TI 3Q 13 Results & Plan Outline

Transcription

1 Telecom Italia Group TI 3Q 13 Results & Plan Outline 0

2 Safe Harbour These presentations contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 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. 1

3 Agenda TI 3Q 13 Results & Progress Report TI Plan Outline Appendix 2

4 Telecom Italia Group results Organic data, mln, %YoY 3Q 13 9M 13 Group Revenues 6.6 bln Organic: -1.1%- YoY Reported: -8.8%- YoY 20.4 bln Organic: -2.1% YoY Reported: -7.6% YoY Group Ebitda 2.7 bln Organic: -7.1% YoY Reported: -10.1% YoY 8.0 bln Organic: -6.9% YoY Reported: -10.5% YoY Group Net Income 0.5 bln -27.4% YoY -0.9 mln writedown -2.2 bln (accounted in 1H) Net Debt 28.2 bln;-1.3 bln YoY 3

5 Telecom Italia performance by markets Organic data, mln, %YoY 9M 13 Group Domestic Brazil Argentina Revenues Weight 20.4 bln -2.1% YoY 12.1 bln -10.0% YoY 5.3 bln +7.3% YoY 59% 26% 14% 2.9 bln +23.7% YoY Ebitda Weight 8.1 bln -6.9% YoY 6.0 bln -10.9% YoY 1.3 bln +2.0% YoY 74% 17% 10% 0.8 bln +17.5% YoY Ebitda-Capex Weight 4.6 bln -15.9% YoY 4.0 bln -16.3% YoY 0.3 bln -25.9% YoY 86% 7% 8% 0.4 bln +4.5% YoY 4

6 Domestic performance dashboard Organic data, mln, %YoY 3Q 13, Revenues -10.0% -9.1% 12, Ebitda on revenues 50.0% 49.6% 3Q 6, % -10.9% 5, H % H -10.9% M'12 9M'13 9M'12 9M'13 Capex Ebitda-Capex 3Q +2.0% 1,982 2,022 4, % +4.3% Q % 3, H +0.9% H % M'12 9M'13 9M'12 9M'13 5

7 Domestic Mobile KPIs 000, QoQ Total SIM cards mln, QoQ Active SIM cards 32,1 32,2 31,9 31,7 31,6-0,1 +0,2-0,2 +0, ,6 2Q'12 4Q'12 1Q'13 2Q'13 3Q' TIM MNP Balance April May June July Ago Sept Op.2 Op.3 Op.4 Cum. 2Q'12 4Q'12 1Q'13 2Q'13 3Q'13 Highlights 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 6

8 Moving back to a more rational market behavior Convergence Premium offer /month increasing price on most important offers >400 min/sms & >1GB entry level price market offers market offers 10 /month less content on entry level price Pure price 1Q'13 2Q'13 3Q'13 4Q'13 1 Rational approach by TIM, maintaining price premium gap versus pure price operators. 2 Fighting on no price' levers, launching TIM Sconta e Raddoppia offer and paving the way for an attack strategy. 3 TIM sharp reaction via frontal attack, through TIM Special proposition, the most competitive & rich offer in the market for the entry level price. 4 Market awareness of need to preserve P&L. Bundle size reduction (min., SMS & giga) on entry level plans, both by TIM and main competitors. 7

9 Domestic Mobile Revenues Organic data, mln, %YoY Revenues Service Revenues Trend 1Q'13 2Q'13 3Q'13 total handsets service business received 1, , % +8.2% -14.8% -28.1% 1, ,280-17,9% -18,3% -14,8% 121 mln Innovative vs Traditional Service D YoY Browsing Revenues plus SMS Revenues business generated % Q'13 vs 1Q'12 2Q'13 vs 2Q'13 3Q'13 vs 3Q' Q'12 3Q'

10 TI retail BB service revenues OLO Arpu TI retail TI retail OLO OLO TELECOM ITALIA GROUP Domestic Fixed KPIs Fixed Access Line Losses Trend 21,195 21,153 21,016 20,788 20,536 3Q'12 4Q'12 1Q'13 2Q'13 3Q' Q'12 4Q'12 1Q'13 2Q'13 3Q' M/S 65.3% 64.6% 64.0% 63.5% 63.4% Fixed BB Access 13,660 13,757 13,812 13,805 13, BB Revenues Perfomance & Arpu Trend /month, %YoY +3.6% +3.5% +3.4% +3.7% 18,6 18,9 18,9 19,1 19,2 3Q'12 4Q'12 1Q'13 2Q'13 3Q' Q'12 4Q'12 1Q'13 2Q'13 3Q'13 M/S 51.5% 51.0% 50.6% 50.2% 50.1% +0,0% +1,8% +1,5% +1,4% +1,1% 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 9

