Telecom Italia – Domestic Market FY 2011 Preliminary Results and 2012‐14 Plan Outline (Patuano)

MARCO PATUANO

Telecom Italia Conference CallFull‐Year 2011 Preliminary Results and 2012‐14 Plan Outline

Telecom Italia – Domestic MarketFull‐Year 2011 Preliminary Results and 2012‐14 Plan Outline

MARCO PATUANO


Safe Harbour

2

These presentations contain statements that constitute forward‐looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and includestatements regarding the intent, belief or current expectations of the customer base, estimates regarding future growthin the different business lines and the global business, market share, financial results and other aspects of the activitiesand situation relating to the Company and the Group.Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, andactual results may differ materially from those projected or implied in the forward looking statements as a result ofvarious factors. As a result thereof, Telecom Italia S.p.A. makes no representation, whether express or implied, as to theconformity 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 datehereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, andcould significantly affect expected results.Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of thedate of this presentation. Telecom Italia S.p.A. undertakes no obligation to release publicly the results of any revisions tothese forward looking statements which may be made to reflect events and circumstances after the date of thispresentation, including, without limitation, changes in Telecom Italia S.p.A. business or acquisition strategy or plannedcapital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged toconsult the Company's Annual Report on Form 20‐F as well as periodic filings made on Form 6‐K, which are on file withthe United States Securities and Exchange Commission.It should also be noted that starting from the year 2010, Telecom Italia reclassified some taxes paid in Brazil of non‐material amount, previously included in “Other operating expenses”, in reduction of “Revenues” and “Other income” inorder to ensure a better comparability and intelligibility of the financial information.

MARCO PATUANO


Agenda

Telecom Italia Domestic 2011 Results

Telecom Italia Domestic Plan Fixed Business Mobile Business Innovation Focus on Costs Capex Allocation

Take-Aways

3

MARCO PATUANO


2011: Continued Recovery in a worsened context%, Euro mln, Organic data

1Q11 2Q11 3Q11 4Q11

-7.4%-6.0%

-3.8%-2.0%

Revenues EBITDA

19,033-4.8%FY11

4

4,596 4,760 4,742 4,935Abs

YoY

1Q11 2Q11 3Q11 4Q11

-7.6%

-4.8%-2.5%

-0.3%

2,273 2,318 2,478 2,282Abs

FY11

Ebitda-Capex

-5.7%-4.5%

-2.9%-1.3%

1,610 1,623 1,821 1,320Abs

YoY

1Q11 2Q11 3Q11 4Q11

FY116,374

Highlights

Tough external macro-economic

conditions, regulatory evolution and

competitive environment

Strong Cash Generation, critical for TI

Group strategic achievement

9,351-3.9%

YoY Including effect of:- Credit provisions: -41 €Mln- VAT increase: -12 €Mln- IAS19: +43 € Mln

LTE excluded

MARCO PATUANO


3,397 3,230

3,392 3,227

3,318 3,247

3,360 3,297

2010 2011

Euro mln, Organic data, %

1Q

2Q

3Q

-1.9%4Q

-2.1%

-4.9%

-4.9%

13,466 13,001-3.5%

‘000 Access

Total TI

Domestic Fixed: Paving the Way to Access Valorisation

Highlights

Telecom Italia Access TI Lines Evolution

Wireline Services Revenues Trend

‘000

2009 2010 2011

+1,221

+612+289

-1,255

-746 -699

Who

lesa

leR

etai

l

5

Better performance on Line Losses in a worse market and economic environment

Infra-OLO churn increased

Wireline Service Revenues trend improvement confirmed

Important evidence of TI’s ability to monetize its premium value proposition

Who

lesa

leR

etai

l

TI -206OLO +181

-25-133

-176-77

22,122

15,351

6,771

1Q 2Q Q Q2010 2011

14,652

7,060

21,712

-410

TI -183OLO +51

TI -135OLO -42 TI -175

OLO+98

MARCO PATUANO


Domestic Fixed: Adding Value to Broadband

Broadband Services Revenues

TI Retail Broadband Accesses Highlights

Broadband ARPU

Euro/month/line -1.3%

18.6 18.4

2010 2011

6

Lower market growth.

