 1Q'13 2Q'13 3Q'13A

rpu +3.7%

+3.4% +3.6%

+3.5%

BB

serv

ice

reve

nues

+0,0%

+1,8% +1,5% +1,4% +1,1%

3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

€/month, %YoY

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MARCO PATUANO

Domestic Fixed Revenues

Total Revenues Total Revenues Trend

Service Revenues Trend Highlights

Organic data,

€mln, %YoY

3.070

2.849

62

49

3Q'12 3Q'12

-20.1%

-7.2%

3,132

2,898

-7.5% equipments

service

equip

me

nts

se

rvic

e

-17,3% -11,5%

-20,1%

1Q'13 2Q'13 3Q'13

-7,5%

-8,1%

-7,2%

Improving trend in fixed service revenues due to:

positive performance in Internet revenues

better results in business data, driven by

growing ICT trend

Sparkle's top-line growth

-9,1%

-7,8%

-9,8%

+1,7% +1,3% +1,2%

-1,9%

-6,8%

-0,7%

1Q'13 2Q'13 3Q'13

fonia reported internet business data

-9.3% normalized for price revision

on F-F termination rate

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MARCO PATUANO

Telecom Italia is keeping the pace of its

2013-15 Ultra-Broadband Development

Programme, aiming a Year-end targets of:

~4 million of households passed by the

end of 2013

more than 15% of population covered

~40 service-enabled municipalities

Major increase in the roll-out programme

for LTE network

As of September, a total of 300

municipalities in Italy covered by the

service, equivalent to more than 37% of

the population nationwide

TIM is the leader across all operators in

LTE coverage in Italy

TI Ultra-Broadband 2013 progress: a fast- forward coverage plan

NGN LTE

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MARCO PATUANO

FY13 Net Debt Target Confirmed

9M12

Balance to FY13 Adjusted Net Debt Target Euro mln

2011YE FY12

30,414 (1,211) (929) 28,274 29,485

(2,140)

<27bn

FY ‘13

28,229 NCF

Generation

Includes Less cash taxes Working capital

optimization Higher FCF from

Latam

2012YE

28,274 (45)

Includes 1H13 impacts from One-offs for 0.5 bln € (4Q12 suppliers payment deferral and Brazil spectrum payment)

9M ‘13

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MARCO PATUANO

410

1.413

1.313

875

994

921

2.082

8.008

1.481

1.809

2.035

2.250

2.897

2.990

11.740

25.202

1.500

1.500

1.891

4.722

3.348

3.125

3.891

3.911

13.822 34.710

Within 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Beyond 2018 Total M/L Term

Debt

(1)

(1) € 34.710 mln is the nominal amount of outstanding medium-long term debt . By adding IAS adjustments (€ 856 mln) and current liabilities (€ 500 mln), the gross debt figure of € 36.066 mln is reached N.B. Debt maturities are net of € 1.830 mln (face value) of repurchased (€ 1.206 in the 2013) own bonds (of which € 1.615 mln related to bonds due within 2015)

Robust Liquidity Margin and Well-Distributed Debt Maturities

Loans (of which long-term rent, financial and operating lease payable € 1,305) Drawn bank facility Bonds

13.45

6.70

6.75

Liquidity Margin Debt Maturities

Undrawn Portion of Facility/Committed Group Liquidity Position

Euro bln Euro mln

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MARCO PATUANO

Agenda



Appendix

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MARCO PATUANO

Macro & Industry Context

Italy Brazil

GD

P

TLC

se

rvic

e V

alu

e

35%

65%

2013 2016

Value

26%

74%

innovative

traditional

26 €bln 24 €bln

18%

82%

innovative

traditional

39% 61%

Value 117 R$bln 120 R$bln

2013 2016

Source: Sirmi, PoliMi and internal analysis

-1,8%

+0,8%

+1,4% +1,5%

2013 2014 2015 2016

Source: ISTAT & Prometeia

+2,4%

+2,3%

+2,4% +2,4%

2013 2014 2015 2016

Source: BaCen

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MARCO PATUANO

Italy

Telecom Italia Group: a strong INDUSTRIAL STORY aimed at delivering our

financial targets

Long Term FCF

Sustainability

stra

tegic

opti

ons

evolve into the

new TLC

business

model in order

to stabilize

top line

keep-up

growth eff

icie

ncie

s &

eb

itda

invest

men

ts

dele

vera

ge

Brazil

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MARCO PATUANO

Announced Extraordinary Transactions

Financial Contribution

Expected by 2014

Mandatory Convertible Bond

Telecom Argentina Disposal

Further assets available for value creation (towers

in Italy and Brazil, TI Media Broadcasting)

Done 1.3 € bln

>2 € bln*

Material increase of financial flexibility: Above 4 € bln

* Estimated Cash proceeds. The overall treatment of the transactions will be subject to IFRS rules.

