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

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

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

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. As a result thereof, Telecom Italia S.p.A. makes no representation, whether express or implied, as to the
conformity 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 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.
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” in
order to ensure a better comparability and intelligibility of the financial information.

MARCO PATUANO 2


Agenda

 Telecom Italia Domestic 2011 Results

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

 Take-Aways

MARCO PATUANO 3


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

Revenues EBITDA

1Q11 2Q11 3Q11 4Q11 1Q11 2Q11 3Q11 4Q11

-0.3%
YoY -2.0% YoY -2.5% Including effect of:
-3.8% - Credit provisions: -41 €Mln
-4.8% - VAT increase: -12 €Mln
-6.0% - IAS19: +43 € Mln
-7.4% -7.6%
19,033 9,351
FY11 -4.8% FY11 -3.9%

Abs 4,596 4,760 4,742 4,935 Abs 2,273 2,318 2,478 2,282

Ebitda-Capex Highlights
1Q11 2Q11 3Q11 4Q11
Tough external macro-economic
-1.3% conditions, regulatory evolution and
YoY -2.9%
-4.5% LTE excluded competitive environment
-5.7%
FY11 Strong Cash Generation, critical for TI
6,374

Abs 1,610 1,623 1,821 1,320
Group strategic achievement

MARCO PATUANO 4


Domestic Fixed: Paving the Way to Access Valorisation
Telecom Italia Access TI Lines Evolution
‘000 Access TI -206 ‘000
OLO +181 TI -183 +1,221
Total TI 22,122 OLO +51

Wholesale
TI -135
OLO -42 TI -175
-25 OLO+98
+612
Wholesale

-133 +289
6,771
-176
-77
21,712

7,060 2009 2010 2011

-410

Retail
Retail

15,351 14,652
-746 -699

1Q -1,255
2010 2Q Q Q 2011

Wireline Services Revenues Trend Highlights
Euro mln, Organic data, %
-3.5% Better performance on Line Losses in a
13,466 13,001 worse market and economic environment
4Q 3,360 -1.9% 3,297 Infra-OLO churn increased
3Q 3,318 -2.1% 3,247
Wireline Service Revenues trend
2Q -4.9%
3,392 3,227 improvement confirmed
1Q -4.9%
3,397 3,230 Important evidence of TI’s ability to
2010 2011 monetize its premium value proposition

MARCO PATUANO 5


Domestic Fixed: Adding Value to Broadband
TI Retail Broadband Accesses Highlights
‘000
Total Italian 13,082 13,455
Lower market growth.
BB accesses
12,294 +788 +373

7,000 7,175 7,125 OLO’s price war not followed by TI: BB
Free Customer Base successfully defended.
Success on Value Approach: growth in
86% 87%
Flat 83%
Revenues and in consumer ARPU,
Total 2009 2010 2011 supported by SuperInternet results.
Market
Share 56.9% 54.8% 53.0%

Broadband ARPU Broadband Services Revenues
Euro/month/line
-1.3% % yoy growth +0.5%

18.6 18.4

4Q11 consumer
ARPU +2.1%YoY

-0.3%
2010 2011 1H11 2H11

MARCO PATUANO 6


Domestic Mobile: Customer Base Trend
Total SIM cards Net Adds
‘000 ‘000
32,227
31,679 +1,209 vs YE10
31,018 31,038 31,260 >7x FY 2010 performance
548
419

+3.9% 222

20

4Q10 1Q11 2Q11 3Q11 4Q11 1Q11 2Q11 3Q11 4Q11

Gross Adds Churned SIM cards
‘000 ‘000
+13.6%
7,181 7,135
8,344

7,343 22.0% 21.9%
Churn Rate %

FY 10 FY 11 FY 10 FY 11

MARCO PATUANO 7


Domestic Mobile: 2011 Key Revenues Trends
Total Revenues
% YoY, Organic data

1Q 2Q 3Q 4Q

-2.2%

-6.5%
-7.6%

-12.0%
FY11 -7.1%

FY10 -10.5%

Services Revenues Handsets Revenues Browsing Revenues
% YoY % YoY % YoY +21.0%
1Q 2Q 3Q 4Q +96.5% +18.7%

-4.7%
-5.1% +34.0%
+26.2%
+2.8%
-6.7% -7.1%
-7.5%
-22.4% 1Q 2Q 3Q 4Q
Excl. -8.7% -6.9%
MTR -9.6%
FY11
Oct-Nov ~- 6% +40.2%
% Browsing Revenues on Service Revenues
-11.7% 1Q 2Q 3Q 4Q
12% 13% 14% 15%

MARCO PATUANO 8


Mobile Consumer: FY11 Highlights
Customer Base Growth Loyalty Increase Mobile BroadBand