11 service equipments TELECOM ITALIA GROUP Domestic Fixed Revenues Organic data, mln, %YoY Total Revenues Total Revenues Trend equipments 3, % -20.1% 2, Q'13 2Q'13 3Q'13-11,5% -17,3% -20,1% service % ,5% -8,1% -7,2% 3Q'12 3Q'12 Service Revenues Trend 1Q'13 2Q'13 3Q'13 +1,7% +1,3% +1,2% Highlights Improving trend in fixed service revenues due to: -9,1% -1,9% -6,8% -7,8% -0,7% -9.3% normalized for price revision on F-F termination rate -9,8% positive performance in Internet revenues better results in business data, driven by growing ICT trend Sparkle's top-line growth fonia reported internet business data 10

12 TI Ultra-Broadband 2013 progress: a fast- forward coverage plan NGN LTE Telecom Italia is keeping the pace of its 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 11

13 FY13 Net Debt Target Confirmed Euro mln Balance to FY13 Adjusted Net Debt Target 28,274 (45) 28,229 NCF Generation Includes 1H13 impacts from One-offs for 0.5 bln (4Q12 suppliers payment deferral and Brazil spectrum payment) Includes Less cash taxes Working capital optimization Higher FCF from Latam <27bn 2012YE 9M 13 FY 13 (2,140) 2011YE 9M12 FY12 30,414 (929) 29,485 (1,211) 28,274 12

14 Robust Liquidity Margin and Well-Distributed Debt Maturities Liquidity Margin Euro bln Euro mln Debt Maturities (1) Undrawn Portion of Facility/Committed Group Liquidity Position Within 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Beyond 2018 Total M/L Term Debt Bonds Loans (of which long-term rent, financial and operating lease payable 1,305) Drawn bank facility (1) 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 mln is reached N.B. Debt maturities are net of mln (face value) of repurchased ( in the 2013) own bonds (of which mln related to bonds due within 2015) 13

15 Agenda TI 3Q 13 Results & Progress Report TI Plan Outline Appendix 14

16 TLC service Value GDP TELECOM ITALIA GROUP Macro & Industry Context Italy Brazil ,4% +1,5% +2,4% +2,4% +2,4% +0,8% +2,3% -1,8% Source: ISTAT & Prometeia Source: BaCen Value 26 bln 24 bln Value 117 R$bln 120 R$bln innovative 26% 65% 35% innovative 18% 61% 39% traditional 74% traditional 82% Source: Sirmi, PoliMi and internal analysis 15

17 investments efficiencies & ebitda strategic options deleverage TELECOM ITALIA GROUP Telecom Italia Group: a strong INDUSTRIAL STORY aimed at delivering our financial targets Italy evolve into the new TLC business model in order to stabilize top line Long Term FCF Sustainability Brazil keep-up growth 16

18 Announced Extraordinary Transactions Financial Contribution Done Mandatory Convertible Bond 1.3 bln Contract Signed Telecom Argentina Disposal 960 US$ mln Expected by 2014 Further assets available for value creation (towers in Italy and Brazil, TI Media Broadcasting) >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. 17

19 Telecom Italia Group: investing to enable the new TLC model Italy strong increase in UBB for a structural differentiation 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 Brazil keep the pace on quality increase focus on innovative components to capture the full potential of data 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 18

20 Focus on domestic investments: a faster Ultra-BB deployment New NGN Plan 14-'16 Old NGN Plan 13-'15 ~ 35% New NGN Plan New Coverage (1)(2) Targets 2015: +5pp vs old Plan 2016: >50% in 2016 Why Speed-up? UBB Willingness To Pay Digital Agenda and Public Bids lever on adjacent sectors develop Fiber & LTE in unison path New LTE Plan Why Speed-up? Already reached ~40% 60% 80% New Coverage (1) Targets 2015: ~+10pp vs old Plan 2016: x2 vs 2013 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 (1) coverage population, (2) including public funds, (3) Cagr'12-'17; Cisco & A.T Kearney Analysis 19