960 US$ mln Contract Signed

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MARCO PATUANO

Brazil

Telecom Italia Group: investing to enable the new TLC model

Italy strong increase in UBB

for a structural

differentiation

keep the pace on quality

increase focus on

innovative components

to capture the full

potential of data

changing the mix between innovative and

traditional capex to sustain faster UBB

deployment and move to adjacent sectors

delayering network architecture to gain

operational flexibility, reduce running costs and

lift the business model agility

accessing to public funds (“Anti- Digital Divide”

& “EuroSud” Programs) to accelerate fiber

deployment in black & grey areas

increase network capex to fully serve 3G now and

progressively 4G. Higher focus on network

infrastructure and efficiency in terms of quality and

coverage

continuous deployment of fiber (FTTS) to support

data traffic growth

full deployment of RAN sharing opportunities

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MARCO PATUANO

Focus on domestic investments: a faster Ultra-BB deployment

Why Speed-up?

UBB Willingness To Pay

Digital Agenda and Public Bids

lever on adjacent sectors

develop Fiber & LTE in unison

path

New NGN Plan

New LTE Plan

~ 35%

2016

Old NGN Plan ‘13-'15

2015 2014 2013

New NGN Plan ‘14-'16 New Coverage(1)(2) Targets

2015: +5pp vs old Plan

2016: >50% in 2016

(1) coverage population, (2) including public funds, (3) Cagr'12-'17; Cisco

& A.T Kearney Analysis

80%

~40%

60%

2013 2014 2015 2016

Already reached

New Coverage(1) Targets

2015: ~+10pp vs old Plan

2016: x2 vs 2013

Why Speed-up?

preserve a sound leadership in

Mobile UBB

rapid growth of smartphone &

tablets will drive high data

usage(3): +75% of video, +62%

of gaming & +34% in file sharing

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MARCO PATUANO

2013 2014 2015 2016

technology IT, Commercial & other

Growing innovative portion of domestic investments

Domestic Capex

3.0

55% >60%

€bln,%

increase Technology

expenditure share on

total domestic

reduction of running

operations

expenditures

reduction of

non-Technological

investments

around 9 €bln Domestic Capex in the Plan horizon

+ +

~3.4 €bln of innovative

capex in ‘14-'16 Plan(1)

vs ~1.3 €bln in ‘13-'15 Plan

(1) including public funds

efficiency in non high-tech spending

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MARCO PATUANO

Tim Brazil Strategy is set for Infrastructure Evolution

MASSIVE LD

BACKBONE

FIBER TO

THE AMAZON

Fiber to the Site / Mobile Broadband Project Key to

Data Growth

Targeting 38 cities in 2013,

100+ cities till 2016

From 2-8 to 100+ Mbps

LTE Ready

Macro coverage fine tuning

Focus on IP infrastructure,

caching, peering

INTELIG

ACQUISITION

New backbone routes - Increasing resilience.

Increased Coverage & Access Capacity # new elements

82% urban

population

2013 2014 2015 2016

95% urban

population

#NodeB / eNodeB

(3G + 4G)

# BTS (2G)

2012 2013e 2014e 2015e 2016e

New Sites

Including

Small Cells

POP MW

POP MW POP MW

POP MW

BSC-RNC Site

POP MW

2013 2014 2015 2016

LTE* 3G 2G

Backhauling Evolution

Fiber Base Infrastructure Growth

2009 2013 2016

INTELIG

15.000KM

46,000 KM OF

FIBER BY YE13

65,000 KM OF

FIBER

Capex Evolution Towards Data % of total Capex

Small Cell Approach # new elements

*Includes 2.5 GHz RAN Sharing

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MARCO PATUANO

Domestic top line stabilization

traditional

innovative

digital Life &

new revenue

streams

stabilize

the trend

foster

growth

exploit new revenue

streams

M/S defence in a more rational TLC arena

Focus on TI+TIM distinctive convergent approach

Clients segmentation and traffic flatization

Purchasing Groups monetization (Families, Corporates,

Employees)