OLO’s price war not followed by TI: BB

Customer Base successfully defended.

Success on Value Approach: growth in

Revenues and in consumer ARPU,

supported by SuperInternet results.

Total Italian BB accesses

13,082 13,455‘000

12,294

Free

7,125

2009 2010

7,1757,000

2011Total Market

Share 56.9% 54.8% 53.0%

87%86%83%

+788 +373

% yoy growth

1H11 2H11

-0.3%

+0.5%

4Q11 consumer ARPU +2.1%YoY

Flat

MARCO PATUANO


31,018 31,038 31,260 31,679

32,227

4Q10 1Q11 2Q11 3Q11 4Q11

Domestic Mobile: Customer Base Trend

Churned SIM cards

Total SIM cards Net Adds

Gross Adds

‘000

Churn Rate %

‘000

‘000

‘000

20

222

419

548

1Q11 2Q11 3Q11 4Q11

+1,209 vs YE10>7x FY 2010 performance

7,181 7,135

22.0% 21.9%

FY 11FY 10

7,343

8,344

+13.6%

FY 11FY 10

7

+3.9%

MARCO PATUANO


-11.7%

-8.7%

-7.5% -7.1%

-9.6%

-6.7%

-5.1%-4.7%

1Q 2Q 3Q 4Q

Oct-Nov ~- 6%

-22.4%

+26.2% +34.0%

+96.5%

1Q 2Q 3Q 4Q

% YoY

Handsets Revenues

8

-12.0%

-7.6% -6.5%

-2.2%

1Q 2Q 3Q 4Q

Total Revenues% YoY, Organic data

-7.1%FY11

FY10 -10.5%

Services Revenues

% YoY

Excl. MTR

Browsing Revenues

-6.9%

+2.8%

+18.7%+21.0%

1Q 2Q 3Q 4Q

% YoY

% Browsing Revenues on Service Revenues

12% 13% 14% 15%

Domestic Mobile: 2011 Key Revenues Trends

FY11+40.2%

MARCO PATUANO


4.6 5.8

4Q10 1Q11 2Q11 3Q11 4Q11

Mobile Consumer: FY11 Highlights

In 2011 TIM became Best in Class in Customer satisfaction on:

Point of Sales, Customer Care & Web-Site

8.4% 8.8%

TIM Total Market

Flat offers (TIMx, Tutto Compreso)

% Smartphone on Handsets sold

~56%~56%

~3.4 mlnTotal H/S* Smartphones

+210% YoY

FY11

mln

FY10 FY11

1.542.29

+49%

ARPU(€/month)

6.9 7.1 +3%

Customer Base Growth Loyalty Increase Mobile BroadBand

Strong increase in acquisitions

Sound Growth in CB Calling

MNP Churn Rate

Push on flat offers

TIM MNP Churn lower than Market Average

Small Screen Handsets

*Source GFK Survey

Small Screen Users

9

(mln)

20.320112010

1Q 2Q 3Q 4Q

+19%YoY

Gross Adds Net Adds

FY11

>1 Mln

FY10 FY11

>1 mln

MARCO PATUANO


242

3,082

1,485

420

316

799

63

Q410

3,602

362

(84)

(15.3)

(3.1)

(6.0)

(1.7)

(4.4)

(1.0)

n.m.

YoY %

(2.8)

5.5

16.7

Products

Domestic Core Services

Voice & Access

Internet

Business Data

National Wholesale

Other

Total

Sparkle Group

Elimination

205

2,985

1,396

413

302

791

83

Q411

3,502

382

(70)

Euro mln, Organic Data, %

Domestic Wireline Revenues

3Q11 vs 10 % YoY

(19.0)

(2.1)

(6.0)

(0.5)

1.7

3.0

n.m.

