Telecom Italia - Presentation Slides - Patuano

Telecom Italia Strategic Plan Update 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. 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. MARCO PATUANO 2

Agenda  TI Group 2010-2012 Strategic Plan Update  Italian Market Overview  Telecom Italia Domestic Strategy and Goals Task #1 Speed-up Mobile Turnaround Task #2 Consolidate Positive Fixed Momentum Task #3 Fully Exploit Integrated Approach Opportunities Task #4 Continue to Attack Adjacent Services Task #5 Further Cash Cost Efficiencies to Sustain Growth MARCO PATUANO 3

Italian Market Evolution ‘08-’12 Market by Technology Market by Customer Segment Bln € Bln € + 1.5% + 1.5% Total 58 Total 57 58 57 55 55 Open Market 2 2 2 Media Products 11 13 + 6% 11 Media 11 11 13 + 6% ICT 10 9 9 Stable Total TLC 36 35 35 Broadly Stable Top 13 12 12 Slight decrease Products 5 4 4 Stable Business 9 9 8 Broadly stable Mobile 17 17 18 ~ + 2% Fixed Consumer 22 22 22 ~ + 1% 14 14 13 ~ - 3% 2008 2009 2012 2008 2009 2012 CAGR ’09-’12 MARCO PATUANO 4

Domestic Revenues: Trend Reversal Euro bln, Organic Data change CAGR ‘09-’12 yoy Model Change Improve Back Broadly stable Trend Stabilize to Growth 23.3 21.7 Mobile Fixed 2008 2009 2010 2011 2012 2010: Paving the way to Growth change % yoy 2009 2010 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 -5% -5% -7% -11% FY09 FY10 -7% -4% / -5% MARCO PATUANO 6

Domestic Market: the Repositioning Path 2008 2009 2010-2012 “Value for Money” Proposition Repositioning Market Share Recovery impaired by Repricing  Focus on volumes  Competitive pressure increase  Market share recovery Mobile  Strong leverage on handsets  “Cost Conscious” Customer Base erosion  Best value for Money  Push Strategy based on Handsets subsidy  New handsets strategy  Focus on “cost conscious” customers and “high spenders”  Weaker brand perception (“Expensive”)  New advertising & communication after consumer tariff repricing format  Pull strategy through Advertising  Pricing Strategy: focus on Community  Distribution Network – Strength and Develop  Distribution Network Refocus Market Positioning Restore Regulatory Dialogue Leverage on Flexibility Consolidation  Strong competitive asymmetry  Retail & LLU monthly fee increase  Line losses reduction Fixed  Large line losses (~1.9 mln)  Progressive asymmetry reduction  Full symmetry on winback  Good performance on BB acquisitions  Slowdown in line losses trend  New LRIC model introduction  Push on free to flat migration in BB  Increase value of BB offers  Increase market share and reduce  Gain market share on ICT churn on BB  Launch of new over-the-top services Customer Centric Approach  Lead ICT evolution MARCO PATUANO 7

Domestic “Retail” Service Revenues Euro bln, Organic Data, % 17.3* 9.8 7.9 Business - TOP 18% 10% 25% 16% Business - SME 21% 24% 74% Consumer 61% 51% Total o/w o/w 2009 Fixed + ICT Mobile Weight on Total Retail Service Revenues* 56% 44% * Net of Fixed-Mobile interdivisional sales elimination (0.4B€ in 2009) MARCO PATUANO 8

Task #1 Speed-up Mobile Turnaround Objectives Actions KPIs Simplified Portfolio offering and strengthened Customer Base Calling (mln, %) CB Gross Adds and MNP tactics Recover 30.9 35.4 Advertising pressure with focus on product key- benefits Market Share 76% 85% 85% 85% increase Ethnic segment vertical offering 2008 2009 2010 2012 Completing Consumer Sales Network restructuring: focus on Franchising & Dealer Gross Adds Rebound in 2010 (mln SIM) 9.8 Multibrand, restyle PoS, New sales commissions >8.0 model 8.0 6.3 Best Value for Money Proposition both for 2008 2009 2010 2012 “Community users” and for “Off-net users” with the aim to reduce Churn, increase lock-in Value Consumer Outgoing Calling ARPU Customer Customers and boost usage (€/month) Base value 14.5 14.0 protection Confirm leadership on customer care adopting multichannel approach to keep quality while BROADLY STABLE reducing costs 2008 2009 2012 Pre-retention on high end customers MARCO PATUANO 10

