Technology & Operations

Technologies and Operations Evolution STEFANO PILERI

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Safe Harbour This presentation contains 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 Company with respect to 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 Company's activities and strategies. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia Spa 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 Spa business or acquisition strategy 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 , which set out certain factors that could cause actual results to be materially different from the forward-looking statements contained herein. 1

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Agenda A new “Technology & Operations” organization: rationale, objectives and benefits Market driven Network & IT infrastructures evolution Allowing TI business transformation: Convergent Services & Applications Platforms Improving Quality of Services Getting traction from efficient operations Conclusions 2

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Improving Innovation, Quality and Efficiency with a new focused and integrated organization TECHNOLOGY & OPERATIONS Main Targets Growth Innovative services development Main Figures and time to market Openness Transparency to OLO’s - ISP’s – MVO’s 33500 employees Loyalty Quality as a priority to maintain customer OPERATIONAL loyalty (+ 1 pp in ICSI vs industry average, PLANNING 4 Divisions and one - 3 pp in access fault rate) operational planning team Efficiency - 10% cash cost 4 B€ cash cost Scale Global Standards and Global Procurement INFORMATION TECHNICAL OPEN ACCESS NETWORK TECHNOLOGY INFRASTRUCTURES 3

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Open Access New Organization process Macro- Process Planning Management Central Execution Local Execution Open Access Area Open Access model North West Open Access Area Access Service Service Technical North East Operation Delivery Assurance Planning Open Access Area Process Operation Operation Center Open Access Area South Main Figures Main Targets 20300 employees + 11000 external staff Improve transparency in Wholesale and Retail operations Focus on Quality, Efficiency and Transparency Quality improvement on access services (from 14.5% to 0,9 B€ cash cost 11.5% fault rate reduction by 2010) 12 millions activities per year on field (activation 10% efficiency/year in cash cost resulting in a complete and repair) +14 millions remote activities per year re-engineering of operations 4

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Network New Organization process Macro- Planning Innovation & Design Central Execution Local Execution Network Area North West TILAB Network model Network Area Technical Client Network North East Innovation Planning Integration Operations Network Area Engineering Center Testing Network Area South Main Figures Main Targets 8350 employees Convergent NGN deployment (technologies, coverage Focus on Innovation, Quality and Efficiency and capacity) 1,1 B€ cash cost Service Platforms deployment 24 millions fixed lines and 30 millions mobile lines 10% efficiency in capex allocation and in operations convergent network (domestic) Service Creation Quality improvement Group Technology and Development Guidelines 5

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Information Technology New Organization Build process Macro- Planning Design Build Execution Program Mgmt Innovation, Architecture & Quality Unique IT model Sell Usage Creation Market IT Service to to to IT Operations Delivery Cash Assurance Solutions Sw & Service Factories IT Infrastructure Engineering Engineering Engineering Engineering Operations Technical Security Main Figures Main Targets 3800 employees, 5600 external resources Service Creation time-to-market improvement Focus on Innovation, Quality and Efficiency (+ number of releases) 0,7 B€ cash cost Application consolidation and renewal leveraging 460 IT applications for the internal processes and for the convergent wave (-40%) ICT market offering Server consolidation & Data Center rationalization 12000 internal servers, 28000 CPU, 7000 MIPS (from 12000 to 2000 servers) Mainframe 20 % efficiency in cash cost allocation (avg.’08-’10) 6

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Technical Infrastructures (Real Estate and Energy Systems) New Organization process Macro- Planning Innovation Central Execution Local Execution Infrastructure model Technical Infrastructures Area North West Energy Technical Infrastructures Area Technical Property Engineering Systems North East Planning Management Infrastructures & Technical Infrastructures Area Center Maintenance Technical Infrastructures Area South Main Figures Main Targets 950 employees Reduce Energy requirements Reduce Buildings and square meters rented Focus on Quality and Efficiency Site sharing strategy (share the most of mobile sites) 1,2 B€ cash cost Energy Systems Quality improvement 2200 Gigawatt*hour of Energy needs Sustainability and Environmental 13000 towers, 11300 buildings, 7800000 m2 responsibility excellence 7

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Our Next Generation Convergent Network & IT Model is evolving... PHASE 2 CONVERGENCE : Convergent : from a convergent approach in Services, applications and IT support access, metro and backbone network (phase 1) to a full services, applications and integrated support systems convergence (phase 2) INTEGRATED SUPPORT SYSTEM Personal Communication Ultra-broadband “All IP” : Investing in coverage Services Mobile and capacity of the Broadband Internet Services Broadband (500 gigabit/s in 2007, 4000 gigabit/s in 2010 Access OPTICAL expected in the IP backbone) supporting mobile Optical PACKET Net Centric Edge Control Service Packet ICT Metro Nodes BACKBONE Layer Layer Services and fixed data booming (OPB) Fixed Broadband Access Digital “Quality and user friendly” : Improving Quality of Multimedia Services Services (access, backbone and services layers) Open Interface Layer (OLO, MVO,ISP…) Open : Allowing third parties to access to our Open Platform to offer their services to the final PHASE 1 CONVERGENCE : customers (OLO, MVO, ISP, …) access, metro and backbone 9

