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Transcript of dbAccess TMT Conference
Telecom Italia Group
TELECOM ITALIA GROUPdbAccess TMT ConferenceLondon, September 3rd, 2014
Marco Patuano
dbAccess TMT Conference 2Marco 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 ofdevelopments and changes in 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 Telecom Italia Group. Such forward looking statements are not guarantees offuture performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward lookingstatements as a result of various factors. Consequently, Telecom Italia makes no representation, whether expressed or implied, as to the conformity of theactual results with those projected in the forward looking statements. Forward-looking information is based on certain key assumptions which we believe to bereasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and couldsignificantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak onlyas of the date of this presentation. Telecom Italia undertakes no obligation to release publicly the results of any revisions to these forward looking statementswhich may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia business oracquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company'sAnnual 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 Commissionwhich may identify factors that affect the forward looking statements included herein.
The accounting policies adopted in the preparation of the Half-Year Condensed Consolidated Financial Statements as of and for the six months ended 30June 2014 have been applied on a basis consistent with those adopted in the Annual Consolidated Financial Statements at 31 December 2013, to whichreference should be made, except for the new standards and interpretations adopted by the Telecom Italia Group starting from 1 January 2014 which had noeffects on the Half-Year Condensed Consolidated Financial Statements as of and for the six months ended 30 June 2014. Please note that the limited reviewon the Telecom Italia Group Half-Year Condensed Consolidated Financial Statements at 30 June 2014 has not yet been completed.
Following the classification, starting from the fourth quarter 2013, of the Sofora - Telecom Argentina group as a disposal group (Discontinued operations/Non-current assets held for sale) the consolidated financial statements data of prior periods (including the first half 2013) have been restated accordingly andtherefore the Sofora - Telecom Argentina group is no longer separately presented as a business unit.
Furthermore:
•starting from the First Quarter 2014, Organic change in Revenues, EBITDA and EBIT are determined excluding, where applicable, only the effects of thechange in the scope of consolidation and exchange differences and therefore don’t take into account, as in the past, non-organic income and expenses,including those non-recurring;
•starting from the Interim Report at 31 March 2014, the Domestic business unit includes the Olivetti group, in addition to Core Domestic and InternationalWholesale. This different presentation reflects the commercial and business placement of the Olivetti group and the process of integrating its products andservices with those offered by Telecom Italia in the domestic market. In the past, the results of the Olivetti group were included in the “Olivetti” business unit;
as a result, the data for prior periods under comparison have been restated, accordingly.
dbAccess TMT Conference 3Marco Patuano
Service Revenues4,871 mln €
• Organic Performance at -7.1% YoY vs -6.5% in 1Q’14 reflects:• Domestic trend stabilization with a consistent improvement in mobile service
revenues. Good acquisition trend in Fixed & Mobile UBB;• Slight erosion in TIM Brasil figures impacted by full MTR drag in 2Q Solid growth
in Mobile Generated Revenues
• Organic improvement to -4.8%YoY vs -5.7% in 1Q’14 driven by:• +0.8pp in 2Q in Domestic operations (+2.5pp net of subsidy);• Continued Sound performance of TIM Brasil
Ebitda2,145 mln €
InnovativeCapex
~250 mln €