Mobile – Offer: Best Value for Money in the Consumer Segment Community Offer (U speak with friends?) Off net Offer (U speak with everybody?) Size of Many How long community One & location ? Many friends In my you speak? friend friends also on country fixed line  270 500 1000 1500 min/month min/month min/month min/month UNLIMITED TRAFFIC (60week) 1€/week + 17€/ 2€/week 3€/week 4€/week best price ITZ month 29€/ month 49€/ month 69€/ month (4€/week) 29 49 69 HANDSET MONTHLY INSTALLMENTS Unlimited SMS 1€/week 60 SMS for 2€/week SMS usage? Light usage Heavy usage Mobile INTERNET 40: 9€/month INTERNET 100: 19€/month Internet? Sometimes 40h/month 100h/month INTERNET PACK 40: 99€ INTERNET PACK 100: 159€ Often 40h/month x 12 months + Dongle 100h/month x 12 months + Dongle MARCO PATUANO 11

Task #1 Mobile – Re-design Sales Channels Changing Mix & Size PoS productivity * 2009 2012 Delta Mar ’10 YoY % Own Stores Average 25.3 +24.6% Franchising Own Stores & 62.0 +59.0% Franchising Monobrand & Monobrand & 31.3 +34.3% Dealer Dealer Multibrand 14.5 +16.0% Multibrand 16.0% GDO 13.3 -8.3% TOTAL ~4,500 ~6,100 (*) Weekly Gross Adds /PoS MARCO PATUANO 12

Task #1 Mobile BB - Consolidating Leadership Italian Mobile BB Market (Value) TI Mobile BB users (Bn €) (mln) CAGR ’09-’12 2.3 +14.5% 10.3 1.8 +40% 6.6 1.6 4.6 1.4 3.4 72% 75% 71% % Web Users 69% 2008 2009 2010 2012 2008 2009 2010 2012 Structural Advantages Lever to Reinforce Leadership Marketing approach Internet Network coverage  Focus on medium users to: Keys  defend price per MB Network capacity  stabilize yearly consumption Services  Complete and competitive prepaid offer portfolio  Leadership in Smartphone market share (TIM market  Internet Pack (new annual bundle device+service) phones Smart share FY09 ~37%)  New postpaid “all-inclusive” offers (Internet Key +pc+service)  Device portfolio simplification Devices  Efficient pricing in order to avoid network overload  Widest product portfolio, best design, materials and colors MARCO PATUANO 13

Task #1 Mobile - Handsets Strategy Sell in Volumes Consumer Strategy and Impact Handset (mln) USB dongle More volumes, mores costs, less profitability PC 8.6  Approx 8 mln p.a. of handset volume sold (with SIM 0.02 embedded) 7.7 Since 2008 0.1 0.2  Strong push on handsets resulting into a “long wave” of silent lines lasting until in 1H10 0.6  Almost 800 mln euro of handset sold per year with 4.5 negative impact on profitability 0.05 0.9 8.5 Grow Less volumes, higher profitability From 2009 onwards 6.9  Focus on advanced data enabled devices to drive data growth 3.5  Massive increase on USB dongle sale Reduce  Smartphones at competitive price 2G 56% 40% 39% 26%  Significant improvement in revenues mix with positive impact on SAC and margins 2007 2008 2009 2010 MARCO PATUANO 14

Task #1 Mobile – Early Evidence Objectives KPI’s Customer Base Calling - Change yoy (‘000) TIMX Users 1Q09 2Q09 3Q09 4Q09 1Q10 CB Value 1.3 mln Stabilized protection -401 -537 -544 -762 Sept09 Dec09 Mar10 Consumer Gross Adds (‘000) Outgoing traffic Trend – Change yoy +15% 477 +2% Market Share 422 378 394 450 1Q09 2Q09 3Q09 4Q09 Feb10 March10 & Usage 2009 371 +2% flat increase 2010 -4.6% Jan Feb Mar Consumer Mobile BB Users (mln) Consumer BB Revenues (€ mln) +0.9 +31 3.2 112 Mobile BB 2.3 +38% 81 +38% leadership consolidation 1Q09 1Q10 1Q09 1Q10 MARCO PATUANO 15

