Telecom Italia provided a progress report on its domestic business in the first quarter of 2012. Revenues declined 2.4% due to decreases in both the fixed and mobile businesses. EBITDA declined 3.4% while EBITDA-CAPEX declined slightly by 0.2%. In the fixed business, broadband subscriber growth and ARPU increases helped offset declines in voice revenues. In mobile, service revenues declined around 4.5% normalized for the leap year, while the customer base continued growing through increased bundling of options. Management remains focused on ultra-broadband expansion and ongoing cost efficiency initiatives.
TI Group 1Q12 Update: Domestic Progress and EBITDA Focus
1. TELECOM ITALIA GROUP
Telecom Italia Update
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
MARCO PATUANO – Chief Operating Officer
2. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
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. 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 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.
MARCO PATUANO 1
3. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 2
4. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
TI Group Key Results
Euro mln, Organic data, %
Revenues EBITDA
% on 42.0% 40.1%
Revenues -1.9 p.p.
+373 M€ 7,392 2,951 +15 M€ 2,966
7,019 +5.3% +0.5%
1Q11 1Q12 1Q11 1Q12
Revenues Trend YoY EBITDA-CAPEX
% on 29.3% -2.1 p.p.
Revenues 27.2%
5.3%
5.0%
-43 M€
3.7% 2,055 -2.1%
2,012
2.1%
-0,2%
1Q11 2Q11 3Q11 4Q11 1Q12
1Q11 1Q12
MARCO PATUANO 3
5. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
TI Group Key Results by Core Markets
Euro mln, Organic Data
Weight on
TI Group
TI Group Domestic Brazil Argentina
1Q12 Δ% yoy 1Q12 Δ% yoy 1Q12 Δ% yoy 1Q12 Δ% yoy
Revenues 7,392 +5.3% 4,486 -2.4% 1,928 +19.1% 901 +24.0%
60.4% 26.0% 12.2% 38.2%
EBITDA 2,966 +0.5% 2,196 -3.4% 505 +13.5% 289 +16.6%
74.0% 17.0% 9.7% 26.7%
EBITDA-CAPEX 2,012 -2.1% 1,607 -0.2% 271 -14.6% 168 +5.1 %
~80% ~14% ~8%
MARCO PATUANO 4
6. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Debt Reduction Progressing as per Planned Sequence
Euro mln, Reported Data
30,414 (626) 7 89 30,312
(10) 438
EBITDA (2,963)
CAPEX +954
Δ WC & Others +1,383
Operating FCF (626)
(102)
2011YE Operating FCF Disposals Cash Financial Expenses/ Financial Cash Taxes/Other 1Q12
Adjusted Financial Accruals Investments Impacts Adjusted
2010YE (846) 1Q11
31,468 (1,076) (377) +439 +156 +12 30,622
Δ vs. 11 +450 +367 (1) (149) +77
MARCO PATUANO 5
7. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Free Cash Flow Generation: in line with Targets
Operating Free Cash Flow Guidance OFCF FY12E
Euro mln, Reported Data Euro bln
FY2011 1Q12 FY2012E
+319
7,392 Stable
Revenues 7,073
TI
Group 7.0* 0.6 ~7.0*
4,144 4,429
Opex -285 Breakdown
Domestic
5.8* 1.2
Capex 901 -53 954
Δ WC 952 - 431
1,383
OFCF 1,076 - 450
626 Brazil 0.7
1Q11 1Q12
-0.5
Brazil: - 0.3bln € (capex acceleration for network
upgrades and increased cashout from TLC fees) Argentina
Domestic: - 0.1bln € (increased VAT payment)
0.6 0.05
Argentina: stable
TI Media: -0.04bln €
* Excluding spectrum acquisitions
MARCO PATUANO 6
8. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Telecom Italia Group – FY 2012 and 2012-14 Plan Key Guidance
Organic Data*
TI Group – FY 2012 Key Guidance
Revenues Stable
Ebitda Broadly Stable
NFP Adj.** ∼ 27.5 € bln
Organic Data*
TI Group – 2012-14 Plan Key Guidance **
Ebitda-Capex
>22 € bln
cum ’12-’14
Capex
>15 € bln
cum ’12-’14
FY 2012: ∼ 27.5 € bln
NFP Adj. FY 2013: ∼ 25 € bln
2012-’14 From FY 2014: < 2x Net
Debt/Ebitda***
*exchange rates 2011 (R$/€ 2.33; ARS/€5.74), excluding impact from non-organic items