Strong increase in acquisitions MNP Churn Rate Small Screen Handsets

Gross Adds Net Adds
8.4% 8.8% % Smartphone on Handsets sold
>1 Mln
Total H/S* Smartphones
+19%YoY
~3.4 mln +210% YoY

TIM Total Market
~56%
FY11 TIM MNP Churn lower than Market Average ~56%
FY11
*Source GFK Survey
FY10 FY11

Sound Growth in CB Calling Push on flat offers Small Screen Users

(mln) Flat offers (TIMx, Tutto Compreso) mln +49%

>1 mln 2.29
2011 1.54
2010 20.3 5.8
4.6
FY10 FY11

+3%
1Q 2Q 3Q 4Q 4Q10 1Q11 2Q11 3Q11 4Q11 ARPU
(€/month)
6.9 7.1

In 2011 TIM became Best in Class in Customer satisfaction on:
Point of Sales, Customer Care & Web-Site
MARCO PATUANO 9


Domestic Wireline Revenues
Euro mln, Organic Data, %

3Q11 vs 10
Q410 Q411 YoY %  % YoY

Total 3,602 3,502 (2.8) (2.8)

Sparkle Group 362 382 5.5 (4.9)

Domestic Core Services 3,082 2,985 (3.1) (2.1)

Voice & Access 1,485 1,396 (6.0) (6.0)

Internet 420 413 (1.7) (0.5)

Business Data 316 302 (4.4) 1.7

National Wholesale 799 791 (1.0) 3.0

Other 63 83 n.m. n.m.

Products 242 205 (15.3) (19.0)

Elimination (84) (70) 16.7 15.0

MARCO PATUANO 10


Domestic Mobile Revenues

3Q11 vs 10
Q410 Q411  % YoY  % YoY

Total 1,870 1,828 (2.2) (6.5 )

Wholesale 65 47 (27.7) (21.4)

Retail 1,805 1,781 (1.3) (5.9)

o/w Services 1,719 1,612 (6.2) (6.9 )

o/w Business Generated (*)
1,498 1,434 (4.3) (5.2)

o/w Outgoing Voice (**) 990 899 (9.1) (8.6)

o/w VAS 508 534 5.1 2.1

o/w Incoming 221 178 (19.5) (19.3)

Handsets 86 169 96.5 34

Total Retail Services Revenues net of Incoming
(*)

(**) Including Roaming & Visitors

MARCO PATUANO 11


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 12


2012 Italian Economic Outlook
GDP ∆% Consumer Spending ∆%

1.4
0.9 1.1 1.2
0.4 0.2 0.4 0.0

-1.0
-1.5
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

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

9.3  Near-term outlook for households consumption is
9.1 9.1
poor
8.4 8.3
 Unemployment rate expected to grow further
 Rationalization on Corporate and PA spending
2010 2011 2012 2013 2014
partially offset by Government driven investments
in innovation

Source: Global Insight Feb. 2012

MARCO PATUANO 13


Italian TLC Market Evolution & Regulatory Framework

Domestic Market by Technology Regulatory Scenario
Bln €
 New MTR glide path
€cent
6.3
41.9
Total 5.3
3.5

ICT1 9.1 Increase
1.7
0.98
2.5
TLC 1.5
32.8 current 07/2012 01/2013 07/2013
Products H3G TI/Vod/Wind
3.6 Stable

TLC Services 29.2 CAGR ‘11-’14
-2.1%
-3/4% in 2012
International roaming prices on EU’s agenda
Mobile
Service 16.6 FTR: full symmetry already reached , IP
interconnection transition in progress
Fixed
12.6
Regulatory guideline on NGNA framework
Services
under definition. Geographical segmentation
2011 2014
of fiber bitstream confirmed. No constraints
on TI’s NGAN architecture.
1 addressable

Source: Sirmi

MARCO PATUANO 14


Domestic Strategic Pillars: Aiming at Cash Generation
Sustaining Top Line
Consumer Fixed Consumer Mobile Business Top Client & PA
 Increase Access Value  New Segment growth  Improve Convergent  Increase Cloud adoption
Customer  Extend All Inclusive (ethnic and youth) approach/offer leveraging on “the only
Base penetration  Further improvement on  Focus on win-backs, cloud with its own network
 Sustain Premium value acquisition mix combining value for money inside”
Positioning with premium price defense  New business approach to
 Proactive caring  Strengthen CRM activities  Leverage on Fixed-Mobile better care for Top Clients
approach on voice and data for synergy  Proactive support to Govt.
Loyallty  Lock-in differentiated enhancing value  Increase flat offer digitalization process
offers  Customer view (vs sim) penetration  End2End service
management