• Constant progression in this key area: • Italy: 83 municipalities covered with fiber, 60.5% population reached by LTE,
TIM recognized by AGCOM as best network in Italy for speed and security in data transmission;
• Brazil: 66 cities covered by mobile BB project (+13 cities vs 1Q’14)
OpFCFgeneration
1,058 mln €• Strong Performance in 2Q’14: +11% YoY
• Reduction of 0.2 bln € vs 1Q’14 & -1.5 bln € vs 2Q’13Net debt 27,36 bln €
2Q’14 Group Highlights: In Line with Plan
dbAccess TMT Conference 4Marco Patuano
Innovative revenues on total (1)M
obile
BB
CB
Fibe
rCB
net
add
s
6.853 7.166 8.023 8.444 8.677 9.151
0% 1% 2%4% 5%
7%
1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14
MBB Users % LTE on MBB Users
+4,3+10,9
+29,8
+58,1
0,10,2
0,5
>1.0
3Q'13 4Q'13 1Q'14 2Q'14
Fiber CB Avg daily acquisition ('000)
>100k clients
at the end of June
~+30%YoY
Investing to support the growth in data and new services
(1) net of wholesale
‘000
25% 32%
28% 32%
2Q’13 2Q’14
2Q’13 2Q’14
Mob
ile s
ervi
ceFi
xed
serv
ice
innovative traditional
innovative traditional
Italy: Innovative Investments are meeting a Growing Demand
dbAccess TMT Conference 5Marco Patuano
Italy: the Lego of our Convergent StrategyTelecom “Tutto” TIM “Smart”
Delta ARPU post vs pre launch phase
new linesexisting CB
Growth
Broadlystable Stable
Doubledigit growthm
obile
fixed
A Value-Accretive PropositionA Successful Proposition: locked-up more than 1 mln clients
~5k per day:>50% new client &
upselling only-voice
The Leaders in Connectivity and Content are together with a unique offer
Telecom Italia & Sky
• Commercial partnership for Sky Online (OTT SKY offer)
• Complete Sky Offer on Telecom Italia IPTV (Feb. 2015)
• Accessibility over mobile of SkyGO and premium sport content with «connectivity embedded”
• ~300k clients at July ’14 of which ~40% with decoder (vs ~ 15% July ’13)
• Strong reduction in churn rate: ~5% (vs >15% in July ’13)
• Relevant growth in viewing time thanks to technical improvements :
2.5x vs July ’13
Cubovision rebranded:“TIM” as one single commercial brand
dbAccess TMT Conference 6Marco Patuano
Traditional• Outgoing ARPU
stabilization• Zero MTR drag• Constant recovery in
calling CB
Innovative• Increasing smartphone
penetration• 4G uptake support• New digital entertainment
services
Serv
ice
Rev
enue
s Tr
end
Italy: Clear signs of improvement for a better 2H’14%YoY
‐14.9%‐13.3%
1Q'14 2Q'14 3Q'14 4Q14
++
Traditional
• F/M traffic erosion reduction due to bundled offers
• Access valorisation
Innovative• Constant support from BB
CB growth• Increased fiber penetration
and adoption• Continued uptrend in ICT
services
-7.3% -8.6%
1Q'14 2Q'14 2H'14
+
ARPU
CB
-7,3%
-8.6%
1Q'14vs1Q'13 2Q'14vs2Q'13
-10,4%-13,1%
+0,1%
+1,8%
-14,9%-13.3%
1Q'14vs1Q'13 2Q'14vs2Q'13
-24,1%-21,9%
+9,9%
+8,4%
Serv
ice
Rev
enue
s Tr
end2H
’14
2Q’1
4
1Q’14vs1Q’13 2Q’14vs2Q’13 1Q’14vs1Q’13 2Q’14vs2Q’13 1Q’14vs1Q’13 2Q’14vs2Q’13 1Q’14vs1Q’13 2Q’14vs2Q’13
Traditional services Innovative
servicesTraditional services
Innovativeservices
Mobile Service Revenues Fixed Service Revenues
dbAccess TMT Conference 7Marco Patuano
Brazil: Our Summer Assessment Reinforced the Importance of its Value
TIM’s Infrastructure Strategy: Data Centric Approach
Cap
acity
Cov
erag
eAv
aila
bilit
y
• Higher speed
• 4G roll out
• Mobile broadband project acceleration
• Backhauling infrastructure
• Homogeneous
• Access upgrade
• Coverage in all relevant areas
• Site densification
• Small cell / Wi-Fi
• Always available
• Fine tunning
• Fiber rings / redundance
• Resilience
Number of 3G & 4G Sites
Number of Wi-Fi & Small Cell
Number of sites with fiber (FTTS)
4Q13 2Q14
4Q13 2Q14
2Q13 2Q14
+19%
+47%
3.5x
2H’14 Network Approach
700Mhz Auction (30th September 2014)
Supports our continued development of mobile data, increasing our 4G frequencies and roll-out
Best-in-Class Network Investments to address New Customer Needs
2G
3G
3G“dense”
DensificationProject
Retaining customers with data devices
Improve quality of experience
Boost data usage
MBBProject
dbAccess TMT Conference 8Marco Patuano
+7%
+9%
-30%
-23%
-1%
+1%
-18%
-22%
mobile