** excluding Latam spectrum licences
*** reported figure
MARCO PATUANO 7
9. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 8
10. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Results: Trend still improving
Euro mln, Organic data, %
Total Domestic Revenues Domestic Service Revenues
-109 M€
4,595 -2.4% 4,486
Mobile -1.7%
Wireline -2.9%
EBITDA EBITDA-Capex
% on 49.5% -0.5 p.p. 49.0% -4 M€
Revenues
1,611 -0.2% 1,607
2,274 -78 M€
-3.4% 2,196
% on 35.1% +0.7 p.p. 35.8%
Revenues
MARCO PATUANO 9
11. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 10
12. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Fixed: Revenue Dynamics
Euro mln, Organic Data, %
Total Fixed Revenues Fixed Revenues Trend – YoY % change
3,330 -2.9%
Total
3,235
Equipment
Services
Wholesale Revenues Trend – YoY % change Retail Service Revenues Trend – YoY % change
Domestic
Sparkle Group*
Tariff simplification
process begins
*Gross of Elim. & Adj.
MARCO PATUANO 11
13. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Fixed: TI Access Performance
Telecom Italia Access TI Line Losses
-150k
22,098 21,712 21,562 Reduction
Wholesale
Wholesale
1Q11 -25k 4Q11 -77k 1Q12 -150k
TI Retail
TI Retail
M/S 67.7% 66.6% 66.2% Stable
on total Mrk
Voice ARPU – YoY % change Highlights
Access Market reduction as result of stable TI’s
line losses and decreasing OLO’s net adds
TI’s access market share above 66%
Line erosion driven by
In Consumer, disconnections in second
homes (low potential, voice only)
In Business Segment, multi-line contracts
rationalization and increasing number of
Companies exiting the market
MARCO PATUANO 12
14. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Fixed: Focus on Broadband
TI Retail Broadband Accesses Broadband Retail ARPU
‘000
Total Euro/month/line
Markets 13,248 13,394 13,485
+0.3%
TI retail
accesses 7,194 7,125 7,092
-0.6%
Flat (%) 87% 87% 88%
M/S 54.3% 53.2% 52.6%
BB Service Revenues Highlights
% YoY
Confirming the right direction in TI’s Value Strategy:
Continued positive BB Service Revenues trend
QoQ ARPU increase
+1.0 p.p. of Flat offers on TI’s BB Customer
Base
Increasing BB penetration (+1.5 p.p.) on fixed CB,
confirming the low value of TI’s line losses
MARCO PATUANO 13
15. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 14
16. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Mobile Revenues: 1Q12 Results at a Glance
Euro mln, Organic Data
Total Mobile Revenues
Mobile Handsets Revenues Trend – YoY % change
Normalized (*)
~-2.5%
-29
Total Mobile 1,679 -1.7% 1,650
Handset
revenues +71.1%
Mobile Service Revenues Trend – YoY % change
Service -3.7%
revenues
Normalized (*)
~-4.5%
(*) Leap year
MARCO PATUANO 15
17. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Mobile: Customer Base Trend
Euro mln, Organic Data
Total SIM cards Net Adds
‘000 ‘000
X5
+1,290
Balance MPN 2012 Highlights
Sound customer base growth in spite of weak
seasonality
Progressive improvement in MNP balance, and
lower promo agressivness
Best in class churn rate supported by CRM focus
MARCO PATUANO 16
18. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Mobile – Defending Value of our Customer Base
More Value from Options – Consumer Segment Consumer Calling ARPU
Avg Δ ARPU Ex-ante/Ex-post
Business
14% 12%
Spontaneous migration by clients Received
- from pay-as-you-go profile Lower exposure to
to bundle and options MTR cuts
+ CRM activity on existing CB
Progressive
Business
86% improvement on 88%
Generated quarterly basis
+ Positive blended impact
Options benefit Consumer Churn Business Generated Consumer Revenues
% YoY
-8 p.p.