(2.8)

(4.9)

15.0

10

MARCO PATUANO



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

Total

o/w Services

WholesaleRetail

o/w VAS

o/w Incoming

Domestic Mobile Revenues

o/w Business Generated (*)

o/w Outgoing Voice (**)

Q410

1,870

1,719

65

1,805

508

221

86

1,498

990

Q411

1,828

1,612

47

1,781

534

178

169

1,434

899

% YoY

(2.2)

(6.2)

(27.7)

(1.3)

5.1

(19.5)

96.5

(4.3)

(9.1)

Handsets

3Q11 vs 10 % YoY

(6.5 )

(6.9 )

(21.4)

(5.9)

2.1

(19.3)

34

(5.2)

(8.6)

11

MARCO PATUANO


Agenda

12



Take-Aways

MARCO PATUANO


2012 Italian Economic Outlook

GDP ∆% Consumer Spending ∆%

Unemployment rate % Consumers refrain from non-essential spending in 2012

Near-term outlook for households consumption is poor

Unemployment rate expected to grow further

Rationalization on Corporate and PA spending partially offset by Government driven investments in innovation

Source: Global Insight Feb. 2012

1.40.4

-1.5

0.20.9

2010 2011 2012 2013 2014

1.10.4

-1.0

0.01.2

2010 2011 2012 2013 2014

8.4 8.3

9.1 9.3 9.1

2010 2011 2012 2013 2014

13

MARCO PATUANO


12.6

16.6

3.6

9.1

2011 2014

Italian TLC Market Evolution & Regulatory Framework

14

1 addressable

Bln €

ICT1

Mobile Service

Products

FixedServices

Domestic Market by Technology

41.9

TLC

Regulatory Scenario

New MTR glide path

International roaming prices on EU’s agenda

FTR: full symmetry already reached , IP interconnection transition in progress

Regulatory guideline on NGNA framework under definition. Geographical segmentation of fiber bitstream confirmed. No constraints on TI’s NGAN architecture.

6.3

3.5

1.70.98

5.3

2.51.5

current 07/2012 01/2013 07/2013

H3G TI/Vod/Wind

€cent

Source: Sirmi

32.8

Total

CAGR ‘11-’14

-2.1%-3/4% in 2012

TLC Services 29.2

Increase

Stable

MARCO PATUANO


15

Customer Base

Consumer Fixed

Loyallty

New Business

Consumer Mobile Business Top Client & PA

PreserveFree Cash

Flow GenerationEfficiency Processes Re-engineering

Efficiencies on Customer Ops (Credit & Caring Activities)

Sales Force Model Rationalization

Commercial Costs Industrial Costs Personnel

Sustaining Top Line

Unitary Cost reduction vs Volumesincrease

Focus on Right-sizing and Total Cost Control

Nurturing our Future

Network IT & Cloud

Efficiency Premium Performance

LTERoll out Market-driven NGAN

Maintenance and Development Innovative Broadband Services Internal Customer Driven

Platforms Cloud Infrastructure for

Market Development

Domestic Strategic Pillars: Aiming at Cash Generation

Increase Access Value Extend All Inclusive

penetration Sustain Premium

Positioning

Proactive caring approach

Lock-in differentiated offers

New Segment growth (ethnic and youth)

Further improvement on value acquisition mix

Improve Convergent approach/offer

Focus on win-backs, combining value for money with premium price defense

Widen content offer

Address new targets

Light ICT standardized solutions

Develop M2M application market

Leverage on Fixed-Mobile synergy

Increase flat offer penetration

Increase Cloud adoption leveraging on “the only cloud with its own network inside”

New business approach to better care for Top Clients

Proactive support to Govt. digitalization process

End2End service management

Enlarge ICT portfolio

Enrich smartphone and

tablet application portfolio

“Beyond connectivity”

Maximize Mobile Ultra Broadband wave

Personal Cloud and Innovative service enhancement

Strengthen CRM activities on voice and data for enhancing value

Customer view (vs sim)

MARCO PATUANO


Agenda

16



Take-Aways

MARCO PATUANO


17

Fixed Business: Safeguarding the Value

Increase flat/bundle offers

penetration

Increase focus on prospect

customers to improve win-back.

Refining Segmentation to Address

new Targets

CB lock-in through innovative

products and new offerings

Widen bolt-on offers portfolio.

Proactive Caring approach

Engage TIM Shops to increase

BB sales.