F-M convergence

Lever on multidevice approach and foster on BYOD

strategy to accelerate penetration on business segment

Faster UBB development

Enrich UBB with video content

Entertaiment

Advertising

Cloud & M2M

Digital PA & e-health

Consumer Business

x

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MARCO PATUANO

x

x

x

TI’s new fully convergent approach on Consumer Segment

3Play

nPlay

voice voice

communication

& pure

connectivity

additional TLC

services

content &

entertaiment IT service

equipments &

handsets

x

x

x

x

x

x

SIM

x

SIM

+

upgrade to Ultra Broadband connectivity

broadband

x

x

x

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MARCO PATUANO

TI&Sky: a strategic partnership for value creation

2013 2014 2015 2016

pay-DTT satellite OTT video

Pay-TV Market

~3bln€

Source: Analysis Mason

Over the next 5 years, a wider adoption of OTT video

services will be occured due to the availability of 3.0

platform and «media streamers»

The Italian pay-TV market is worth approximately 3 €bln

and its value and number of lines growth are fully due

to over-the network service provided by TLC operators

x

Telecom Italia & Sky

agreement will allow TI and

TIM customers to follow next

year some of major Sky sports

events on smartphone, tablets

and PCs by BB and UBB

networks

cross selling of mobile services

together with TV contents

increasing loyalty and CB

profiling

CB expansion via upselling of

TLC services towards adjacent

contents market

http://www.sky.it/

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MARCO PATUANO

60%

40%

Total Households Households which does NOT possess

71%

65%

59%

48%

39%

24%

18%

12%

5%

2%

1%

1%

R$ 10

R$ 20

R$ 30

R$ 40

R$ 50

R$ 70

R$ 80

R$ 100

R$ 150

R$ 200

R$ 250

> R$ 250

Possess Internet connection

Do NOT Possess Internet connection

24.5 Mln

36.8 Mln

Too Expensive

Lack of Coverage

Other

44%

16.2 Mln

24%

8.8 Mln

32%

11.8 Mln

53% of active connection

base has currently a speed

below 2 Mbps

The Brazilian Data Opportunity: The Quest for Internet has a Mobile response

61.3 Mln

Willingness to pay (% of Households)

CA

BLE

FT

TH

AD

SL

VD

SL

MB

B

Market Data Revenues Growth 2016 vs. 2012

>13 bn Reais on Mobile (+100%)

>7 bn Reais on Fixed (+35%)

Source: CETIC´13

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MARCO PATUANO

Telecom Italia Group opex efficiency Plan

Italy milestones for further

operating efficiencies

leaner organization,

focus on internal

processes and strict

cost control

foster and streamline through a stronger divisional

responsibility

industrial costs optimization

enhance multi-channel approach and careful SAC

policy tightly linked to revenues

increase productivity also through process

internalization

zero based-budget model on G&A costs

commercial: low SAC, keeping payback

(SAC/ARPU) under control and bad debt stable

at low levels

network: increasing MOU with stable leased

lines costs. Proprietary infrastructure

deployment. RAN sharing opportunity.

Brazil

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MARCO PATUANO

Focus on domestic opex savings

cumulated efficiency

-1,0

-0,4

-0,4

-0,2

2016

2015

2014

€bln

cum.

‘14-’16

3,0

1,2

1,6

2,7

2013 2014 2015 2016

volume/revenues driven(1) market/customer driven(2)

process/asset driven(3) personnel costs

8.5

opex breakdown by cluster

(1) COGS: interconnection, COGS, other COGs

(2) COMMERCIAL COST: customer acquisition, ADV, customer management, other commercial costs

(3) INDUSTRIAL COST & G&A COST

+0.1 €bln

-0.1 €bln

-0.5 €bln

-0.5 €bln

breakdown by year

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MARCO PATUANO

Agenda



Telecom Italia targets

Appendix

29



MARCO PATUANO

Telecom Italia Targets

Group Domestic Brazil

Organic data

Revenues Cagr ‘13-’16

Stable Negative

Low Single Digit

Positive

Mid Single Digit

Ebitda Cagr ‘13-’16

Stable Negative

Low Single Digit

Positive

Mid Single Digit

Capex(1)

Cum. ‘14-’16 <14€bln

Net Debt Adj

/Ebitda 2016(2) ~ 2.1x(3)