MARCO PATUANO 17
19. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Domestic Mobile – Focus on Mobile VAS Consumer
VAS Consumer Revenues Trend Successful strategy pushing on bundle offers aiming at
messaging revenues protection and CB fidelization:
% YoY Messaging Volumes: +25% YoY
CB with Messaging Bundle Offers: +44% YoY
Messaging Revenues – YoY % change
2011
Marketing strategy
focused on bundling
data & SMS to avoid
Messaging - MBB Users
cannibalization
+32%
1Q11 1Q12 Continued solid growth in active
VAS users and browsing revenues
Browsing ++ Browsing Revenues
+7.3% underpinning Mobile recovery trend
+21%
1Q11 1Q12
Content ≈
Small Screen Large Screen
~70% of Smartphone Leadership confirmed
on Handsets sold on dongle: M/S ~38%
2012
Solid ARPU increase: Double digit growth in
+9.4% YoY users (+11.5% YoY)
MARCO PATUANO 18
20. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 19
21. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Ultra Broadband in Motion
Fixed Mobile
42 Mbps coverage
FTTC (covering 30 main cities) and
in progress in 50
FTTH (in Milan) Retail commercial
cities
launch expected in 4Q
Reference Offer for wholesale
NGAN Access Services submitted Ongoing Trials
to Agcom in March, final approval extended to Turin,
expected by September Milan, Rome and
Naples
Maintaining a fixed & mobile coordinated approach
MARCO PATUANO 20
22. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Agenda
Group Overview
Domestic 1Q12 Progress Report
Fixed Business
Mobile Business
Focus on Ultra Broadband
EBITDA Generation and Cost Efficiency Progress
MARCO PATUANO 21
23. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Focus on 1Q12 Domestic EBITDA
Euro mln, Organic Data, %
1 2 3 4
-78M€, -3,4%
1 3 •Robust growth on Mobile Gross Adds managed
•ITZ Wholesale: -36M€ due to gross Voice
through Acquisition Costs Control
revenues increase
•Efficiency program on Fixed Commercial Costs
•Retail: +59M€ reflecting MTR cut impact
turned into yoy positive contribution to margins
2 4 Personnel Cost reduction from lay-off program
Push on Mobile Smartphone with limited (-3% yoy) offsets the negative impact from
impact on SAC/Subsidy market prices increase in energy and real
estate**
* Industrial + Personnel + G&A = Fixed Opex ** Energy unitary price (including taxation) and inflation adj (ISTAT), IMU on Real Estate
MARCO PATUANO 22
24. TELECOM ITALIA GROUP
Deutsche Bank Access Italy Conference
Thursday, 17 May 2012, London
Progress on Domestic Efficiency Plan
Euro mln, Organic Data, %
Cash Cost Delta Cash Cost
1Q12 vs 1Q11
Target FY : -0,5 Bn
Δ Abs
2.984 -23 +52 -134 1Q12 ’12 vs ‘11
2.879 Total Opex* 2.290 -31
ITX 556 -23
- 105 Handset 165 +6 Efficiency
Mktg &
1Q11 Intercon- Volume Efficiency 1Q 12
Comm. 442 - 29
nection Driven 134
Industrial 250 +18
Cash Cost on Revenues % Fixed
Opex
Personnel 757 -20
+15
G&A & 1Q12 Opex Capex
64.9% Other ** 120 +17 % on FY
Target ~30% ~25% ~35%
- 0.7 p.p. 64.2%
Total 589 -74
Capex
1Q11 1Q12 Total -105
Cash Cost 2.879
* Costs related to credit management are reclassified from G&A & Other to Mktg & Sales **Includes Other Operating cost/Income and Capitalized Costs
MARCO PATUANO 23