Task #2 Consolidate Positive Fixed Momentum Objectives Actions KPIs Portfolio simplification and flat offers Line Losses Evolution (mln) 2008 2009 2010 2012 deployment to increase value for money perception and reduce impact of traffic 0.5 erosion <1.0 >70% -1.3 Market Share -1.9 On access Differentiated caring approach based on Defend segments and needs ULL Win-back (‘000) >400 Customer Base Value Continuous quality improvement (fault rate 182 and minimize and repair time) to sustain loyalty 163 lines loss reduction 2008 2009 2012 Retention/pre-retention inbound and outbound (churn predictive models) with Market Share - Access Calling (%) customized offers on specific targets 67.6% 64.7% ~64% ~62% Distinctive communication format with stable presence in the media 2008 2009 2010 2012 MARCO PATUANO 17

Task #2 Consolidate Positive Fixed Momentum Objectives Actions KPIs Target Customer Base BB (mln) Launch of BB entry fee tariff and bundle package with PC and push on flat offers BB Churn ~21% ~18% ~17% ~17% rate 7.4 8.0 6.8 7.0 Increase BB Customer Develop strong high value customers % Flat Offers 77% 83% 91% 97% Penetration retention through multimedia innovative and Value devices (Cubovision) enabling flexible 2008 2009 2010 2012 provisioning of TV services according to BB ARPU (euro/month) available bandwidth (IPTV / OTTV) ~20 18.0 18.3 Push on ULL win-backs leveraging on symmetrical regulation (from April ‘10) 2008 2009 2012 Improve sales effectiveness through channel Improve specialization (eg agent sales on win back), Adsl Sales – Customer Care (mln) quality target on inbound and outbound 1.3 1.2 Go-to-Market acquisitions 1.1 Success >5% Rate 4.5%  Re-launch of web sales channel 3.4% 2008 2009 2010 MARCO PATUANO 18

Task #2 Fixed – Early Evidence Objectives KPI’s Line Losses (‘000) 1Q09 4Q09 1Q10 Defend Customer -190 -260 Base Value -380 BB Customers (‘000 access) +89 6,843 +157 7,000 +71 7,071 6,754 Increase Free BB Customer Value Flat 77% +176 79% +398 83% +89 FY08 1Q09 4Q09 1Q10 ADSL Sales – Customer Care (‘000) ~10% excluding calls from BB customers Improve 98 112 101 % Redemption 5.3% 5.4% Go-to-Market On inbound 4.5% calls 1Q09 4Q09 1Q10 MARCO PATUANO 19

Task #3 Integrated Approach: Focus on the Business Segment Offering Sales Customer Operations “Impresa Semplice” new Sales network is already F/M Integrated Customer Business concept integrated, with differentiated Operations with single channels segmentation for fixed and Tra Noi”, first convergent mobile customers offer High End customers “Portfolio” (200k), that generate 40% of tot Same segmentation as Sales “Leverage on fixed revenues, have a dedicated Sales customer base exploiting representatives and few2few convergent offering and Customer Operations team communication Sales Customer care Fixed Only: 1.6 mn Potential Sales Reps Portfolio Few 2 Few Fixed + Mobile (~200k) 0.3 mn Business Associations Partners Shops SME/Soho Standard “Ready to use basic ICT (~1.900k) Call caring offering centers MARCO PATUANO 21

Task #3 Integrated Approach: Up / Cross Selling for Business Segment Objectives Actions KPIs Mobile Human - Net Adds (‘000) Leverage on integration to: Increase mobile penetration on fixed +160 Boost mobile customer base 79 customer base Improve loyalty and reduce churn -37 -161 Leverage on cross selling opportunities 2008 2009 2010 2012 Fixed Line Net Adds (‘000) Fixed Losses (‘000) Strengthen win back and customers’ lock-in Stop losses of and loyalty thanks to convergence (fixed- fixed mobile integration, single billing, single caring) -42 -194 -235 customers -266 2008 2009 2010 2012 Stabilize revenues by: ARPU (€/month/SIM) Shifting competition from price to innovation 46 ~ -3% and quality of service Voice* Stabilize revenues Increasing share of wallet on integrated 2009 2012 customers BB** 23 ~ -11% 2009 2012 (*) Revenues net VAS and Handsets /Avg SIM Human CAGR ’09-’12 MARCO PATUANO (**) Revenues VAS Browsing /Avg Users BB (Web+Wap) 22