Capex/Revenues

~ 18%

Capex/Revenues

~ 17%

(1) excluding spectrum

(2) reported EBITDA

(3) including announced equity strengthening

excluding impact from non-organic items and FX. Avg exchange rate: Reais/€ 2.99

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MARCO PATUANO

TIM Part: 2014-2016 Guidance

Total

Net Revenues

EBITDA

CAPEX

18,8

2012 2013e 2014e 2015e 2016e

5,0

2012 2013e 2014e 2015e 2016e

R$ billion

R$ billion

0,5

3,2

2012 2013e 2014e 2015e 2016e

R$ billion

Infrastructure

Other/Licenses

3.8

Guidance

2013-2016 CAGR:

Mid Single Digit Growth

2013-2016 CAGR:

Mid Single Digit Growth

Total CAPEX 2014-2016:

> R$11 billion*

*Does not consider 4G licenses (700Mhz).

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MARCO PATUANO

Agenda



Appendix

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MARCO PATUANO

Domestic 3Q check list

Co

nsu

mer

Bu

sin

ess

W

ho

lesa

le

Ca

sh C

ost

s

Fixed

Mobile

Fixed

Mobile

Domestic

Int’l

Ebitda

Capex

What we said What we did

Continued support from Value Strategy on ADSL. Initial take-up from Fiber

adopters. Further contribution from monthly rental fee repricing and price

simplification.

YoY gap narrows-in on the back of positive support from CB recovery, milder

competitive arena and more favourable MTR comparison. Focus on

“Convergence”, Mobile UltraBB and “Segments” (e.g. Ethnic and Young ).

Negative impact by new regulated prices also in 2H.

Crash program on Opex.

Extention of site sharing Agreement with other large Mobile Operator.

Continued improvement on third-party agreeements. Flattish YoY

performance expected in the last part of the year.

Investments in new technologies go ahead, as early take-up phase

builds momentum.

Introduction of «Tutto» dual-play yields impressive take-up rate

(~250k clients by end-October), successfully responding to a

market/industry/technology changed in pattern of voice traffic. Fixed

repricing ensured stability on access revenue stream.

Active mobile CB was up about 200k QoQ; TIM's effective

commercial strategy forced market into a more rational competitive

game

Kept focus on cost control, in order to maintain best in class Ebitda

margin level among EU peers.

90% of FY'13 Capex target efficiency, notwithstanding high level of

investments in the Country

Fiber commercially launched in 33 Cities & more than 40% LTE

coverage as of today

The effect of regulated price revision occurred in July still drives the

YoY performance in Domestic Wholesale

New Sparkle's third-party agreements took place in September.

Revenues improvement confirmed with positive contribution in the

last quarter: +0.6% YoY in 3Q vs -13.1% YoY in 2Q and -18.4% YoY in

1Q13

Full convergent & modular offers launched in the market: dual-play

«Tutto» and triple-play «Tutto + Insieme» are showing positive

performances and CB stabilization, preventing pure price war effects.

Launch of flexible and innovative bundles (BB F/M + ICT services)

Focus is kept on innovative services (ICT & Cloud), leveraging for Soho / SME

Continuing development of new streams of business, mainly IaaS and PaaS

Mantain «value acquisition per line» strategy and defend ARPU through

upselling.

Leveraging on «BYOD» concept to accelerate penetration and increase

innovative services adoption.

33



MARCO PATUANO

Latam 3Q Check List

Bra

zil

Arg

enti

na

Network

Net Adds & M/S

Quality & Regulation

Marketing

Fixed

Mobile

Regulation

Network

Key Drivers Take-aways

Progress in the deployment of the MBB/FTTS Project

MBB Targeting 38 main cities by YE13 from previous 14.

New backbone routes and HLR centrals

Initiating small cell coverage

Leadership in customer net adds in 9M (+2.5mln)

Increase in owned stores

Strong mass sales channel performance

4G: Prudent strategy in the auction & efficient roll-out paying-off

Continuous focus on Customer Care Performance

Focus on network development

Strong rebound in commercial performance started in 2Q

Great success in “Black” profile

Innovation in offerings supported the revenue trend, ensuring

superior relative performance

Maintaining solid data services growth

Keeping the Innovative Approach

New offer consolidation (Web+SMS, “Seu Troco”, Itz Calls)

Focus in service quality improvement and continuous mobile

network expansion to increase coverage and capacity.

