MARCO PATUANO
Telecom Italia – Domestic Market
Full‐Year 2011 Preliminary Results and 2012‐14
Plan Outline
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.
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
2011: Continued Recovery in a worsened context
%, Euro mln, Organic data
1Q11 2Q11 3Q11 4Q11 -7.4% -6.0% -3.8% -2.0% Revenues EBITDA 19,033 -4.8% FY11 4,596 4,760 4,742 4,935 Abs YoY 1Q11 2Q11 3Q11 4Q11 -7.6% -4.8% -2.5% -0.3% 2,273 2,318 2,478 2,282 Abs FY11 Ebitda-Capex -5.7% -4.5% -2.9% -1.3% 1,610 1,623 1,821 1,320 Abs YoY 1Q11 2Q11 3Q11 4Q11 FY11 6,374 Highlights
Tough external macro-economic
conditions, regulatory evolution and
competitive environment
Strong Cash Generation, critical for TI
Group strategic achievement
9,351
-3.9%
YoY Including effect of:
- Credit provisions: -41 €Mln - VAT increase: -12 €Mln - IAS19: +43 € Mln
Euro mln, Organic data, % 1Q 2Q 3Q -1.9% 4Q -2.1% -4.9% -4.9% 13,466 -3.5% 13,001 ‘000 Access Total TI
Domestic Fixed: Paving the Way to Access Valorisation
Highlights
Telecom Italia Access TI Lines Evolution
Wireline Services Revenues Trend
‘000 2009 2010 2011 +1,221 +612 +289 -1,255 -746 -699 Wholesale Retail
Better performance on Line Losses in a
worse market and economic environment
Infra-OLO churn increased
Wireline Service Revenues trend
improvement confirmed
Important evidence of TI’s ability to
monetize its premium value proposition
Wholesale Retail TI -206 OLO +181 -25 -133 -176 -77 22,122 15,351 6,771 1Q 2Q Q Q 2010 2011 14,652 7,060 21,712 -410 TI -183 OLO +51 TI -135 OLO -42 TI -175 OLO+98
Domestic Fixed: Adding Value to Broadband
Broadband Services Revenues
TI Retail Broadband Accesses Highlights
Broadband ARPU
Euro/month/line -1.3%
18.6 18.4
2010 2011
Lower market growth.
OLO’s price war not followed by TI: BB
Customer Base successfully defended.
Success on Value Approach: growth in
Revenues and in consumer ARPU,
supported by SuperInternet results.
Total Italian BB accesses 13,082 13,455 ‘000 12,294 Free 7,125 2009 2010 7,175 7,000 2011 Total Market Share 56.9% 54.8% 53.0% 87% 86% 83% +788 +373 % yoy growth 1H11 2H11 -0.3% +0.5% 4Q11 consumer ARPU +2.1%YoY FlatDomestic Mobile: Customer Base Trend
Churned SIM cards
Total SIM cards Net Adds
Gross Adds ‘000 Churn Rate % ‘000 ‘000 ‘000 +1,209 vs YE10 >7x FY 2010 performance FY 11 FY 10 7,343 8,344 +13.6% FY 11 FY 10 +3.9%
-11.7% -8.7% -7.5% -7.1% -9.6% -6.7% -5.1% -4.7% 1Q 2Q 3Q 4Q Oct-Nov ~- 6% % YoY Handsets Revenues Total Revenues
% YoY, Organic data
-7.1% FY11 FY10 -10.5% Services Revenues % YoY Excl. MTR Browsing Revenues % YoY
% Browsing Revenues on Service Revenues
12% 13% 14% 15%
Domestic Mobile: 2011 Key Revenues Trends
FY11 +40.2%
4.6 5.8
4Q10 1Q11 2Q11 3Q11 4Q11
Mobile Consumer: FY11 Highlights
In 2011 TIM became Best in Class in Customer satisfaction on:
Point of Sales, Customer Care & Web-Site
8.4% 8.8%
TIM Total Market
Flat offers (TIMx, Tutto Compreso)
% Smartphone on Handsets sold
~56% ~56% ~3.4 mln Total H/S* Smartphones +210% YoY FY11 mln FY10 FY11 1.54 2.29 +49% ARPU (€/month) 6.9 7.1 +3%
Customer Base Growth Loyalty Increase Mobile BroadBand Strong increase in acquisitions
Sound Growth in CB Calling
MNP Churn Rate
Push on flat offers
TIM MNP Churn lower than Market Average
Small Screen Handsets
*Source GFK Survey
Small Screen Users
(mln) 20.3 2011 2010 1Q 2Q 3Q 4Q +19%YoY
Gross Adds Net Adds
FY11
>1 Mln
FY10 FY11
242
3,082
1,485
420
316
799
63
Q410
3,602
362
(84)(15.3)
(3.1)
(6.0)
(1.7)
(4.4)
(1.0)
n.m.