Portfolio enhancement

Widening portfolio for content,

applications bundled services

Quality and Service Level

Agreement differentiation

according to Customer Value

Wireline Access trend

‘11‐’14 CAGR

BB penetration on TI CB

2011 2014 2011 2014

48.6%

14.7

mln

BB Services Revenues

1.6

‘11-’14 CAGR

2011 2014

Euro bln

-4% >5pp>2%

Access Value Increase Enhance Broadband Experience Sustain Premium Positioning

MARCO PATUANO


Agenda

18



Take-Aways

MARCO PATUANO


19

Customer Base Growth Loyalty Increase Mobile BroadBand

Mobile Business: Surfing Data Opportunities

Maintaining leadership on acquisitions keeping focus on quality&value

More focus on segmented offers with limited and targeted use of pricing lever

CRM campaign optimization through deeper customer knowledge (profiling and social network analysis)

Increase focus on bundle and lock-in offers tailored by segment

Technological Distinctiveness

Leveraging on network leadership to deliver innovation to Mass-Market

Exploit recognized TIM brand attribute of reliability to lead LTE evolution

Continue to push on bundle smartphone/service and pack offering for mass market

CRM activities extended to data services

PREMIUM offers introduction with higher speed, better network quality and radio priority

Wireless CB trend

‘11‐’14 CAGR

Mobile BB penetration on TIM CB

2011 2014 2011 2014

22%

32.2

mlnMobile BB Revenues trend

‘11‐’14 CAGR

2011 2014

>3%

10pp10%

MARCO PATUANO


Mobile Technological Evolution while Protecting Profitability

Increasing speed availability

Strengthening HSDPA and LTE introduction

Maximum speed(kbps) 2009 2010 2011 2012 2013

3,6 7,2 14,442

84100

2014 January2012

June2012

Roadmap 42MB coverage

The advantages of 42MB

With PREMIUM offers Customers have an effective perception of Higher Speed

Fiber Bakhauling Dual Carrier NetworkPriority

Offer based on the Value of the Customer

Mass Market

Premium Customers

Speed

Up to14,4 Mbps

Up to 42 Mbps

100 Mbps

Network

HSDPA

HSDPA/LTE

Priority

NO

YES

Quality (everywhere/every time) Pricing

Speed Quality Priority

20

MARCO PATUANO


Agenda



Take-Aways

21

MARCO PATUANO


22

Innovation: «Beyond Connectivity»

ENTERPRISE & PUBLIC SECTORCONSUMER

Customerneeds-driveninnovation

Exploit Digital Agenda opportunities (simplification, digitalization)

Provide saving opportunities

Deeply revise Enterprise go2market through:

- New ICT-dedicated sales channels

Spread innovation and digital life in the mass market

Selective Development of a new positioning in music, video and apps markets

CLOUDTI DIFFERENTIATION

FULLY MANAGED SERVICES APPROACH

Leveraging on recognized network expertise, quality and

capillary presence (E2E caring and technical assistance)

Allow OTT to sell their apps to TI customers through ad hoc APIs

MARCO PATUANO


Agenda

23



Take-Aways

MARCO PATUANO


9.7 -0.6

2011 ITX Volume Driven Efficiency 2014

Efficiency Processes Re-engineering

24

Caring & Sales Force Model Rationalization

2011 2014

Unitary Cost reductionvs Volumes increase

2011 2014

Right-sizing & Total Cost Control

2011 2014

SlighlyReduction Stable Reduction

Bln €

> -1 Bln €

* TFR IAS adjustment excluded

*

Commercial Costs Industrial Costs Personnel

Domestic Opex

2012 2013 2014

0.30.2

0.1Efficiency on Opex

New Plan:-0.5 Bln € in 2012-2013

Old Plan:-0.2 Bln € in 2012-2013

Total Efficiency on Cash Cost ‘12-’141.0 Bln €

MARCO PATUANO


Agenda

25



Take-Aways

MARCO PATUANO


26

Fixed

&

Mobile

Maintenance and Development

Balance between Traditional Network and Innovative Enablers

Network Service

Platform

Innovation

Enhance quality of voice and data trasmission through network optimization

Steady increase in the ratio Fiber/Copper on Access Network

Excel in 2G & 3G network coverage

Continue the efficiency programs to finance Innovation Capex (0.4 Bln €in 12-14)