Proceed with “MBB Cities” deployment

Enhancing network access and quality

Reducing leased lines dependency and costs

Smartphone approach to support data usage growth, with

EBITDA neutral impact (“Zero-Subsidy Policy”)

Handsets sales are setting the base for upselling MBB

customer base

Increasing postpaid CB 16% YoY and also mix over CB (16.4%

from 14.8% in 3Q12)

Low SAC and Payback (SAC/ARPU) under control

4G: 28% of Mkt Share (#2) in September

High customer care performance and lower complaints

(Anatel ) KPIs reached

Fixed and BB net adds back to positive for 2 quarters in a row

ARPU BB increased by 22% YoY at 121 AR$/month in 9M

New Data, SMS and Voice bundle to increase usage/penetration

while defending traditional service Revenues

TEO #1 in smartphone sell-out

Improving brand preference in Youth segment

Continuous FTTx deployment to enrich value proposition

Quality of Service: new set of procedures for fixed/mobile

operators to monitor network and customer care' s quality

The new regulatory regime was announced in June but the

technical implementation procedures are expected to be issued

by CNC by end of November

34



MARCO PATUANO

465 537

213 259

9M'12 9M'13

1.543 1.890

762

962

9M'12 9M'13

Argentina

+26.0%

+22.5%

2,305

2,852 +23.7%

3Q

1H

Revenues Ebitda

3Q

1H

+21.4%

+15.5%

+17.5% 678

796

on revenues 29.4% 27.9%

Capex

3Q

1H

315

417 +32.4%

+59.4%

+15.5%

Organic data,

€mln, %YoY

Highlights

200 231

115

186

9M'12 9M'13

• Mobile Revenues (+26.7% YoY in 9M): mobile internet (+59%

YoY) and strong handset sales (+51% YoY) sustain growth.

Impressive Personal net adds in 3Q (~550K vs. 9M:+880K)

• Fixed Revenues (+15.8% YoY in 9M): positive net-adds trend

started in 2Q and accelerated in 3Q (BB:+35K, fixed lines

+10K)

• EBITDA margin at ~28%, decreasing by 1.5pp YoY in 9M (-

1.0pp YoY in 3Q). Strict cost control to mitigate higher labor

costs and taxes associated to revenues

• Focus on network quality upgrade. Capex-to-sales at 14.6% in

9M (+1pp YoY)

35



MARCO PATUANO

The Regulatory Environment

Italy Brazil

WHOLESALE PRICING

Decisions about 2013 copper access prices are still under the scrutiny

of the European Commission. Final decision is expected around the

turn of the year

Decision on 2014/2016 prices (by May-June 2014) expected to

increase copper and to decrease fiber prices

RETAIL PRICING FLEXIBILITY

More flexibility in pricing, particularly relevant for the deployment of

the plan, is an expected regulatory development

NETWORK SEPARATION

The project of voluntary separation is ongoing and will start focusing

on EoI through a functional separation

This approach is compliant with Kroes Recommendation and

represents a European best practice

EUROPEAN REGULATION IS PROMOTING PREDICTABILITY AND

SUPPORTING TO LONG TERM INVESTMENT

The recent European Commission draft regulation, aimed at promoting

a European single market, fully endorses and further develops “Kroes

Recommendation” approach

The proposal, if adopted, will positively affect telecommunications

markets by enhancing regulatory predictability and investments

incentives

WHOLESALE PRICING

Cost Modeling: ongoing consultation for a cost-based model of 2016

wholesale reference prices (fixed and mobile interconnection, leased

lines)

WACC: Public Consultation open to set ANATEL's methodology

Wholesale Replicability: Public Consultation to develop a Retail Minus

approach

Light Pole Sharing: introduces reference price

SPECTRUM AND COVERAGE

4G RAN Sharing TIM/Oi: The 4G extension agreement with Oi (besides

the starting 12 cities already planned) will be defined and filed in the

next days at CADE

700MHz: very challenging roadmap to conclude technical and

regulatory bid procedures before June 2014

Coverage Obligations Roadmap

CONSUMER PROTECTION AND QUALITY

Quality Improvement Plan: focus on Network performance Indicators

with increasing local granularity

Service, Billing and Offers (public consultation): new procedures for

costumer relations.