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION We confirm the deployment of “All IP” Open NGN2 platform Market driven ultra-broadband access in main metropolitan areas deploying FTTx in the fixed and LTE in the mobile Services and Application Layer (IT based) to allow our evolution in Digital Multimedia and Networked IT services for consumer and business market segments 3 different kinds of interfaces to our Open NGN2 (physical, virtual, service exposure) SERVICE EXPOSURE interface INTEGRATED SUPPORT SYSTEM PLATFORM PERSONAL COMMUNICATION PLATFORM Sell to Usage to Create to P2P VIDEO ERP VOIP MSG Delivery Cash Assure OVER IP HSxPA2 IMS CUSTOMER NETWORK ENTERPRISE Broadband Area ( ˜7 Mbit/s) DATA BASE DATA BASE DATA BASE HSS DIRECTORY MSG IP-DSLAM ADSL2+ (4.000) MULTIMEDIA PLATFORM // ( ˜20 Mbit/s) // // C2P // WEB IPTV DVB-H OPTICAL BBAN - CN PACKET FTTB CONTENT ENGINE/DRM PHYSICAL interface BACKBONE MUSIC VIDEO GAMES LTE RAN - GPON CN (100 Mbit/s) STORAGE ICT SERVICES PLATFORM OPTICAL B2B+C MANAGED MESSAGING PACKET MULTISERVICE APPLICATIONS SERVICES COLLABORATION // METRO EDGE NODE IP- MSAN FTTC SOA (ONU) (POP) VDSL2 UTILITY COMPUTING ( 50Mbit/s ) STORAGE MESSAGE DISASTER BITSTREAM interface ON DEMAND STORE RECOVERY FTTH / B ( 100Mbit/s ) Ultra Broadband Area Open Interface 10

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Improving our transparency and performances in the physical access with the new “Open Access” Operating Model LOCAL EXCHANGE CENTRAL (LE) EXCHANGE “Open Access provides access to physical Main Optical (CE) infrastructures to OLO’s and TI allowing Distribution Distribution direct technical contact points Frame Frame Traditional Copper Network OLO OPTICAL OLO’s will maintain the current interface Equipme nt FIBER to TI Wholesale for all the services Network External following a “One Stop Shop” approach Termination Distribution Frame TI Optical Fibers Cable Equipment COPPER Open Access is ready to provide technical support to OLO’s Optical Network Termination DB ACCES Optical S Distribution Frame Open Access Assets 11

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Extending Coverage and Capacity in the Broadband Access Fixed Access Traffic Volumes (Petabytes) BB coverage (% of POTS ) 1400 100 98,5% 1200 90 87% 80 1000 70 1st Generation 80% 2ndGeneration 800 60 + 250% 600 50 40 400 30 3rdGeneration 20 200 10 0 0 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 ADSL ADSL2+ ADSL2+ IP VDSL2 COs with ADSL 3.750 4.501 5.626 7.586 8.457 9.471 9.715 Mobile Access Traffic Volume (Petabytes) BBcoverage (% of population) 50 100% >99% 2007 2008 2009 2010 2G 84,5% 40 80% 30 60% 20 + 800% 40% 3G 20% 10 4G 0% 2004 2005 2006 2007 2008 2009 2010 GSM/EDGE UMTS HSDPA ph1 HSDPA ph2+2A PORTANTE 4G node B 3.481 6.400 8.000 9.800 11.550 12.550 13.550 12

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Deploying NGN2 optical fibers in the access: towards FTTH Primary Secondary Tecnological Issues Central Office (200-3000m) Cabinet (100-700m) Building Growth of - # broadband fixed services over copper ADSL2+ ADSL2+ - broadband mobile backhauling FTTE 3-20 Mbps - bit rate <1 Mbps will result, in the long run, as a reduction of S/N VDSL2 17MHz ratio and available bandwidth FTTCab 25-50 Mbps VDSL2 ONU 2-10 Mbps Copper network aging and the intense use of this network for broadband will require increasing VDSL2 30MHz operational costs 50-100 FTTB Mbps Service Enhancement 25-40 Mbps Optical Next generation High Definition video and FTTH 0.1-1 Gbps multimedia services (telepresence, home working, remote learning, telemedicine) focused on Downstream emerging “green” business requirement and new Upstream entertainment for consumers can’t be supported over copper network Cash cost reduction Reduction of delivery and assurance / maintenance cost due to the “plug and play” approach of NGN2 services and the reduction of fault rate of a factor at least of 50 % Reduction of number of central office according to the new distance to the buildings that can be over 10 Km (reduction of a factor 5) and reduction of power budget per line ( 10W to 3 W ). 13