YoY %
(2.8)
5.5
16.7Products
Domestic Core Services
Voice & Access
Internet
Business Data
National Wholesale
Other
Total
Sparkle Group
Eliminations205
2,985
1,396
413
302
791
83
Q411
3,502
382
(70) Euro mln, Organic Data, %Domestic Wireline Revenues
3Q11 vs 10 %YoY (19.0) (2.1) (6.0) (0.5) 1.7 3.0 n.m. (2.8) (4.9) 15.0
Euro mln, Organic Data, %
(*)Total Retail Services Revenues net of Incoming (**) Including Roaming & Visitors
Total
o/w Services
Wholesale
Retail
o/w VASo/w Incoming
Domestic Mobile Revenues
o/w Business Generated
(*)o/w Outgoing Voice
(**)Q410
1,870
1,719
65
1,805
508
221
86
1,498
990
Q411
1,828
1,612
47
1,781
534
178
169
1,434
899
%YoY
(2.2)
(6.2)
(27.7)
(1.3)
5.1(19.5)
96.5
(4.3)
(9.1)Handsets
3Q11 vs 10 %YoY (6.5 ) (6.9 ) (21.4) (5.9) 2.1 (19.3) 34 (5.2) (8.6)Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
2012 Italian Economic Outlook
GDP ∆% Consumer Spending ∆%
Unemployment rate % Consumers refrain from non-essential spending in
2012
Near-term outlook for households consumption is poor
Unemployment rate expected to grow further
Rationalization on Corporate and PA spending partially offset by Government driven investments in innovation
Source: Global Insight Feb. 2012 1.4 0.4 -1.5 0.2 0.9 2010 2011 2012 2013 2014 1.1 0.4 -1.0 0.0 1.2 2010 2011 2012 2013 2014 8.4 8.3 9.1 9.3 9.1 2010 2011 2012 2013 2014
12.6 16.6 3.6 9.1
2011 2014
Italian TLC Market Evolution & Regulatory Framework
1addressable Bln € ICT1 Mobile Service Products Fixed Services
Domestic Market by Technology
41.9
TLC
Regulatory Scenario
New MTR glide path
International roaming prices on EU’s agenda
FTR: full symmetry already reached, IP
interconnection transition in progress
Regulatory guideline on NGNA framework
under definition. Geographical segmentation of fiber bitstream confirmed. No constraints on TI’s NGAN architecture.
6.3 3.5 1.7 0.98 5.3 2.5 1.5 current 07/2012 01/2013 07/2013 H3G TI/Vod/Wind €cent/min Source: Sirmi 32.8
Total
CAGR ‘11-’14 -2.1% -3/4% in 2012 TLC Services 29.2 Increase StableCustomer Base Consumer Fixed Loyallty New Business
Consumer Mobile Business Top Client & PA
Preserve Free Cash
Flow Generation
Efficiency Processes Re-engineering
Efficiencies on Customer Ops (Credit & Caring Activities)
Sales Force Model Rationalization
Commercial Costs Industrial Costs Personnel
Sustaining Top Line
Unitary Cost reduction vs Volumes increase
Focus on Right-sizing and Total Cost Control
Nurturing our Future
Network IT & Cloud
Efficiency
Premium Performance
LTE Roll-out
Market-driven NGAN
Maintenance and Development Innovative Broadband Services
Internal Customer Driven Platforms
Cloud Infrastructure for Market Development
Domestic Strategic Pillars: Aiming at Cash Generation
Increase Access Value Extend All Inclusive
penetration Sustain Premium Positioning Proactive caring approach Lock-in differentiated offers
New Segment growth (ethnic and youth) Further improvement on
value acquisition mix
Improve Convergent approach/offer Focus on win-backs,
combining value for money with premium price defense
Widen content offer Address new targets
Light ICT standardized solutions Develop M2M application market Leverage on Fixed-Mobile synergy
Increase flat offer penetration
Increase Cloud adoption leveraging on “the only cloud with its own network inside”
New business approach to better care for Top Clients Proactive support to Govt.