36



MARCO PATUANO

N.B.The figures are net of the adjustment due to the fair value measurement of derivatives and related financial liabilities/assets, as follows: - the impact on Gross Financial Debt is equal to 1,835 €/mln (of which 500 €/mln on bonds) - the impact on Financial Assets is equal to 877 €/mln Therefore, the Net Financial Indebtedness is adjusted by 958 €/mln

Well Diversified and Hedged Debt

Euro mln

Total Gross Debt net of Adjustment: Euro 36,066 mln

Gross debt 36,066

Financial assets (7,837)

of which C & CE and marketable securities (6,747)

C & CE (5,456)

Marketable securities (1,291)

Italian Government Securities (1,028)

Other (263)

Net Financial Position 28,229

3.7% Op. Leases and long rent 1,319

5.4% Other 1,979

15.7% Bank & EIB 5,652

4.0% Bank Facility 1,446

71.2% Bonds 25,670

Maturities and Risk Management

Cost of debt: 5.4%

Average debt maturity: 7.03 years (bond only

7.89 years)

Fixed rate portion on gross debt approximately

67.3%

Around 42% of outstanding bonds (nominal

amount) is denominated in USD, GBP and YEN

and is fully hedged

37



MARCO PATUANO

Domestic top line: Traditional Services in the Consumer Segment

innovation price distinctiveness & QoS

less commoditization

approach on traditional

services

reducing total gross

acquisition market

less MNP exposure

focus on segmentation:

taylored offers for key

specific clusters

M&F convergence

focus on loyalty

new caring model

multichannel

~28%

2013 2014 2015 2016

stable market share

value drivers

defend pure fixed voice

line

focus on all inclusive &

unlimited offers

taylored offers for key

specific clusters

M&F convergence

focus on loyalty

new caring model

multichannel

50%

2013 2014 2015 2016

stable market share

tra

dit

ion

al

mo

bile

tra

dit

ion

al

fixe

d

moving to a fully convergent approach with

one single commercial brand

Lever on:

38



MARCO PATUANO

2013 2014 2015 2016

mobile fixed

Domestic top line: Innovative Services in the Consumer Segment

inn

ova

tive

mo

bile

dig

ita

l life

&

ne

w r

eve

nu

es

stre

am

s

innovation price distinctiveness & QoS

more value for Giga

add-on approach for LTE

offers

shared data plans

increasing penetration of

smartphones and tablets

data-only SIM &

multidevice strategy

strategic agreements

with content providers

video & music premium

contents

premium quality connectivity

High-speed MB: LTE & 42

Mb/s

x

value drivers

BB customer base Cagr

'13-'16

+3%

2013 2014 2015 2016

small screen large screen

+20%

VAS OTN (content) on serv. revenues

‘16 vs ‘13

~5X

Inn

ova

tive

fixe

d lever on BB lines

acquisition

enrich Fiber offers


lever on innovative

service enablers:

multiscreen/multiroom

premium quality for Video

& Gaming

Ultra-BB Speeds

x

2013 2014 2015 2016

Cagr

'13-'16

+7%

premium offers included

into bundle

exclusive agreement with

primary content provider

Cubo suite platforms

(music, video, books,…)

innovative services for

targeted segments

connected home

‘16 vs ‘13

~2X

moving to a fully convergent approach with

one single commercial brand

Lever on:

39



MARCO PATUANO

Domestic top line: Business segment – Fixed & Mobile

tra

dit

ion

al

fixe

d &

mo

bile

inn

ova

tive

fixe

d &

mo

bile

IC

T

innovation price

unlimited F-M offers and

new bundled solutions

focus on convergence

further push on flat

tariffs

customer base value

stabilization through

defense via value-for-

money approach

customer base growth

through B2B2C

keep focus on «BYOD»

strategy

lever on LTE and focus on

small screen


convergent approach

develop new propositions and

increase penetration of Cloud

services

cloud OTT and core services

bundle solutions

opening to new partnerships

with Saas/S.I. leaders

lever on advanced caring

models and innovative

loyalty programs

keep outstanding CSI ratios

best-in-class model

adoption on provisioning,

billing and assurance for

cloud OTT services

distinctiveness & QoS

bundle propositions

development with SLA

premium services and

full infrastructure

outsourcing

x

value drivers

2013 2014 2015 2016

services products

Revenues ICT Cagr

'13-'16

+2%

+7%

50%

2013 2014 2015 2016

market share

fixed

mobile

BB revenues: flat fixed

mobile +10% MBB clients

(large&small)

innovative services (Cagr ‘13-'16)

protect revenues on

traditional IT services

Lever on:

40



MARCO PATUANO

Brazil snapshot: we don’t forget voice,

whilst we’ll bring data on board

strong growth

in market

share

still a lot of value in fixed to mobile substitution

focus on quality

postpaid continuous growth, better customer mix.

continuous offer evolution backed by innovative DNA.