• Outgoing Voice Revenues flat• SMS declining trend
Excellent take-up in data KPIs in 2Q • Smartphone & webphone penetration at 62% • Smartphones ~71% of new handset sales
\
YoY, %
+3%ex-MTR
-2,0%
+0,3%
Total ServiceRevenues
Mobile & Fixed Service Revenues
Mobile Service Revenues(1)
-7%
flat
-1%
Outgoing SMS
Outgoing Voice
Traditional
+73%
+35%
+44%
Vas Content & other VAS
Data
Innovative
1Q’14
2Q’14
fixed(2) receivedgenerated
1Q’14 partially impacted by MTR cut
2Q’14 fullyaffected by this yearMTR cut
(1) visitors&other revenues non included(2) revenues based on net contribution
Brazil: Mobile Data Demand is Rapidly Expanding
dbAccess TMT Conference 9Marco Patuano
The Market is Asking for TIM% of smartphone sales among players in 2Q14
% of smart + webphone on TIM’s base in 2Q14 % of smartphone over new sales in 2Q14
Postpaid
o Reduce churn on postpaido Attract dual SIM card users traffico Renewed focus on corporate customers
o Leveraging on “pure mobile” distinctivenesso Expanding daily tariff scheme to new regionso Simplicity / Transparency
R$ 7 weekly service package
R$ 0.75 daily offer
Prepaid
35%
50%62%
2Q12 2Q13 2Q14
39%
57%71%
2Q12 2Q13 2Q14
41%
23%
28%
9%P3
P2
P1
TIM
Managing customer base… To Infinity and beyond…
Penetration of smart + webphones drives data usage growthSource: GFK Group Source: Company Source: Company
Brazil: Building on our Commercial Strenght
dbAccess TMT Conference 10Marco Patuano
Domestic• Domestic business on track with 2014-2016 Plan
• Improving trend in mobile space paving the way to a solid 2H2014• Line losses and voice ARPU weak as expected; increasing BB ARPU and sound
fiber take-up rate leading to a better fixed revenues mix
• Continued over-performance on efficiencies with a positive impact on OpFCFEfficiency
Plan
InnovativeCapex
• The take-up of innovative services shows we must keep our focus on CAPEX for innovation
M&A • Driven by Financial Discipline
Marco Patuano
• Free Cash Flow Generation well on track and debt duly managedFCF
generation
2Q’14 Group Take-Aways
Brazil• Brazilian mobile transformation to a data driven market is underway: data revenues
almost offset MTR drag and by 2016 it will account for 40% of total revenues• Focus on development and investment ‘14-’16 Plan leveraging on TIM Brasil’s strong
position in the market.
dbAccess TMT Conference 11Marco Patuano
Appendix
dbAccess TMT Conference 12Marco Patuano
Brazilian TLC Market – Mobile Accesses Trend (‘000)75,988 76,200 76,614 77,245 78,465 79,357 79,406
71,232 72,195 72,892 73,431 73,917 74,203 74,372
66,308 66,472 67,432 68,704 68,749 68,776 68,932
49,494 49,708 50,013 50,216 50,579 51,081 51,095
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul‐14
Telefônica Brasil TIM Claro Oi
Pre-Paid Post-Paid
56,47055,515
54,476
53,552 53,553 53,188 52,984
60,306 60,803 60,953 61,146 61,687 61,963 62,123
52,89552,768 53,563
54,388 54,144 53,964 54,012
41,107 41,326 41,640 41,753 42,035 42,329 42,278
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul‐14
19.51820.685
22.13823.693
24.91226.169 26.422
10.926 11.393 11.940 12.285 12.230 12.239 12.249
13.413 13.705 13.869 14.316 14.605 14.812 14.920
8.386 8.382 8.374 8.463 8.545 8.752 8.818
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul‐14
dbAccess TMT Conference 13Marco Patuano
Brazilian TLC Market – Market Shares on Mobile Accesses (%)28,78 28,67 28,56 28,49 28,68 28,78 28,75
26,98 27,17 27,17 27,09 27,02 26,91 26,93
25,11 25,01 25,14 25,34 25,13 24,95 24,96
18,74 18,71 18,64 18,52 18,49 18,53 18,50
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul‐14Telefônica Brasil TIM Claro Oi
26,71 26,30 25,78
25,31 25,24 25,06 24,97
28,53 28,81 28,84 28,90 29,07 29,19 29,27
25,02 25,00 25,34
25,71 25,51 25,42 25,45
19,45 19,58 19,70 19,73 19,81 19,94 19,92
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul-14
37,06 37,83 38,89 39,81 40,59 41,25 41,33
20,75 20,84 20,97 20,64 19,93 19,29 19,16
25,47 25,07 24,36 24,05 23,80 23,35 23,34
15,92 15,33 14,71 14,22 13,92 13,80 13,79 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jul-14
Pre-Paid Post-Paid