21 Growing innovative portion of domestic investments bln,% 3.0 Domestic Capex 55% >60% technology IT, Commercial & other increase Technology expenditure share on total domestic reduction of non-technological investments + + reduction of running operations expenditures ~3.4 bln of innovative capex in 14-'16 Plan (1) vs ~1.3 bln in 13-'15 Plan efficiency in non high-tech spending around 9 bln Domestic Capex in the Plan horizon (1) including public funds 20

22 Tim Brazil Strategy is set for Infrastructure Evolution Backhauling Evolution 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 POP MW POP MW POP MW POP MW BSC-RNC Site POP MW Increased Coverage & Access Capacity # new elements #NodeB / enodeb (3G + 4G) # BTS (2G) Capex Evolution Towards Data % of total Capex 82% urban population 95% urban population Fiber Base Infrastructure Growth INTELIG FIBER TO ACQUISITION THE AMAZON MASSIVE LD BACKBONE INTELIG KM 46,000 KM OF FIBER BY YE13 New backbone routes - Increasing resilience. 65,000 KM OF FIBER Small Cell Approach # new elements LTE* 3G 2G New Sites Including Small Cells e 2014e 2015e 2016e 21 *Includes 2.5 GHz RAN Sharing

23 x TELECOM ITALIA GROUP Domestic top line stabilization traditional 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) stabilize the trend innovative F-M convergence Lever on multidevice approach and foster on BYOD strategy to accelerate penetration on business segment Faster UBB development foster growth digital Life & new revenue streams Consumer Enrich UBB with video content Entertaiment Advertising Business Cloud & M2M Digital PA & e-health exploit new revenue streams 22

24 x x x x x x x x x x x x x TELECOM ITALIA GROUP TI s new fully convergent approach on Consumer Segment 3Play voice broadband voice communication & pure connectivity + SIM SIM additional TLC services content & entertaiment IT service equipments & handsets nplay upgrade to Ultra Broadband connectivity 23

25 x TELECOM ITALIA GROUP TI&Sky: a strategic partnership for value creation ~3bln Pay-TV Market 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» pay-dtt satellite OTT video 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 Source: Analysis Mason 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 24

26 MBB ADSL VDSL CABLE FTTH TELECOM ITALIA GROUP The Brazilian Data Opportunity: The Quest for Internet has a Mobile response 61.3 Mln Possess Internet connection Do NOT Possess Internet connection 40% 24.5 Mln 60% 36.8 Mln 53% of active connection base has currently a speed below 2 Mbps Other Lack of Coverage Too Expensive 32% 11.8 Mln 24% 8.8 Mln 44% 16.2 Mln > R$ 250 R$ 250 R$ 200 R$ 150 R$ 100 R$ 80 R$ 70 R$ 50 R$ 40 R$ 30 R$ 20 R$ 10 Willingness to pay (% of Households) 1% 1% 2% 5% 12% 18% 24% 39% 48% 59% 65% 71% Total Households Households which does NOT possess Source: CETIC 13 Market Data Revenues Growth 2016 vs >13 bn Reais on Mobile (+100%) >7 bn Reais on Fixed (+35%) 25

27 Telecom Italia Group opex efficiency Plan Italy milestones for further operating efficiencies 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 Brazil leaner organization, focus on internal processes and strict cost control 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. 26

28 Focus on domestic opex savings bln 8.5 opex breakdown by cluster cumulated efficiency breakdown by year 2, bln ,2 1,6-0.5 bln ,4 1,2-0.5 bln 3,0-0.1 bln , volume/revenues driven(1) market/customer driven(2) process/asset driven(3) personnel costs cum ,0 (1) COGS: interconnection, COGS, other COGs (2) COMMERCIAL COST: customer acquisition, ADV, customer management, other commercial costs (3) INDUSTRIAL COST & G&A COST 27

29 Agenda TI 3Q 13 Results & Progress Report TI Plan Outline Telecom Italia targets Appendix 28

30 Telecom Italia Targets Organic data Group Domestic Brazil Revenues Cagr Stable Negative Low Single Digit Positive Mid Single Digit Ebitda Cagr Stable Negative Low Single Digit Positive Mid Single Digit Capex (1) Cum <14 bln Capex/Revenues ~ 18% Capex/Revenues ~ 17% Net Debt Adj /Ebitda 2016 (2) ~ 2.1x (3) (1) excluding spectrum (2) reported EBITDA (3) including announced equity strengthening excluding impact from non-organic items and FX. Avg exchange rate: Reais/