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Mobile Broadband Access Evolution: leveraging on a 3GPP path The growing diffusion of flat rate charging schemes, while encouraging Mobile Data Traffic, increases the need to reduce the End to End cost per bit per Herz in the path to “beyond 3G” solutions: Key Issues Radio: Higher spectral efficiency, Lower latency; More Bandwidth, Higher Speed Network: Fiber Connectivity, Optimized Backhauling, Simplified architecture Micro coverage HSDPA HSxPA eHSPA Flat Architecture RoF NGN2 80% Italian HSUPA 64QAM,16QAM 3GGP LTE population 1.5 - 5.8 Mbit/s MIMO 2X2 Femto cells coverage HSDPA Trials since 2008/2009, by 2008 Fully interoperability with 7.2 - 14.4 Mbit/s UMTS Terminal Availability 3G network (No Overlay) 900/1800 Spectrum Refarming READY/ PLANNED UNDER INVESTIGATION by TI 14

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Open NGN2 Network Evolution - FTTx Deployment # of FTTx accesses # of 3G/4G fiber connected antennas FTTH 2.050 2.400 1.700 2.000 2.000 FTTCab HSDPA / LTE 1.600 1.600 880 1.200 Total 800 1.200 FTTB 800 200 800 140 200 680 105 900 400 Total 400 695 480 490 0 1 140 260 0 2007 2008 2009 2010 2007 2008 2009 2010 2008 2009 2010 2008 2009 2010 Cabinet @ building 7.200 21.200 48.000 3G/4G Coverage 0,8% 7% 17% Street cabinets 0 1.600 4.600 (% of population) Total FTTx cabinets 7.200 22.800 52.600 15

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Next Generation Data Center Server Consolidation Project Virtual Data Center (Campus Project) server # Inertial Plan [~16000 servers] 3 Infrastructure CAMPUS Consolidation Plan (Not Baseline Purchased) As-Is [~12000 servers] Consolidation Bari (Replacement) (Development) [~2000 servers] Jul- Jan-’08 Jan-’09 Jan-’10 Jan-’11 ’11 2008 2009 Roadmap I II III IV I II III IV Economics Phase 1 – NGDC (12000 servers) 30% 65% Saving OPEX per year (target) Phase 2 – Sites Consolidation 12 sites to be 100% by 2010 consolidated during 2008 end - 15 Mln€ Phase 3 – Campus (Virtual DC) Phase 4 – Phase 1 DC Cumulative Net Savings (5 years) reinforcement Phase 5 – Phase 2 DC reinforcement - 93 Mln€ breakeven in 3 years) Phase 6 – Tiburtina DC Energy Saving (2008) - 14 GWh rationalization 16

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Designing our growth: Consumer Services Suite Evolution IPTV – HDTV - multiroom Unified Convergent Messaging Web & Mobile Advertising Mobile Digital Content (iTIM) Convergent Voice in M - Payment Mobile Platform WEB 2.0 (ugc, community) Broadband Convergent Internet Assistance plus Help Desk, on site assistance Web Browsing SLA Mobile Browsing Security Management Broadband Connectivity (xDSL2 - HSxPA2 – GPON) 18

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Designing our growth: Consumer Services Suite Evolution High Definition Telepresence SaaS : Document Management Infomobility Unified Convergent Messaging SaaS : CRM & ERP eHealth Fixed-Mobile Virtual Network Back up, Disaster Recovery Machine to Machine (Z-SIM) Voip (IPPBX, IP Call Center) Net Computing Wireless Sensor Networks Broadband VPN Business Assistance plus Web + Intranet + Collaboration Help Desk, on site assistance, SLA Mobile Office IT Device Management Security Management Broadband Connectivity (xDSL2 – HSxPA2 – GBE) 19

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Designing our growth: a new Wholesale and B2C Services Suite MVO’s – 3rd parties – OLO’s – ISP’s Service Exposure Network IT 20