digitalization process End2End service
management Enlarge ICT portfolio Enrich smartphone and
tablet application portfolio “Beyond connectivity” Maximize Mobile Ultra
Broadband wave Personal Cloud and
Innovative service enhancement
Strengthen CRM activities on voice and data for enhancing value Customer view (vs sim)
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Fixed Business: Safeguarding the Value
Increase flat/bundle offers penetration
Increase focus on prospect customers to improve win-back
Refining Segmentation to Address new Targets
CB lock-in through innovative products and new offerings
Widen bolt-on offers portfolio
Proactive Caring approach
Engage TIM Shops to increase
BB sales
Portfolio enhancement
Widening portfolio for content, applications bundled services
Quality and Service Level Agreement differentiation according to Customer Value
Wireline Access trend
‘11‐’14 CAGR BB penetration on TI CB 2011 2014 2011 2014 48.6% 14.7 mln BB Services Revenues 1.6 ‘11-’14 CAGR 2011 2014 Euro bln -4% >5pp >2%
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Customer Base Growth Loyalty Increase Mobile BroadBand
Mobile Business: Surfing Data Opportunities
Maintaining leadership on acquisitions keeping focus on quality & value
More focus on segmented offers with limited and targeted use of pricing lever
CRM campaign optimization through deeper customer
knowledge (profiling and social network analysis)
Increase focus on bundle and lock-in offers tailored by segment
Technological Distinctiveness
Leveraging on network leadership to deliver innovation to Mass-Market
Exploit recognized TIM brand attribute of reliability to lead LTE evolution Continue to push on bundle
smartphone/services and pack offerings for mass market
CRM activities extended to data services
PREMIUM offers introduction with higher speed, better network quality and radio priority
Wireless CB trend
‘11‐’14 CAGR
Mobile BB penetration on TIM CB
2011 2014 2011 2014
22% 32.2
mln Mobile BB Revenues trend
‘11‐’14 CAGR
2011 2014
>3%
Mobile Technological Evolution while Protecting Profitability
Increasing speed availability
Strengthening HSDPA and LTE introduction Maximum speed (kbps) 2009 2010 2011 2012 2013 3,6 7,2 14,4 42 84 100 2014 January 2012 June2012 Roadmap 42MB coverage The advantages of 42MB
With PREMIUM offers Customers have an effective perception of Higher Speed
Fiber Bakhauling Dual Carrier Network Priority
Offer based on the Value of the Customer Mass Market Premium Customers Speed Up to 14,4 Mbps Up to 42 Mbps 100 Mbps Network HSDPA HSDPA/LTE Priority NO YES Quality (everywhere/every time) Pricing Speed Quality Priority
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Innovation: «Beyond Connectivity»
ENTERPRISE & PUBLIC SECTOR
CONSUMER
Customer
needs-driven
innovation
Exploit Digital Agenda opportunities (simplification, digitalization)
Provide saving opportunities
Deeply revise Enterprise
go2market through:
-New ICT-dedicated sales channels
Spread innovation and digital life in the mass market
Selective Development of a
new positioning in music, video and apps markets
CLOUD
TI DIFFERENTIATION
FULLY MANAGED SERVICES APPROACH
Leveraging on recognized network expertise, quality and capillary presence (E2E caring and technical assistance)
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Efficiency Processes Re-engineering
Caring & Sales ForceModel Rationalization
2011 2014
Unitary Cost reduction vs Volumes increase
Right-sizing & Total Cost Control
2011 2014
Slighly
Reduction Stable Reduction
Bln €
> -1 Bln €
* TFR IAS adjustment excluded
*
Commercial Costs Industrial Costs Personnel
Domestic Opex 2012 2013 2014 0.3 0.2 0.1 Efficiency on Opex New Plan: -0.5 Bln € in 2012-2013 Old Plan: -0.2 Bln € in 2012-2013
Total Efficiency on Cash Cost ‘12-’14 1.0 Bln €
