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Telecom Italia 1Q 2011 Results (Patuano)
1. TELECOM ITALIA GROUP
1Q 2011 Results
Milan, May 6th, 2011
Telecom Italia
1Q 2011 Results
MARCO PATUANO
2. TELECOM ITALIA GROUP
1Q 2011 Results
Safe Harbour
These presentations contain statements that constitute forward-looking statements within the meaning of the
Private Securities Litig ti
Pi t S iti Litigation R f
Reform A t of 1995 Th
Act f 1995. These statements appear i a number of places i thi
t t t in b f l 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
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
Commission.
MARCO PATUANO 1
3. TELECOM ITALIA GROUP
1Q 2011 Results
Agenda
Domestic 1Q11 Progress Report
Fixed Business
Mobile Business
Cash Cost Rationalization & Operating Model
Appendix
MARCO PATUANO 2
4. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic 1Q11 Progress Report
Back to line losses reduction: -206K (-187K net of backlog) vs. -233K 4Q10
BB churn: 4.3% (-0.7p.p. QoQ)
BB Flat offers: 87% (+1p.p. QoQ; +3p.p. YoY)
Wireline
Retail monthly fee increase and tariffs simplification as of July’11
Focus on Even stronger leadership on PA (win-back Consip contract)
Core
Markets Customer b
C t base rebuilding process on t k ( 645K Y Y)
b ildi track (+645K YoY)
Closing the gap between volumes and prices in outgoing traffic trend on the
Consumer segment
Mobile
Still high macroeconomic pressure/volatility on Business and Top customers
Mobile BB (Large Screen) leadership confirmed (~36% market share in 4Q10,
+12 p.p. vs 2nd Competitor)
Continued Cash Cost Control: -0.3€ bln (-8.3% YoY)
Financial Discipline Organic OpFCF generation (Ebitda-Capex): ~1.6€ bln
MARCO PATUANO 3
5. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic: Organic Results
Euro mln, Organic data, %
Revenues by Technology EBITDA
% on 49.5
49 5% 0.0 p.p. 49.5
49 5%
-369 M€ Revenues
4,965 -7.4%
4,596 -187 M€
-12.0% 2,460 -7.6%
Mobile 1,907 Retail Service Rev. 1,679
2,273
-10.9%
Wireline 3,489 -4.5%
3,331
1Q10 1Q11 1Q10 1Q11
1Q10 1Q11
Cash Cost reduction Highlights
% on 65.6%
Revenues 65.0%
- 0 6 p p.
0.6 p.p High macroeconomic pressure/volatility on
-271 M€ -8.3% Business and Top customers
3,257 Mobile Consumer segment recovery trend
2,986
752 -11.8% 663 confirmed
CAPEX -89
89
Selective approach to the Int’l Wholesale Contracts
2,505 2,323
OPEX -7.3% -182 Strong focus on cash cost reduction
1Q10
1Q10 1Q11
1Q11
MARCO PATUANO 4
6. TELECOM ITALIA GROUP
1Q 2011 Results
Agenda
Domestic 1Q11 Progress Report
Fixed Business
Mobile Business
Cash Cost Rationalization & Operating Model
Appendix
MARCO PATUANO 5
7. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Fixed: Revenues Dynamics
Euro mln, Organic Data, %
Total Fixed Revenues Total Fixed Revenues – YoY % change
3,489 -4.5%
3,331
1Q10 4Q10 1Q11
-4.8% -4.6% -4.5%
1Q10 1Q11
Wholesale Revenues – YoY % change Retail Revenues – YoY % change
National
8.7%
5.3%
2.6%
1Q10 4Q10 1Q11 1Q10 4Q10 1Q11
International
1Q10 4Q10 1Q11