Task #3 Business Segment – Early Evidence Objectives KPI’s Mobile Human Gross Adds (‘000) Mobile Human Net Adds (‘000) +12% +12% 129 Boost mobile 115 125 -53 -24 customer base -52 -50 +54% +54% 1Q09 4Q09 1Q10 1Q09 4Q09 1Q10 Fixed Access Net Adds (‘000) 1Q09 4Q09 1Q10 Stop losses of fixed -25 customers -78 -44 +68% +68% Broad Band Net Adds (‘000) +125% +125% Develop +27 BroadBand +12 +10 1Q09 4Q09 1Q10 MARCO PATUANO 23

Task #4 Continue to Attack Adjacent Services – Especially on TOP Clients Objectives Actions KPIs  Extension of Data center proposition to fully support the ICT Revenues Become the Virtualization model (Server, Networking, Storage, IP (€ mln) leader in PABX, Desktop) extended infrastructure  Selective innovation regarding SaaS ~+17% services  Bundling of TLC, infrastructure services and new offers 1,342 831 ICT  Rationalization of the partners program to improve TI 2009 2012 Rationalize the positioning on Net Centric solutions (Virtualization, partnership SaaS) ICT Market Share* model and develop the ~11% ~17% vertical markets  Vertical emerging markets (eg.: e-gov, e-health, finance, security, automotive ..) * Addressable market Top Client Matrix – Revenues  Reinforce Virgilio leadership in the digital advertising (€ mln) Focalize Matrix through vertical communities and customizable ~+13% editorial offering ~200 Digital mission towards 154 137 ADV an Information  Develop profiling assets and capabilities in IP/Network, Provider role Web and Positioning profiling 2009 2010 2012 CAGR ’09-’12 MARCO PATUANO 25

Domestic Take-away: Where does the “Reverse Revenues Trend” come from? Customer Centric Approach: different strategies for different Market Segments MOBILE FIX CONSUMER  Increase the number of calling lines being the  Reduce LINE LOSSES “BEST VALUE FOR MONEY”option  Minimize impact of TRAFFIC decrease  Keep ARPU erosion from voice prices under  Keep growing in XDSL BB control  Leverage on CONTENT DELIVERY  Balance voice ARPU with BB ARPU PLATFORMS in order to enrich the offering  Keep leadership in Mobile BB and increase BB ARPU FIX & MOBILE  Protect market share and leverage on cross selling between F&M BUSINESS ICT customer base  Create a “READY TO USE”  Develop convergent offer in order to boost TOTAL REVENUES per offer for basic ICT services customer  Segment of the customer base in order to serve each cluster with the most appropriate go-to-market model VOICE & TRADITIONAL DATA ICT  Protect market share Enhance value chain: from pure  Control price erosion on Mobile Voice TOP NETWORK services to IaaS and SaaS  Boost Mobile BB and Mobile VAS Develop vertical services on horizontal  Minimize impact of fix VOIP platforms  Delay price pressure on traditional data MARCO PATUANO 26

Task #5 Cash Cost Rationalization and Efficiency Plan Euro bln, Organic Data Cash Cost 2012 vs 2009 Efficiency YoY -1.8 bln € 17% 30% 53% 58% Opex Cash Cost on 69.8% ~65% Revenues 42% Capex ’10 vs ‘09 ’11 vs ‘10 ’12 vs ‘11 Cum. ’09-’12 +1.2 Efficiency by Programs (2009-12) 15.1 Total 1.8 Capex 3.5 <14.0 1 Network Operations 0.2 -0.6 <3.0 MKT & 2 0.4 -1.8 bln € Distribution 3 Organization & Support process 0.2 Opex 11.6 <11.0 4 Information > -1.1 bln € Technology 0.5 Customer 5 Operations 0.1 Volume Delivery 2009 ITX driven Efficiency 2012 6 & Assurance 0.2 Cum 09-12 Efficiency 2.7 bln € 7 Buildings and Energy Mng 0.2 MARCO PATUANO 28

