Telecom Italia - Presentation Slides - Luciani

TIM Brasil Strategic Plan Update LUCA LUCIANI

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. 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. 1 LUCA LUCIANI

Agenda  What we did (2009 Repositioning path)  Where we want to go (Strategy)  Where we are (Expected Q1 2010) 2 LUCA LUCIANI

2009: TIM #2 in the Brazilian Market (4Q 2009) Ranking Growth Q4 vs KPIs Size Q4 Size Q4 Q3 41.1 MM Customer Base (23.6% Market Share) #3 #3 Volume ARPU R$ 28.8 #1 #1 Net Services Revenues R$ 3.47 Bln #2 #1 Value EBITDA, organic R$ 1.07 Bln #2 #1 EBITDA margin, organic 29.6% #2 #1 Market Share TIM (Q4 09) Stable 26.0% #2 23.6% 0 Volume Value (# of lines) (Revenues) 3 LUCA LUCIANI

2009 Repositioning Path Quality Innovation Network Caring Most innovative brand %, ranking Anatel % of respondents indicated as “innovative company” 1 92 IDA* Infinity 100% 1 85 34 +9pp 1 84.1% 7.46 CSI** 28 1 +3pp 1 6.6 25 +3pp Liberty •2x advertising •R$ ~2 Bln 1 •17 MM Infinity Pre Industrial CAPEX 32 1 YE08 -5pp YE09 Jan/09 YE09 •1 MM Infinity Post *ANATEL’s performance index **Customer Satisfaction Index ∆pp vs. previous wave QoQ Efficiency Plan growth Customer Base % on serv. revenues MM of lines Commercial -340 bps costs and 41.1 Bad Debt* 4Q08 4Q09 42 36.4 40 Industrial -250 bps 38 R$ ~0.8 Bln costs 36 and ITX + 4.7 MM of Lines savings 34 4Q08 4Q09 32 Personnel 30 and -120 bps YE08 YE09 G&A costs 4Q08 4Q09 * Including handset cost Efficiency Sales / Customer Base development 4 LUCA LUCIANI

Marketing Approach: “Breaking the Rules” Post-paid: Market rule Pre-paid: Market rule •Handset based (with max 12 months fidelity) •Short local calls (aggressive promos based •Low MOU; flat on-net vs. off-net calls (with on local calls only) high MTR) ~190 mln of People •Long distance calls just via fixed line (or Churn public phones) market A/B ~30 TIM “Breaking the Rules” TIM “Breaking the Rules” Fresh • Pay per call vs. traditional pay per minute • “All you can eat” community based (local and long distance) market • Community based local and Long Distance • Chip-only + handset sales in 12x (unlocked) (Local=Long Distance) C ~90 Take up of Liberty and Chip Only plans Infinity (Pre-paid) +30 MM of people in next 23 100%= 28 5 years # of 17 D/E 23 Gross Adds 70% 61% 18 post voice customers ~70 13 consumer (MM) 0 8 1Q 10 % % 3 Infinity/ Chip-only -2 Liberty 2009 1Q 09 YE09 1Q 10 Benefits Benefits • Customer: • Customer: - Free to talk at lower cost - Long calls via mobile (both local and long - SIM-unlocked phones distance) • Operator: • Operator: - Higher return (lower SAC, ITX and Bad - Long calls via Mobile (both Local and LD) Debt) - Differentiation - TIM Community valorization - ARPU increase 5 LUCA LUCIANI

2009: Consistent QoQ Growth QoQ Growth ARPU EBITDA % organic R$ % 27.6 28.1 28.2 28.8 FY 2009 29.6% 0 ARPU Leader 25.7% 30 0 25 +230 bps YoY 0 24.5% 20 24.6% 23.7% 0 Services Revenues 15 Outgoing 0 +9% 10 0 5 R$ MM 0 Q1 Q2 Q3 Q4 3,275 3,470 Q1 Q2 Q3 Q4 2,993 3,110 4000 3500 3000 2500 2000 1500 +3.9% +5.3% +5.9% 1000 500 0 MOU Q1 Q2 Q3 Q4 EBITDA organic YOY -0.4% -1.7% +0.1% +1.4% Minutes R$ MM 1,073 1200 99 120 •Inverted trend in 2H 761 865 872 90 1000 73 100 •FY 2009 70 800 80 •12.8 Bln R$ 600 60 •~Flat YoY 400 Outgoing +14% +1% +23% 200 40 FY 2009 0 +14% 20 Q1 Q2 Q3 Q4 0 3.6 Bln R$ Q1 Q2 Q3 Q4 +9.6% YoY YOY +21% +20% -2% +5.4% 6 LUCA LUCIANI