-5.8% -5.7%
-10.1% -8.1%
-15.5%
-21.0%
MARCO PATUANO 6
8. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Fixed: TI Access Performance
Telecom Italia Retail Access Evolution & Line Losses Key Highlights
‘000
15,901 15,741 15,584 15,351 15,145
Improved line losses trend (net of backlog)
TI Access
Churn rate under control despite OLOs
1Q10 2Q10 3Q10 4Q10 1Q11
gg
aggressiveness
‘000
1Q10 2Q10 3Q10 4Q10 1Q11 Backlog increase due to win-back daily cap
from OLOs
Line losses -187K*
New Opt-out regulation started from Febr’11
-160
160 -157
-196
196 -206
-233
Retail monthly fee increase and tariff simplification – Focus on Consumer
€/month
TO BE
Avg monthly spending AS IS
(July ‘11)
Avg Spending Monthly fee Elasticity to tariffs Avg Spending
increase simplification
* Net of Backlog
MARCO PATUANO 7
9. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Fixed: Focus on Broadband & ICT
TI Retail Broadband Accesses Broadband ARPU
‘000 Euro/month/line
+19 -0.5%
7,186 7,175 7,194 Flat on
TI retail 7,134 18.5 Consumer 18.4
accesses 7,071 segment
Free
Flat (%) 84% 85% 86% 86% 87%
1Q10 2Q10 3Q10 4Q10 1Q11
4Q10 1Q11
Churn (%) 4.0% 5 0%
5.0% 4.3%
ICT Revenues Nuvola Italiana
Euro mln, %
+13.3% TOP ICT contract value increase
1 8
158 179
(+39% YoY; services +48% YoY) boosted
by “Nuvola Italiana” TLC-ICT convergent
services
Double-digit growth of Cloud services on total ICT Services
Enhancement of Cloud computing offer portfolio for Top
1Q10 1Q11 clients based on pay-per-use/on-demand concept (improved
Market time-to-delivery and time-to-market applications)
Share (%)* 10.1% 11.3%
* Top sector
MARCO PATUANO 8
10. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Wireline Revenues
Euro mln, Organic Data, %
1Q10 1Q11 YoY %
Total 3,489 3,331 (4.5)
Services 3,397 3,230 (4.9)
Voice 1,551 1,420 (8.4)
Flat
Net of Soccer
Internet 432 407 (5.8) Rights*
Business Data 294 295 +0.3
Wholesale 1,035 1,015 (1.9)
National 749 789 +5.3
International 286 226 (21.0)
Other 85 93 n.m.
Handsets 92 101 +9.8
* From July’10 TI exited Soccer rights reselling business.
MARCO PATUANO 9
11. TELECOM ITALIA GROUP
1Q 2011 Results
Agenda
Domestic 1Q11 Progress Report
Fixed Business
Mobile Business
Cash Cost Rationalization & Operating Model
Appendix
MARCO PATUANO 10
12. TELECOM ITALIA GROUP
1Q 2011 Results
Mobile Revenues: 1Q11 Results at a Glance
Euro mln, Organic Data
Total Mobile Revenues
Normalized (*)
-8.9%
-228
Total Mobile 1,907 -12%
1,679
1 679
Wholesale 72
revenues
1,835 -205 49
Total Retail
-11.2% 1,630
Handset 58
revenues
-22.4% 45 Mobile Retail Service Revenues Trend – YoY % change
1Q10 2Q10 3Q10 4Q10 1Q11
Service 1,778 -10.9%
revenues 1,584
Normalized*
Normalized *
-8.8%
-9.2%
9 2% -9.2% -10.6% -9.0% -10.9%
9 2% 10 6% 9 0% -8.8%
8 8%
1Q10 1Q11
*N
Normalized
li d by
b
Extraordinary Bank-Holiday (17 March) 6€ mln
Data shock billing revenues eliminated from second half 2010,
on the basis of AGCOM 326 principles 34€ mln
MARCO PATUANO 11
13. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Mobile: Customer Base Trend