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Enabling our Business transformation: Convergent “Sell-to-Delivery (CRM)” IT application Convergent Mobile Fixed CRMC Cust DB CCRM Consumer Web Consumer CRM Consumer “CRM Unico” Middleware BSS Consumer Back-end Back-end AS IS TO BE CRMB Corporate Corporate CRM “CRM Unico” Middleware BSS Business Corporate Back-end Dismissal of 14 main applications in 24 months 2008 2009 Key Technologies Roadmap I II III IV I II III IV Phase 1 – Consumer Mobile CRM evolution Main apps dismissed: 6 Phase 1M – Consumer Mobile Data Migration Siebel Phase 2 – Consumer Wireline CRM evolution Main apps dismissed: 2 Phase 2M – Consumer Wireline Data Migration Phase 3 – Corporate Wireline CRM evolution Main apps dismissed: 2 Phase 3M – Corporate Wireline Data Migration Phase 4 – Corporate Mobile CRM evolution Main apps dismissed: 4 Phase 4M – Corporate Mobile Data Migration 21

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Enabling our Business transformation: Convergent “Usage-to-Cash (Billing)” IT application Mobile Fixed Convergent Consumer Rea- Consumer Consumer Postpaid time Rating Rating& Rating& Prepaid Billing Billing Consumer Consumer Consumer Billing AS IS TO BE Corporate Corporate Rating& Postpaid Corporate Billing Corporate Rating & Billing Corporate Dismissal of 9 main applications in 24 months Roadmap 2008 2009 Key Technologies I II III IV I II III IV Phase 0 - Upgrade prepaid Mobile Main apps dismissed: 1 Phase 1 – Upgrade Billing Consumer - Wireline Main apps dismissed: 3 Phase 2 – Billing Consumer - Mobile Main apps dismissed: 1 Phase 3 – Billing Corporate - Wireline Main apps dismissed: 4 Phase 4 – Billing Corporate - Mobile 22

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Quality of Service KPI improvement: Access 100 M€ / year Investment Plan in preventive 14,5 maintenance of physical access network 13,6 12,3 11,5 Open Access commitment on reactive and proactive maintenance and partnership plan with other access network installers Improvement of Diagnosis and Dispatching processes by sophisticated Information Systems Best practice sharing with Telefonica and start up of a main reengineering process program 2007 2008 2009 2010 Fault Rate (%) # Trouble Ticket with field reparation for POTS lines (Business+Consumer) Fault Rate (%) = # avg POTS (Business+Consumer) lines per year 24

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Quality of Service KPI improvement: Fixed Broadband Improve stability and performance of broadband network ( tuning of broadband parameter) 20,8 18,5 17,5 16,8 Improve MTTR using enhanced diagnosis and testing tools Reduce network saturation phenomena investing in capacity before customer complaints Improve stability and performance of the 2007 2008 2009 2010 Access Gateway Fault Rate (%) # Trouble Ticket with field reparation for BB lines (Business+Consumer) Fault Rate (%) = # avg BB lines (Business+Consumer) per year 25

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Quality of Service KPI improvement: Mobile Broadband 99,0 Capacity adjustment in access and core IP mobile gateway (GGSN) 98,5 Backhauling redundancy increase and path diversification 98,0 97,9 Reduce node B Mean Time To Repair (MTTR) Network Surveillance System Enhancement 2007 2008 2009 2010 Accessibility ( Broadband Data ) 26

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Improving efficiency: CAPEX evolution Bln € 3.1 2.8 2.7 2.7 Mobile & Fixed Broadband Service & Application Platform Access Network Platform Core Platform Integrated Support System Platforms & Data Center Regulatory, Law compliance and Technical Infrastructures 2007 2008 2009 2010 28

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Improving efficiencies: OPEX evolution Bln € 1.1 1.1 1.1 1.0 Energy Rental Network & IT Maintenance Provisioning & Assurance Technical Customer Care Network & Satellite Capacity Other Costs (Facility, 2008 2009 Property, ecc) 2007 2010 29

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Efficiency plan summary 2008 – 2010 Efficiency results B€ 2007 2008 2009 2010 Technology & CAPEX 3,1 2,8 2,7 2,7 Operations OPEX 1,1 1,1 1,1 1,0 2008-2010 Plan Total CASH COST 4,2 3,9 3,8 3,7 Technology & Operations 2008-2010 Efficiency (0,3) (0,4) (0,5) 1,2 B€ Plan vs 2007 30

STEFANO PILERI NOME COGNOME DEL RELATORE TECHNOLOGIES AND OPERATIONS EVOLUTION Efficiency plan per areas (2008-2010) Cash Cost reduction 2008–2010: 1.2 Bn € Access 0.3 B€ IT 0.55 B € Network 0.15 B€ Technical Infrastructures 0.2 B€ 31

Technology & Operations

by Luca Conti on Mar 10, 2008

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Technology & Operations — Presentation Transcript