Strategy: 5 Tasks to Create Value Grab growth opportunities Net Revenues, Bln R$ CAGR Incremental ’09-’12 Market +5% 122 +17 Task #1: 105 120 1 Voice 52 +7 100 6 Mobile Voice 2 45 Task #2: 2 80 +4 Mobile data Mobile BB 60 50 48 -2 40 Task #3: Service Fixed Voice 3 20 Convergence Revenues Fixed BB 8 16 +8 0 Growth 2009 2012 & Task #5 - Efficiency Task #4 - Build a solid Network Margins Improvement % on Revenues Commercial •One back-bone costs and - 250 bps MAN Bad Debt* 2009 2012 •Property backhauling Industrial costs -200 bps Back-hauling and ITX - + 2009 2012 •Capacity in 2G Back- Personnel and -50 bps bone •Coverage in 3G G&A costs 2009 2012 * Including handset cost 8 LUCA LUCIANI

Task #1 - Voice: “Keep the Pressure” Penetration: Usage: Source of growth “Regional” approach Push on FMS (positive elasticity) Develop current TIM Market Share Pre-Paid: Leveraging LD TIM % of population Main A/B C 100% Penetration Usage Data Competitor MOU LD 80% 25 60% 20 X 10 15 40% Expected results Ex. NE Ex. SP Ex. RJ 10 20% 5 0 >180’ 0% 1Q 09 1Q 10 Willingness to use: LD via 12 10 8 fixed and mobile MOU 6 4 Willingness to pay: LD via mobile 2 0 2009 2012 Strong Intermediate “Virgin Maintain 10 TIM Areas Areas” Post-paid: “Cut the wire” ARPU leadership Areas 9 Monthly fee (R$) 8 7 6 5 Outgoing 40 39 4 3 2 1 45 0 •Include 40 2009 2012 Tough for Explore 35 •Includes 200 unlimited 30 CAGR new Untapped min. F-F Local 25 on-net 20 ~10% comers Market (Local + LD) 15 Customer 10 Fixed Liberty base incumbents 2009 2012 9 LUCA LUCIANI

Task #2 - Mobile Data: “Ready to Go” as of H2 2010 Source of growth “Me too” strategy •Internet experience via mobile smartphone (micro-browsing) Penetration Usage Data •Selective approach on internet key (browsing) Brazilian Internet Market TIM “Breaking the Rules” MM of persons •Mobile Internet in a profitable way • On average, 23 hours/ • Average age: Soon in the month per user on the Enabling factors Internet (top in the world) 29 years internet • 50% of the users access • Fast Network roll-out (14 Urban population coverage from public places 75% Mbps downlink and 2.8 50% ~190 uplink in main cities) 30% • Low-end handsets with 126 rich internet experience 2009 2010 2012 62 (<100 USD) • Affordable and simply 33 29 tariff plans Total Not Current Without With Expected results population Internet internet a PC a PC >20% users users at home at home ~11% 0 0 VAS / 0 0 0 0 Boost VAS Service Revenues 0 0 contribution (%) 4Q 09 2012 10 LUCA LUCIANI

Task #3 - Convergence: Attack Fixed Incumbents Intelig “Option Value” Supporting evidences Fixed Consumer “Attack to Fixed (LD) Incumbents” Convenience Minimum Business “Convergence Rates (cent R$/min) monthly cost (R$) (Voice & Data) and Solutions” Wholesale “Reference Partner for 40 emerging Telco” 30 45 40 30 20 35 25 30 20 25 10 Expected results 20 15 0 15 • Intelig: F-F Long Distance 10 10 R$ Bln 5 ~2 calls via “23” code 5 0 0 • Bundling of fixed Incum Intelig Fixed TIM Fixo TIM Fixo solutions (TIM Fixo/Web) Incumbents Post-paid Pre-paid -bents ~3x Quality IDA 110,0 100.0 94.9 83.7 100,0 73.0 90,0 ~0.7 80,0 Residential •Cross- selling: direct sales force 70,0 Business integration (TIM and Intelig) 60,0 •Solutions for Top Customers 50,0 (voice, data, fixed and mobile) Wholesale •Partnership with local utilities 40,0 (ex:AES) Telesp Embratel Intelig TIM 2009 2010 2011 2012 Mobile 11 LUCA LUCIANI