Euro mln, Organic Data
Net Adds
Total SIM cards
‘000 ‘000
386
31,018 31,038 152
30,393 30,545 30,632 88 20
+645 Change YoY
+2.1% YoY
-463
+483
1Q10 2Q10 3Q10 4Q10 1Q11 1Q10 2Q10 3Q10 4Q10 1Q11
Gross Adds Churned SIM cards
‘000 ‘000
+11.8% 1,822 -13.9%
1,630
1 630
2,093
1,802
6.4
Churn Rate % 5.5
55
1Q10 1Q11
1Q10 1Q11 1Q10 1Q11
MARCO PATUANO 12
14. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Mobile – Focus on Consumer
Main KPI’s
Customer Base (SIM Mln) Outgoing Prices – YoY % change Outgoing Traffic – YoY % change
2010
2011
-31% Out prices +29%
25.1 stabilized
since Dec’10
24.6
24 6
24.7 24.5 24.4 24.7
24.4
4Q
Q 1Q
Q 2Q
Q 3Q
Q 4Q
Q 1Q10 1Q11 1Q10 1Q11
Consumer Service Revenues Highlights
YoY % change
Customer Base: closed the Gap vs 2010
1Q10 2Q10 3Q10 4Q10 1Q11 Outgoing prices and traffic: reducing the YoY gap
Outgoing Traffic: consolidate 2010 growth
-10.4% Normalized*
Ch rn increase loyalty leveraging on bundle offers
Churn: lo alt le eraging b ndle
-10.7%
-12.3% -11.6% (1Q11 6.3%; -0.9pp YoY)
-13.0%
-14.4%
Incoming traffic&revenues stabilized
*Extraordinary Bank-Holiday (17 March)
MARCO PATUANO 13
15. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Mobile – Focus on Business&Top
Customer Base Highlights
SIM H
Human (Mln)
(Ml )
Usage SME/SoHo impacted by macroeconomics
1Q11 +1.7% YoY pressure
3,170 3,161 3,186 3,189 3,218 3,214 Consip pricing list effect on top customers
Market share protection
Data Offer repositioning pushing on bundles to
overcome shock-billing and increase loyalty (AGCOM
Decision ex326)
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11
Business&Top Service Revenues Data Offer Repositioning
% Change YoY Small screens Smartphone renewal every 2 years
All risk insurance
1Q10 2Q10 3Q10 4Q10 1Q11 Recurring data bundles up to 2GB
1.6%
Normalized*
-4 9%
4.9%
Large screens USB dongle
-0.6%
0 6%
-3.0% -3.9% Recurring data bundles up to 20 GB
-11.5% Roaming data bundle 100MB
Premium help desk for PC sw issues
* Data shock billing revenues eliminated from second half 2010, on the basis of AGCOM 326 principles
MARCO PATUANO 14
16. TELECOM ITALIA GROUP
1Q 2011 Results
Mobile BB – Small Screen Large Screen Dynamics
Screen-Large
Main Highlights KPIs
Large Screen users - Consumer (‘000)
+25.8%
Market share leadership confirmed 1,853 2,332
Continued increase of 24 months Internet
LARGE pack offering
1Q10 1Q11
SCREEN Increased gross adds through the Internet Pack – gross adds (‘000)
adoption of Tablets and i-Pads ~70% total
+43.6% ~180 Gross Adds
~120
Increased customer loyalty
1Q10 1Q11
Small Screen users - Consumer (‘000)
Handsets mix improved: smartphone on
p p 1 376 +12 1% 1 542
1,376 +12.1% 1,542
~7% penetration
total handsets sold (~+5pp vs.FY10) on voice CB
Push on Tutto Compreso with
SMALL smartphone included 1Q10 1Q11
SCREEN % Smartphone on Handsets sold - Consumer
Bundles with smartphones and internet
~270K Smartphones
options (~60% Tutto Compreso +128% YoY
Total H/S