fixed-segment revenue to stabilize by mid-2014

inn

ova

tive

x

tra

dit

ion

al

Brazil shows an unsatisfied internet appetite

focus on coverage strenghthening

3G for now, 4G is coming

work on quality

lever on smartphone as data penetration enabler

41



MARCO PATUANO

Mandatory Convertible Bond

On November 8 2013 Telecom Italia Finance has successfully completed the issuance of a Mandatory Convertible

subordinated bond into Telecom Italia S.p.A. ordinary shares (“Telecom Italia”). Main terms & Conditions:

Issued Amount: €1.3bn

Maturity: November 2016

Coupon: annual 6.125% (with right of coupon payment postponement at Issuer's discretion)

Settlement date: November 15th, 2013

Guarantor: Telecom Italia S.p.A.

Mandatory Conversion: into Telecom Italia ordinary shares, subject to approval of a capital increase from TI's EGM within

the end of February 2014

Conversion ratio: minimum and maximum price shall be respectively €0.6801 and €0.8331. The maximum number of TI

shares to be issued to serve the conversion is 1.911.483.605 ordinary shares

Other conversion: always subject to EGM's approval of a capital increase to serve the transaction, upon occurrence of

certain events, certain accelerated and/or voluntary conversion events are foreseen, at the Issuer's / Holder's option

Cash payment: should TI's EGM not approve the capital increase related to the transaction, the Issuer shall have the

option to repay in cash the subscribers

Use of Funds: General Corporate Purposes, without the possibility to finance and / or guarantee Telecom Italia

Governing Law: UK

Listing: on a regulated market or on an internationally recognized multilateral trading system, within March 15th 2014.

42



MARCO PATUANO

Sale of Telecom Argentina: Contract signed Milan, November 14, 2013

Pursuant to the mandate of its Board of Directors, Telecom Italia has accepted during the night the offer of Fintech Group

for the acquisition of the entire controlling interest of Telecom Italia Group in Telecom Argentina, held by it and through its

subsidiaries Telecom Italia International, Sofora Telecomunicaciones, Nortel Inversora and Tierra Argentea, for an aggregate

consideration of USD 960 million.

Of this amount, USD 859.5 million will be paid as consideration for the sale of*:

- 68% of the voting shares in Sofora held by Telecom Italia and Telecom Italia International, (USD 750.8 million);

-15,533,834 Class B shares of Telecom Argentina, representing 1.58% of the outstanding shares, held by Tierra Argentea,

(USD 61.2 million);

- 2,351,752 American Depositary Shares, representing 117, 588 Preferred B shares of Nortel, equal to 8% of the Preferred B

shares held by Tierra Argentea, (USD 47.5 million);

The remaining USD 100.5 million will be paid pursuant to additional agreements related to the transaction, including an

agreement to continue providing the Telecom Argentina companies technical support and other services for up to three

years, the waiver by Telecom Italia of certain rights under, as well as amendments to, the current shareholders' agreement

relating to Telecom Argentina with the Werthein Group who will retain 32% of the voting shares of Sofora, and commitment

Fintech to pay amounts already reserved for dividends by Telecom Argentina, if such dividends are not declared and paid by

the Telecom Argentina Group prior to closing.

Telecom Italia Group has received certain guarantees of performance under the agreements, including the pledge by

Fintech of American Depository Shares representing Preferred B shares of Nortel, in a number equivalent to an initial

average market value of USD 100 million.

*: The sale of the Class B shares of Telecom Argentina and the Nortel American Depository Shares held by Tierra Argentea is expected to occur before year end, whilst the

sale of the Sofora shares is conditional upon obtaining certain required regulatory approvals.

43



MARCO PATUANO

Other assets available for value creation worth, in aggregate, more than € 2 bln

Tower lease (Italy and Brazil)

TI forerunner in passive infrastructure sharing - initiated 10 years ago in order to reduce costs

The goal is now to enhance and extract value from tower asset base, also reducing focus on “non core” passive elements of the network

Main non captive network operator in the Italian market

Potential synergies (efficiencies, broadening of our portfolio, better allocation of bandwidth capacity)

1st phase integration between TIMB and Rete A, retaining control of the combined entity

2nd phase sale of a stake of the company (up to 100%) to a third party investor

Multiplex sale

+

Perimeter: Italy: more than 10k owned towers

Brazil: more than 7k owned towers

No active network component

Perimeter: TI Media Broadcasting:

assignee of 3 MUX - 65.4 Mbps capacity DTT platform (812 sites, 95% of Italy's population)