 Widen content offer  Maximize Mobile Ultra  Light ICT  Enlarge ICT portfolio

New
Broadband wave standardized  Enrich smartphone and Preserve
 Address new targets  Personal Cloud and solutions
Business Innovative service  Develop M2M
tablet application portfolio Free Cash
 “Beyond connectivity”
enhancement application market Flow
Generation
Efficiency Processes Re-engineering
Commercial Costs Industrial Costs Personnel
 Efficiencies on Customer Ops (Credit &  Unitary Cost reduction vs Volumes  Focus on Right-sizing and Total Cost
Caring Activities) increase Control
 Sales Force Model Rationalization

Nurturing our Future
Network IT & Cloud
Maintenance and Development Innovative Broadband Services
 Internal Customer Driven  Cloud Infrastructure for
 Efficiency  LTERoll out Platforms Market Development
 Premium Performance  Market-driven NGAN

MARCO PATUANO 15


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 16


Fixed Business: Safeguarding the Value

Access Value Increase Enhance Broadband Experience Sustain Premium Positioning

 Increase flat/bundle offers  Widen bolt-on offers portfolio.  Portfolio enhancement
penetration  Proactive Caring approach  Widening portfolio for content,
 Increase focus on prospect
 Engage TIM Shops to increase applications bundled services
customers to improve win-back.
BB sales.  Quality and Service Level
 Refining Segmentation to Address
new Targets Agreement differentiation
 CB lock-in through innovative according to Customer Value
products and new offerings

Wireline Access trend BB penetration on TI CB BB Services Revenues
mln Euro bln
14.7 ‘11‐’14 CAGR ‘11-’14 CAGR
>2%
 -4% 48.6% >5pp
1.6

2011 2014 2011 2014 2011 2014

MARCO PATUANO 17


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 18


Mobile Business: Surfing Data Opportunities
Customer Base Growth Loyalty Increase Mobile BroadBand Technological Distinctiveness

 Continue to push on bundle
smartphone/service and
 CRM campaign
 Maintaining leadership on pack offering for mass
optimization through  Leveraging on network
acquisitions keeping focus market
deeper customer leadership to deliver
on quality&value
knowledge (profiling and innovation to Mass-Market
 CRM activities extended to
social network analysis)
 More focus on segmented data services
 Exploit recognized TIM
offers with limited and
 Increase focus on bundle brand attribute of reliability
targeted use of pricing  PREMIUM offers introduction
and lock-in offers tailored to lead LTE evolution
lever with higher speed, better
by segment
network quality and radio
priority

Wireless CB trend Mobile BB penetration on TIM CB Mobile BB Revenues trend
mln
‘11‐’14 CAGR ‘11‐’14 CAGR
32.2
>3%
22% 10%
10pp

2011 2014 2011 2014 2011 2014

MARCO PATUANO 19


Mobile Technological Evolution while Protecting Profitability
Strengthening Roadmap 42MB coverage

HSDPA and LTE
Increasing speed introduction 100
84
availability 42
3,6 7,2 14,4
Maximum speed
2009 2010 2011 2012 January June
(kbps) 2013 2014
2012 2012

With PREMIUM offers Customers have
The advantages Network
Fiber Bakhauling Dual Carrier an effective perception of Higher
of 42MB Priority
Speed

Network Speed Priority
 Quality
Up to
(everywhere/every
Offer based on Mass Market HSDPA 14,4 NO time)
Mbps
the Value of the  Pricing
Customer
Up to 42  Speed
Premium
HSDPA/LTE Mbps  YES  Quality
Customers  Priority
100 Mbps

MARCO PATUANO 20


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 21


Innovation: «Beyond Connectivity»

CONSUMER ENTERPRISE & PUBLIC SECTOR
 Spread innovation and digital life in the  Exploit Digital Agenda opportunities
mass market (simplification, digitalization)
 Provide saving opportunities
 Selective Development of a
 Deeply revise Enterprise
new positioning in music, Customer go2market through:
video and apps markets needs-driven - New ICT-dedicated sales
channels
innovation

CLOUD
TI 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 22


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 23

Efficiency Processes Re-engineering
Commercial Costs Industrial Costs Personnel

Caring & Sales Force Unitary Cost reduction Right-sizing &
Model Rationalization vs Volumes increase Total Cost Control

Slighly
Reduction Stable Reduction

2011 2014 2011 2014 2011 * 2014
* TFR IAS adjustment excluded

Domestic Opex Efficiency on Opex
Bln € 0.1
0.2
0.3
9.7 -0.6
2012 2013 2014

New Plan:
-0.5 Bln € in 2012-2013
> -1 Bln €
Old Plan:
-0.2 Bln € in 2012-2013

Total Efficiency on Cash Cost ‘12-’14
2011 ITX Volume Driven Efficiency 2014 1.0 Bln €
MARCO PATUANO 24


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 25


Balance between Traditional Network and Innovative Enablers
Maintenance and Development Innovation