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Fixed & Mobile
Maintenance and Development
Balance between Traditional Network and Innovative Enablers
Network Service Platform
Innovation Enhance quality of voice and data
trasmission through network optimization
Steady increase in the ratio Fiber/Copper on Access Network Excel in 2G & 3G network coverage Continue the efficiency programs to
finance Innovation Capex (0.4 Bln € in 12-14)
Staying on top for a UltraBB - Experience:
- Best-in-class in LTE launch and coverage
- First-rate in fixed Network: NGAN roll-out through FTT-x
Turning the Network into an All-IP technology
Cloud Infrastructures enhancement
Profiling
Policy Management
Autentication SIM
Based
Content Delivering
QoS Differentiation
Capex Allocation
Strengthen the Network for a Technological Leadership
UltraBB Roadmap 35% 13% 52% 2011 2014 Customer Service & Traffic Driven Network Development Network Maintainance Acceleration Decrease HSPDA 42 Mbps LTE NGAN Roll-out Mobile CoverageOptimize Network Investment to maintain excellent quality in TLC services
Increase the effort in Network Development and Innovation to confirm Technological Leadership and grant the Best Experience on the Net
2014
100 Cities (including all main ones) covered through
FTTH&Cab Technology ~¼ of Housing units passed with >30 Mb/s Speed
2014
More than 40% of population covered by LTEOptimization
Agenda
Telecom Italia Domestic 2011 Results
Telecom Italia Domestic Plan
Fixed Business
Mobile Business
Innovation
Focus on Costs
Capex Allocation
Take-Aways
Take-aways on main TI Domestic trends
Euro bln, Organic data
Strengthen the Network infrastructure with a strong focus on new technologies and services, to support data wave of growth, mantaining quality and performance excellence as distinctive asset.
Domestic 2012 Capex: Almost Stable vs 2011.
Capex
2011 2012 Negative mid-single digit yoy trend 9.35Cost control: efficiency measures and operational business model optimization on caring and go to market will counter margin erosion.
For 2012, we expect an EBITDA trend similar to Revenues one, with a broadly stable EBITDA margin.
EBITDA
2011 2012 Negative mid- single digit yoy trend 19.03Macro-economic pressure, traditional services commoditization and MTR new glide path suggest a challenging scenario on consumer and corporate spending and revenues trend, partially offset by browsing and innovative services increase.
For 2012, we expect a mid-single digit decrease on Top Line yoy trend.
Revenues
2011 2012 Almost Stable vs 2011 3.0Agenda
611
12,260
6,036
1,688
1,204
3,093
240
FY10
14,077
1,528
(322)(11.5)
(3.1)
(7.1)
(2.8)
(0.6)
2.7
n.m.
YoY %
(3.8)
(8.8)
14.3Products
Domestic Core Services
Voice & Access
Internet
Business Data
National Wholesale
Other
Total
Sparkle Group
Eliminations541
11,884
5,607
1,641
1,197
3,176
262
FY11
13,542
1,393
(276) Euro mln, Organic Data, %Euro mln, Organic Data, %
(*)Total RetailServices Revenues net of Incoming (**) Including Roaming & Visitors
Total
o/w Services
Wholesale
Retail
o/w VASo/w Incoming
Domestic Mobile Revenues
o/w Business Generated
(*)o/w Outgoing Voice
(**)FY10
7,657
7,116
285
7,372
2,042
951
256
6,165
4,123
FY11
7,114
6,552
203
6,911
2,034
786
359
5,766
3,731
%YoY
(7.1)
(7.9)
(28.7)
(6.3)
(0.4)(17.4)
40.2
(6.5)
(9.5)Handsets
Domestic Efficiency : Delta Cash Cost by Quarter
Abs ’11 vs ‘10 FY ‘11 -356 2,977 Total Capex 1,976 945 -82 2,975 +10 -243 -26 9,682 Total Opex* -585 2,332 Delta Cash Cost FY 11 vs FY 10 Industrial Personnel Mktg & Comm. ITX G&A & Other ** 457 12,659**Includes Other Operating cost/Income and Capitalized Costs * Costs related to credit management are reclassified from G&A & Other to Mktg & Sales
-715 Total Cash Cost 997 +112 Handset -130 Abs by Quarter