Task #4: Build a Solid Network Network Infrastructure Network targets and priorities 2010-12 2010 Key actions Backbone 3G Coverage ~6,000 ~3,500 Backhauling Metro (# antennas)  One single backbone 1 (TIM - Intelig) 2G Capacity >50,000 >15,000 PoP PoP Leased lines (# TRX) 2G Coverage 1,500 750  Link to Intelig MANs 2 (# BTS) Node-B BTS BTS Radio  Roll-out microwaves 3 ~10,000 >4,000 back-hauling backhauling Access Access Access Efficiency & reliability in Back-Hauling 3G/HSDPA 2G/Edge 2G/Edge  Double 3G coverage 4 MW replacing leased lines 2009 2010 5  Double 2G capacity 65% 35% Buy Buy vs. vs. Make 35% 65% Make 12 LUCA LUCIANI

Task #5: Efficiency for a Sustainable Growth Commercial costs and Bad Debt** Net Service Revenues % on Revenues Bln R$ “high single CAGR 09-12 digit” growth -250 bps  Chip-only Intelig 13.5  Bad debt TIM 2009 2010 2011 2012 2009* 2010 2011 2012 Industrial costs and ITX EBITDA Margin -120 bps dilution % on Revenues by Intelig  Intelig >500 bps 24.9% ~30% -200 bps  Community based offering 2009 2010 2011 2012 2009* 2010 2011 2012 Personnel and G&A costs EBITDA% – CAPEX% % on Revenues EBITDA % -50 bps ~6% >15%  Efficiency CAPEX % 2009 2010 2011 2012 2009* 2010 2011 2012 *: 2009 Proforma Intelig 12 months ** Including handset cost 13 LUCA LUCIANI

Sales Force Restructuring Speeds up Customer Base Growth Customer Base Key Success 1Q 2009 vs. Factors 1Q 2010 Post Paid Business MM of customers Productivity Productivity 41.8 Coverage 1Q09 vs 1Q10 36.1 Capillarity + 1Q09 vs 1Q10 +61% 0% 1Q09 Feb ‘10 1Q10 - - 0% + # agents Net Adds Post Paid MNP Post Paid Pos Paid Consumer MM 1 % Port IN / Port Out Productivity 0 156% 0 Quality + 0 0 +172% 100%: 0 0 0 0 In=Out 0% -0.4 -0.3 0 -1 32% 1Q09 1Q09 1Q10 E - Reported Excl. clean-up 1Q09 1Q10 - 0% + # point of sales Net Adds Pre Paid SAC / ARPU Pre Paid Consumer Productivity MM 2 1 Efficiency +16% SAC / ARPU 0.8 1 Traditional + 1 2.5 x Alternative 1 channels 0.1 1 0 0% channels Alternative 0.5 x 0 channels Traditional +193% 1Q09 1Q09 0 - 1Q10 E channels Reported Excl. clean-up - 0% + # point of sales 15 LUCA LUCIANI

Visible signs of Company's turnaround: Expected Q1 2010 Results YoY % - Service Revenues YoY % - EBITDA, organic -54% handset revenues Q4 2009 +1.4 % Q4 2009 + 5.4 % Q1 2010 “Mid single Q1 2010 “Double digit” digit” Handset revenues Vs. 2010 Company’s Guidance Vs. 2010 Company’s Guidance “On track”  “On track”  16 LUCA LUCIANI

TIM Brasil - Take Aways Repositioning of the Company based on quality, innovation and 2009 efficiency Path Able to grow QoQ in 2009, confirming #2 position in Brazilian mobile market  Ready to grab market growth opportunities:  Voice: further penetration and FMS  Mobile Data, as of H2 2010 Strategy (2010-2012)  Convergence / Intelig “Option value”  Fast roll-out of solid network infrastructure  Efficiency to combine top line growth with improving profitability and cash Visible signs  Q1 2010 confirming YoY growth acceleration (Revenues and EBITDA) of turnaround 17 LUCA LUCIANI

Telecom Italia - Presentation Slides - Luciani

by Luca Conti

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