Enhance quality of voice and data Staying on top for a UltraBB
trasmission through network - Experience:
optimization - Best-in-class in LTE launch and
coverage
Fixed Steady increase in the ratio
Fiber/Copper on Access Network - First-rate in fixed Network: NGAN roll-
&
out through FTT-x
Mobile Excel in 2G & 3G network coverage
Turning the Network into an All-IP
Continue the efficiency programs to
technology
finance Innovation Capex (0.4 Bln €
in 12-14) Cloud Infrastructures enhancement

Policy Management Content Delivering
Network Service
Platform Profiling
Autentication SIM
QoS Differentiation
Based

MARCO PATUANO 26


Strengthen the Network for a Technological Leadership
Capex Allocation UltraBB Roadmap

Network Capex NGAN Roll-out

2014
Customer 100 Cities (including all
Service 52% Optimization
& Traffic
main ones) covered through
Driven FTTH&Cab Technology

~¼ of Housing units
Network
Develpment 13% Acceleration passed with >30 Mb/s
Speed

Network 35% Mobile Coverage
Decrease
Maintainance

2011 2014
2014
Optimize Network Investment to maintain excellent More than 40% of
quality in TLC services 11%
population covered by LTE

Increase the effort in Network Development and 2011 2014
Innovation to confirm Technological Leadership HSPDA
and grant the Best Experience on the Net 42 Mbps LTE

MARCO PATUANO 27


Agenda


 Fixed Business
 Mobile Business
 Innovation
 Focus on Costs

 Take-Aways

MARCO PATUANO 28


Take-aways on main TI Domestic trends
Euro bln, Organic data

 Macro-economic pressure, traditional services comoditization and MTR
new glide path suggest a challenging scenario on consumer and Negative
corporate spending and revenues trend, partially offset by browsing and middle
Revenues innovative services increase.
19.03 single digit
yoy trend

 For 2012, we expect a mid single digit decrease on Top Line yoy trend.
2011 2012

 Cost control: efficiency measures and operational business model Negative
optimization on caring and go to market will counter margin erosion middle
Ebitda 9.35 single digit
 For 2012, we expect an Ebitida trend similar to Revenues one, with a yoy trend

broadly stable Ebitda margin 2011 2012

 Strengthen the Network infrastructure with a strong focus on new
technologies and services, to support data wave of growth, mantaining Almost
3.0 Stable vs
Capex quality and performance excellence as distinctive asset 2011

 Domestic 2012 Capex : Almost Stable vs 2011 2011 2012

MARCO PATUANO 29


Agenda

Back Up

MARCO PATUANO 30


Domestic Wireline Revenues

FY10 FY11 YoY %

Total 14,077 13,542 (3.8)

Sparkle Group 1,528 1,393 (8.8)

Domestic Core Services 12,260 11,884 (3.1)

Voice & Access 6,036 5,607 (7.1)

Internet 1,688 1,641 (2.8)
Business Data 1,204 1,197 (0.6)

National Wholesale 3,093 3,176 2.7

Other 240 262 n.m.

Products 611 541 (11.5)

Elimination (322) (276) 14.3

MARCO PATUANO 31


Domestic Mobile Revenues

FY10 FY11  % YoY

Total 7,657 7,114 (7.1)

Wholesale 285 203 (28.7)

Retail 7,372 6,911 (6.3)

o/w Services 7,116 6,552 (7.9)

o/w Business Generated (*)
6,165 5,766 (6.5)
o/w Outgoing Voice (**) 4,123 3,731 (9.5)

o/w VAS 2,042 2,034 (0.4)

o/w Incoming 951 786 (17.4)

Handsets 256 359 40.2
Total Retail Services Revenues net of Incoming
(*)

(**) Including Roaming & Visitors

MARCO PATUANO 32


Domestic Efficiency : Delta Cash Cost by Quarter
Delta Cash Cost
FY 11 vs FY 10  Abs by Quarter

 Abs
FY ‘11 ’11 vs ‘10
1Q 2Q 3Q 4Q
Total Opex* 9.682 -585 -182 -187 -121 -95

ITX 2.332 -356 -124 -123 -84 -25
Handset 997 +112 -3 +15 +17 +82
Mktg &
Comm. 1.976 -82 -3 -51 -27 -

Industrial 945 +10 -7 -7 +14 +9

Personnel 2.975 -243 -54 -38 -46 -105
G&A &
Other ** 457 -26 +7 +22 -1 -2

Total 2.977 -130 -89 -40 -9 +8
Capex

Total -715 -271 -227 -130 -87
Cash Cost 12.659

* Costs related to credit management are reclassified from G&A & Other to Mktg & Sales **Includes Other Operating cost/Income and Capitalized Costs
MARCO PATUANO 33

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

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