31 TIM Part: Guidance R$ billion Guidance Total Net Revenues 18, CAGR: Mid Single Digit Growth e 2014e 2015e 2016e R$ billion EBITDA 5, CAGR: Mid Single Digit Growth e 2014e 2015e 2016e R$ billion CAPEX Infrastructure 3.8 3,2 Total CAPEX : > R$11 billion* Other/Licenses 0, e 2014e 2015e 2016e *Does not consider 4G licenses (700Mhz). 30

32 Agenda TI 3Q 13 Results & Progress Report TI Plan Outline Appendix 31

33 Cash Costs Wholesale Business Consumer TELECOM ITALIA GROUP Domestic 3Q check list What we said What we did Fixed Mobile 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 ). 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 Fixed Mobile 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. 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) Domestic Int l Negative impact by new regulated prices also in 2H. Continued improvement on third-party agreeements. Flattish YoY performance expected in the last part of the year. 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 Ebitda Capex Crash program on Opex. Extention of site sharing Agreement with other large Mobile Operator. Investments in new technologies go ahead, as early take-up phase builds momentum. 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 32

34 Argentina Brazil TELECOM ITALIA GROUP Latam 3Q Check List Key Drivers Take-aways Net Adds & M/S 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 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 Marketing Quality & Regulation Maintaining solid data services growth Keeping the Innovative Approach New offer consolidation (Web+SMS, Seu Troco, Itz Calls) Continuous focus on Customer Care Performance Focus on network development 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 High customer care performance and lower complaints (Anatel ) KPIs reached Network 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 Proceed with MBB Cities deployment Enhancing network access and quality Reducing leased lines dependency and costs Fixed Strong rebound in commercial performance started in 2Q 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 Mobile Regulation Great success in Black profile Innovation in offerings supported the revenue trend, ensuring superior relative performance Quality of Service: new set of procedures for fixed/mobile operators to monitor network and customer care' s quality 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 The new regulatory regime was announced in June but the technical implementation procedures are expected to be issued by CNC by end of November Network Focus in service quality improvement and continuous mobile network expansion to increase coverage and capacity. Continuous FTTx deployment to enrich value proposition 33

35 Argentina Organic data, mln, %YoY Revenues Ebitda 3Q 2, % +26.0% 2, on revenues 29.4% 27.9% 3Q +17.5% % H % H +15.5% M'12 9M'13 9M'12 9M'13 3Q 1H Capex +32.4% % % 231 9M'12 9M'13 Highlights 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) 34

36 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. 35

37 Well Diversified and Hedged Debt Total Gross Debt net of Adjustment: Euro 36,066 mln Euro mln Maturities and Risk Management 4.0% Bank Facility 1, % Bank & EIB 5, % Op. Leases and long rent 1, % Other 1, % Bonds 25,670 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) 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 Cost of debt: 5.4% Net Financial Position 28,229 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 36

38 traditional fixed traditional mobile TELECOM ITALIA GROUP Domestic top line: Traditional Services in the Consumer Segment Lever on: price innovation distinctiveness & QoS value drivers 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 stable market share ~28% stable market share 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% moving to a fully convergent approach with one single commercial brand 37

39 digital life & new revenues streams Innovative fixed x innovative mobile x TELECOM ITALIA GROUP Domestic top line: Innovative Services in the Consumer Segment Lever on: price innovation distinctiveness & QoS value drivers more value for Giga add-on approach for LTE offers shared data plans increasing penetration of smartphones and tablets data-only SIM & multidevice strategy premium quality connectivity High-speed MB: LTE & 42 Mb/s BB customer base small screen large screen Cagr '13-'16 +3% +20% lever on BB lines acquisition enrich Fiber offers multidevice strategy lever on innovative service enablers: multiscreen/multiroom premium quality for Video & Gaming Ultra-BB Speeds 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 strategic agreements with content providers video & music premium contents moving to a fully convergent approach with one single commercial brand VAS OTN (content) on serv. revenues mobile fixed 16 vs 13 ~2X 16 vs 13 ~5X 38