Gruppo Espresso - Rete A: assignee of 2 MUX - 47 Mbps capacity DTT platform (427sites, 90.9% of Italy's population)

44



MARCO PATUANO

Domestic Mobile Revenues Breakdown

total

3Q’12 3Q’13 YoY

Organic data,

€mln, %YoY

wholesale(1)

Consumer+Business

services

outgoing voice

VAS

business received

handsets

9M YoY

1,584 1,368 -13.6% -16.0%

82 80 -2.8% -

1,502 1,288 -14.2% -16.7%

1,420 1,200 -15.5% -17.9%

1,335 1,158 -13.2 % -12.7%

832 658 -20.9% -17.5%

503 500 -0.5% -4.8%

85 42 -51.1% -64.4%

82 88 +7.8% +1.4%

business generated(2)

(1) Including Visitors

(2) Total Retail Service Revenues net of Incoming

45



MARCO PATUANO

Domestic Fixed Revenues Breakdown

total

3Q’12 3Q’13 YoY

Organic data,

€mln, %YoY

Sparkle group

Core service

voice & access

internet

business data

national wholesale

other & subs

products

eliminations

9M YoY

3,132 2,898 -7.5% -7.8%

337 339 +0.6% -10.4%

2,789 2,557 -8.3% -7.5%

1,306 1,178 -9.8% -8.9%

396 401 +1.2% +1.4%

281 279 -0.7% -3.1%

744 650 -12.6% -10.8%

62 49 n.m. n.m.

62 49 -20.1% -15.8%

(56) (47) n.m. n.m.

46



MARCO PATUANO

-490

-207

-

-100

-27

-136

-20

-283

D Efficiency

D Abs

'13 vs ‘12

Total Cash Cost

9M‘13

-446

2.022 Total Capex +40

1.794

809

-114

1.995

+17

-108

+33

6.087 Total Opex* -618

1.087

-446

-

-446

-

-

-

-

-446

D ITX

+358

+247

-

- 14

+44

+ 28

+53

+111

D Vol.

Driven

Industrial

Personnel

Mktg & Sales

ITX

G&A & Other **

-578

402

Efficiency Volume Driven

- 446 8.687

-578

-490

Intercon- nection

9M'12 9M'13

8.109

Handsets:

- 29

+358

9M'12 9M'13

8.109

76% of FY13 Target

90% of FY13 Target

82 % of FY13 Target

64.8% 67.2%

+ 2.4 p.p.

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

Progress on Domestic Efficiency Ytd ‘13 - Breakdown Euro mln, Organic Data, %

Cash Cost

Cash Cost on Revenues

Target FY : - 601

Delta Cash Cost

9M’13 vs FY ‘12

47



MARCO PATUANO

+29,0%

+5,0%

9M

'13

9M

'13

-21,0%

-12,0%

Customer Care: operating KPI’s 2013

ma

rke

t d

yna

mic

s

cari

ng

pro

du

ctio

n

ca

pa

city

cre

dit

pro

du

ctio

n

capa

city

Front End

(call)

Back Office

(items)

Front End

(call)

Back Office

(items)

He

ad

cou

nt -4%

9M'12 9M'13

46

45

flat

11 11 10.872 10.326

9M'12 9M'13

-546

«make» growth «buy» reduction «in-house» incidence

46% 51%

9M'12 9M'13

41% 53%

9M'12 9M'13

Contribution CS

on selling activities

58% 10%

50% 23%

73% 88%

Access MNP BB ULL SI Contents

64%

8% 48% 16%

Access MNP BB ULL

Consu

mer

Ente

rpri

se

Annual managed issue

Consumer: 7 mln

Enterpise: 2.8 mln

Solecit

80%

cre

dit

qu

ality

(C

SI

cust

om

er

care

)

7,18 7,32

7,68

6,57 6,67

7,10

1Q'12 4Q'12 3Q'13

Consumer Enterprise

7,84 7,89 7,99

6,7 6,9 7,19

1Q'12 4Q'12 3Q'13

Consumer Enterprise

fixed

mobile

FTE

Documents

TI 3Q’13 Results & 2014-16 Plan Outline - Gruppo TIM · 2021. 7. 4. · TI 3Q’13 Results & 2014-16 Plan Outline . MARCO PATUANO 1 TELECOM ITALIA GROUP Morgan Stanley ... 2Q'12