customers with high-end smartphones ~36%
~35%
have an internet option)
March'11
MARCO PATUANO 15
17. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic Mobile Revenues
Euro mln, Organic Data, %
1Q10 1Q11 % YoY
Total
T t l 1,907
1 907 1,679
1 679 (12.0)
(12 0)
Services 1,850 1,634 (11.7)
o/w Outgoing Voice 991 876 (11.6)
(11 6)
Consumer
Browsing +5.5%
o/w VAS 510 475 (6.9)
o/w Business Received
/ 349 283 (18.9)
Handsets 58 45 (22.4)
1Q10 1Q11 % YoY
Net of
Total 1,907 1,679 (12.0) Discontinuities
-8.9%
Retail 1,835
1 835 1,630
1 630 (11.2)
(11 2)
Net of
Discontinuities
o/w Services 1,778 1,584 (10.9) -8.8%
Wholesale 72 49 (32.0)
(32 0)
MARCO PATUANO 16
18. TELECOM ITALIA GROUP
1Q 2011 Results
Agenda
Domestic 1Q11 Progress Report
Fixed Business
Mobile Business
Cash Cost Rationalization & Operating Model
Appendix
MARCO PATUANO 17
19. TELECOM ITALIA GROUP
1Q 2011 Results
Focus on 1Q11 Domestic EBITDA
Euro mln, Organic Data, %
1 2 3 4
2,460
2 460 (369)
+3 +23 +32 2,273
+124
-187M€, -7,6%
1Q10 Revenues Interconn. Costs Handsets costs Mktg&Comm. Opex Fixed Opex* 1Q11
1 3
Acquisition costs offset by efficiencies on
MTR and Wholesale traffic reduction
customer operations
2 4
Selective growth of Smartphone/ICT Benefits from efficiency programs on Fixed
Products with no impact on Ebitda costs and headcount reduction
* Industrial + Personnel + G&A = Fixed Opex
MARCO PATUANO 18
20. TELECOM ITALIA GROUP
1Q 2011 Results
Agenda
Domestic 1Q11 Progress Report
Fixed Business
Mobile Business
Cash Cost Rationalization & Operating Model
p g
Appendix
MARCO PATUANO 19
21. TELECOM ITALIA GROUP
1Q 2011 Results
Domestic – Focus on Full -Year
Year
Financial
Organic Data, Euro Bln, %
Revenues Ebitda
~ -4% ~ -4%
20.0 9.8
~19.2 Balance to >9.4 Q1 Q2 Q3 Q4
Target -3%
-7,4%
-7 4%
-7.4%
7
Repricing Wireline Balance to
2H10 impact of TIMX Italy -7.6% Target -2.5%
ICT/Cloud Roll-Out
FY Guidance FY Guidance
2010 2011 2010 2011
OPEX
-4%
10.3
10 3
~9.8 Front -end loaded efficiency target to balance
1Q Balance to Target expected trend in 1H11 for Top Line
Balance to target shows further potentiality to secure
-3.3%
3 3% full-year
full year Ebitda target
-7.3%
Benefit from further headcount reductions in 2H11 in
FY Guidance accordance with Trade Union agreement signed in
2010 2011 August’10
MARCO PATUANO 20
22. TELECOM ITALIA GROUP
1Q 2011 Results
Progress on Domestic Efficiency Plan
Euro mln, Organic Data, %
Delta Cash Cost
1Q11 vs 1Q10 ITX Vol. Driven Efficiency
Cash Cost
49% of FY10
Target
Handsets: -3 Target FY : -654
3,257 -124
Total Opex 2,323 -182 -124 +56 -114
+111
111
-258
258
2,986
ITX 579 -124 -124
Mktg &
-271 Sales 550 -26 +24 -50
1Q10 Intercon- Volume Efficiency 1Q11
Industrial 246 -2 +11 -13
nection Driven
Personnel 779 -53 -5 -48
Cash Cost on Revenues (%)
G&A &
Other* 169 +23 +26 -3
65.6%
- 0.6 p.p. 65.0%
Total Capex 663 -89
89 +55 -144
144
40% of FY10
Target
1Q10 1Q11
*Includes Other Operating Income and Capitalized Costs
Total Cash Cost -271
271 -124
124 +111 -258
258
MARCO PATUANO 21