40 ICT innovative fixed & mobile x traditional fixed & mobile TELECOM ITALIA GROUP Domestic top line: Business segment Fixed & Mobile Lever on: price innovation distinctiveness & QoS value drivers unlimited F-M offers and new bundled solutions focus on convergence further push on flat tariffs customer base growth through B2B2C keep focus on «BYOD» strategy lever on advanced caring models and innovative loyalty programs keep outstanding CSI ratios market share fixed 50% mobile customer base value stabilization through defense via value-formoney approach lever on LTE and focus on small screen multidevice strategy convergent approach bundle propositions development with SLA premium services and full infrastructure outsourcing fixed mobile innovative services (Cagr 13-'16) BB revenues: flat +10% MBB clients (large&small) protect revenues on traditional IT services 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 best-in-class model adoption on provisioning, billing and assurance for cloud OTT services Revenues ICT services products Cagr '13-'16 +2% +7% 39

41 innovative x traditional TELECOM ITALIA GROUP Brazil snapshot: we don t forget voice, whilst we ll bring data on board 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 Brazil shows an unsatisfied internet appetite strong growth in market share focus on coverage strenghthening 3G for now, 4G is coming work on quality lever on smartphone as data penetration enabler 40

42 Mandatory Convertible Bond On November 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 and The maximum number of TI shares to be issued to serve the conversion is 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 15 th

43 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 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 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 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. 42

44 Other assets available for value creation worth, in aggregate, more than 2 bln Tower lease (Italy and Brazil) Multiplex sale + 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) 1 st phase integration between TIMB and Rete A, retaining control of the combined entity 2 nd phase sale of a stake of the company (up to 100%) to a third party investor 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 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) 43

45 Domestic Mobile Revenues Breakdown Organic data, mln, %YoY 3Q 12 3Q 13 YoY 9M YoY total wholesale (1) Consumer+Business services business generated (2) outgoing voice VAS business received handsets 1,584 1, % -16.0% % - 1,502 1, % -16.7% 1,420 1, % -17.9% 1,335 1, % -12.7% % -17.5% % -4.8% % -64.4% % +1.4% (1) Including Visitors (2) Total Retail Service Revenues net of Incoming 44

46 Domestic Fixed Revenues Breakdown Organic data, mln, %YoY 3Q 12 3Q 13 YoY 9M YoY total Sparkle group Core service voice & access internet business data national wholesale other & subs products eliminations 3,132 2, % -7.8% % -10.4% 2,789 2, % -7.5% 1,306 1, % -8.9% % +1.4% % -3.1% % -10.8% n.m. n.m % -15.8% (56) (47) n.m. n.m. 45

47 Progress on Domestic Efficiency Ytd 13 - Breakdown Euro mln, Organic Data, % Cash Cost Delta Cash Cost 9M 13 vs FY 12 D ITX D Vol. Driven D Efficiency Handsets: Target FY : M 13 D Abs '13 vs 12 Total Opex * % of FY13 Target ITX Mktg & Sales M'12 Interconnection Volume Driven Efficiency 9M'13 Industrial Cash Cost on Revenues Personnel % p.p. 67.2% G&A & Other ** % of FY13 Target Total Capex M'12 9M'13 Total Cash Cost % of FY13 Target * Costs related to credit management are reclassified from G&A & Other to Mktg & Sales **Includes Other Operating cost/income and Capitalized Costs 46

48 credit production capacity credit quality (CSI customer care) fixed mobile caring production capacity Consumer Enterprise 9M'13 9M'13 market dynamics Headcount TELECOM ITALIA GROUP Customer Care: operating KPI s 2013 Front End (call) 46-4% 45 FTE Back Office (items) 9M'12 flat 9M'13 9M'12 9M'13 «buy» reduction «make» growth «in-house» incidence Front End (call) -12,0% +5,0% 46% 51% 9M'12 9M'13 Back Office (items) -21,0% +29,0% 41% 53% 9M'12 9M'13 Contribution CS on selling activities 58% 50% 73% 88% 10% 23% Access MNP BB ULL SI Contents 64% 8% 48% 16% Access MNP BB ULL Annual managed issue 7,18 7,32 7,68 7,10 7,84 7,89 7,99 Consumer: 7 mln Enterpise: 2.8 mln Solecit 80% 6,57 6,67 6,7 6,9 7,19 1Q'12 4Q'12 3Q'13 1Q'12 4Q'12 3Q'13 Consumer Enterprise Consumer Enterprise 47