Task #5 Domestic: Focus on Efficiency Plan 2009-2012 Euro bln, Organic Data, % Delta Cash Cost    Netwk Mktg & Org. & Delivery Building ITX Vol. Efficiency Ops Distrib. Support IT COP & & Assur. Energy 2012 vs 2009 Driven  Abs FY09 ’12 vs ‘09 Total Opex 11.6 -0.6 -0.6 +1.0 -1.0 -0.4 -0.2 -0.1 -0.1 -0.1 -0.1 ITX 3.1 -0.6 -0.6 - - Mktg & 3.2 - +0.5 -0.4 Sales +0.1 Industrial 1.1 Flat - +0.1 -0.1 Personnel 3.3 -0.1 - +0.3 -0.4 G&A & 0.9 - +0.1 -0.2 Other -0.1 Total Capex 3.5 -0.5 - +0.2 >-0.7 -0.2 -0.4 -0.1 -0.1 - - - - - - - Total Cash Cost >-1.1 -0.6 +1.2 -1.8 -0.2 0.2 -0.4 0.4 -0.2 0.2 -0.5 0.5 -0.1 0.1 -0.2 0.2 -0.2 0.1 MARCO PATUANO 29

Focus on 2010 Domestic EBITDA Euro million, Organic Data, % 10.1 2 3 44 1 9.8 / 9.9 -4/-5% -0.2/-0.3B€ -2%/-3% Mktg & Fixed 2009 Revenues ITX Handsets (*) 2010 Commercial (*) Opex (**) 1 3 Focusing MTR impact and on on- Supporting Commercial net traffic Turnaround 2 4 Completing Revenues mix Progressing on efficiency re-engineering programs (*) Handsets + Marketing & Commercial = Marketing & Sales (**) Industrial + Personnel + G&A = Fixed Opex MARCO PATUANO 30

Back up MARCO PATUANO 31

DMO – Market by Segments TOP - Public sector TOP - Private sector Italian Market 800 customers PA Top 540 customers Business Wireline - 350 central government Top -Large Corporations Market (mln) Top Clients - 450 key local government First 20,000 -Financial Institutions 0.8 0.5 4.4 authorities customers (LA and PA) PA Enterprise Portfolio managed by Large 3.1 Direct Sales force 3.3 k customers 15.5 k customers (managed at regional (managed at Fixed Fixed No Total level) regional level) BU CO Fixed Contract contract line Business Needs based segmentation: Business Mobile Market (mln) Business 30% Shops 0.8 2.1 mln customers Single/Multiple 43% 2.2 (enterprices with 1- location firms 4.4 499 employees) TI Customers 2.1 mn 1.4 managed by Indirect Professionals Sales force, high end Mobile Mobile No Total 17% BU CO customers (200K) Nomadic 10% contract Mobile Contract managed at Portfolio Consumer Households with Fixed Access 17.3 Fixed Customer Base Mobile Customer Base Consumer Tot 12.3 mln Tot 25.1 mln mln Families with Broadband 56% Fixed: All Households Value Based Ethnic; Teens; 3,9 Segmentation 3,9 Mobile: Individuals Young; 4,2 Privilege Premium that use phone both BB+IPTV Senior; for private and Gold 11,1 Prospect BB Silver Higher professional purposes Massive; Standing with a consumer offer Standard Standard 9,0 23,9 MARCO PATUANO 32

Task #5 Efficiency Programs Extension and New Operating Model Delta Cash Cost 2012 vs 2009  End of asymmetry on Fixed (July ’10) and Mobile (July ’12) termination rate leading to Euro bln, Organic Data ITX net savings on interconnection expenses FY09 D Abs ’12 vs ‘09  Tangible impact of TIM push on communities Total Opex 11.6 -0.6  Speed-up and complete sales channels Marketing turnaround (Consumer and Business) & Sales  New business model for Handsets and Content ITX 3.1 -0.6  Network Platform decommissioning (ATM, single RAN) and “one touch” network approach Mktg & Industrial  Ful deployment of TIM-Vodafone site sharing Sales 3.2 +0.1 agreement Industrial 1.1 Flat  Rightsizing trough a Lean Company concept on Personnel organization and processes  Staff functions re-sizing Personnel 3.3 -0.1  Real Estate rationalization G&A & G&A  Tight cost control on consultancies expenses Other 0.9 -0.1  Refarming 900 MHz for UMTS indoor coverage Total Capex 3.5 -0.5 CAPEX  Rightsizing and restructuring of IT infrastructure MARCO PATUANO 33

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