Staying on top for a UltraBB- Experience:

- Best-in-class in LTE launch and coverage

- First-rate in fixed Network: NGAN roll-out through FTT-x

Turning the Network into an All-IP technology

Cloud Infrastructures enhancement

Profiling

Policy Management

Autentication SIM Based

Content Delivering

QoS Differentiation

MARCO PATUANO


27

Capex Allocation

Strengthen the Network for a Technological Leadership

UltraBB Roadmap

35%

13%

52%

2011 2014

CustomerService& TrafficDriven

Network Develpment

Network Maintainance

Acceleration

Decrease

11%

2011 2014

HSPDA 42 Mbps LTE

NGAN Roll-out

Mobile Coverage

Optimize Network Investment to maintain excellent quality in TLC services

Increase the effort in Network Development and Innovation to confirm Technological Leadership and grant the Best Experience on the Net

2014100 Cities (including all

main ones) covered throughFTTH&Cab Technology

~¼ of Housing unitspassed with >30 Mb/s

Speed

2014More than 40% of

population covered by LTE

Optimization

Network Capex

MARCO PATUANO


Agenda

28



Take-Aways

MARCO PATUANO


Take-aways on main TI Domestic trendsEuro bln, Organic data

Strengthen the Network infrastructure with a strong focus on new technologies and services, to support data wave of growth, mantainingquality and performance excellence as distinctive asset

Domestic 2012 Capex : Almost Stable vs 2011

Capex

2011 2012

Negative middle single digityoy trend

9.35

Cost control: efficiency measures and operational business model optimization on caring and go to market will counter margin erosion

For 2012, we expect an Ebitida trend similar to Revenues one, with a broadly stable Ebitda margin

Ebitda

2011 2012

Negative middle single digityoy trend

19.03

Macro-economic pressure, traditional services comoditization and MTR new glide path suggest a challenging scenario on consumer and corporate spending and revenues trend, partially offset by browsing and innovative services increase.

For 2012, we expect a mid single digit decrease on Top Line yoy trend.

Revenues

29

2011 2012

AlmostStable vs

20113.0

MARCO PATUANO


Agenda

30

Back Up

MARCO PATUANO


611

12,260

6,036

1,688

1,204

3,093

240

FY10

14,077

1,528

(322)

(11.5)

(3.1)

(7.1)

(2.8)

(0.6)

2.7

n.m.

YoY %

(3.8)

(8.8)

14.3

Products

Domestic Core Services

Voice & Access

Internet

Business Data

National Wholesale

Other

Total

Sparkle Group

Elimination

541

11,884

5,607

1,641

1,197

3,176

262

FY11

13,542

1,393

(276)


Domestic Wireline Revenues

31

MARCO PATUANO



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

Total

o/w Services

WholesaleRetail

o/w VAS

o/w Incoming

Domestic Mobile Revenues

o/w Business Generated (*)

o/w Outgoing Voice (**)

FY10

7,657

7,116

285

7,372

2,042

951

256

6,165

4,123

FY11

7,114

6,552

203

6,911

2,034

786

359

5,766

3,731

% YoY

(7.1)

(7.9)

(28.7)

(6.3)

(0.4)

(17.4)

40.2

(6.5)

(9.5)

Handsets

32

MARCO PATUANO


33

Domestic Efficiency : Delta Cash Cost by Quarter

Abs’11 vs ‘10FY ‘11

-356

2.977Total Capex

1.976

945

-82

2.975

+10

-243

-26

9.682Total Opex* -585

2.332

Delta Cash CostFY 11 vs FY 10

Industrial

Personnel

Mktg &Comm.

ITX

G&A &Other ** 457

12.659

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

-715TotalCash Cost

997 +112Handset

-130

Abs by Quarter

1Q

-124

-3

-7

-54

+7

-182

-271

-3

-89

-123

-51

-7

-38

+22

-187

-227

+15

-40

-84

-27

+14

-46

-1

-121

-130

+17

-9

2Q 3Q

-25

-

+9

-105

-2

-95

-87

+82

+8

4Q

Investor Relations

Telecom Italia – Domestic Market FY 2011 Preliminary Results and 2012‐14 Plan Outline (Patuano)