Building the Foundation for Growth FRANCO BERNABE

Building the Foundation for Growth FRANCO BERNABE

BUILDING THE FOUNDATION FOR GROWTH Safe Harbour This presentation contains 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 Company with respect to 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 Company's activities and strategies. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia Spa 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 Spa business or acquisition strategy 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, which set out certain factors that could cause actual results to be materially different from the forward-looking statements contained herein. 1

BUILDING THE FOUNDATION FOR GROWTH Building the Foundation for Growth: Our roadmap From Defence To Transformation and Growth Up to 2007 2008 2010 2

BUILDING THE FOUNDATION FOR GROWTH Agenda From Defence to Transformation An Evolving Industry Pillars of Transformation and Growth Our Targets 3

BUILDING THE FOUNDATION FOR GROWTH From a Defence Strategy. ASSETS Strong Domestic Market Position KEY DECISIONS Defence of domestic market shares focus on sales strategy RESULTS Volumes achieved at the expense of value Quality of Service decline High level of litigation with competitors and Regulatory Authorities Broad Portfolio of international assets Divest and concentrate on few markets Concentration on domestic market Limited Growth Opportunities abroad 4

BUILDING THE FOUNDATION FOR GROWTH to a Transformation Strategy ASSETS Strong Domestic Market Position World Class competencies in the core business KEY DECISIONS Concentrate on quality as a value driver Increase total share of wallet (including adjacent sectors) Leverage innovation and entrepreneurship in the organisation RESULTS Stabilise and possibly increase ARPU in key businesses Create growth opportunities in an otherwise mature market Selected Presence in international markets Defend and expand where presence is strong Divest weaker positions Exploit potential of current assets Rebuild a solid growth platform 5

BUILDING THE FOUNDATION FOR GROWTH maintaining a strong financial discipline Raise cash from non strategic assets and pursue non cash intensive growth where there is a strong market opportunity Select investments on payback period and return ratios thresholds Mine efficiencies across the organization and synergies with Telefonica and other partners whenever possible Focus on the deleveraging 6

BUILDING THE FOUNDATION FOR GROWTH Agenda From Defence to Transformation An Evolving Industry Pillars of Transformation and Growth Our Targets 7

BUILDING THE FOUNDATION FOR GROWTH An Evolving Industry Constraints and Opportunities Constraints Market Saturation on Traditional Services New Competitors coming from Adjacent Sectors Strict Regulatory Environment Opportunities New Growth Opportunities in Innovative Services Expansion in New Addressable Adjacent Markets TLC Market Consolidation 8

BUILDING THE FOUNDATION FOR GROWTH An Evolving Industry Engines of Domestic Growth Bn Equipment Innovative services (includes addressable ICT and VAS) Traditional services 43.3 38.3 Italian Addressable TLC & ICT Market 44.7 39.8 2005 2006 2007 2008 2009 2010 (1) Interactive VAS, Adv on-line & Contents distribution, messaging (2) Applications, infrastructures, network services.. (3) fixed and mobile Source: internal estimates based on OVUM, Gartner, IDC, Assinform and Sirmi data ~ 47 ~ 42 34% 46% CAGR 07 07-10 2 % 2 % 8 % - 2 % VAS VAS (1) 26% 47% 27% Broadband (3) Current growth drivers: ICT Fixed broadband Mobile broadband Value Added Services ICT ICT (2) 9

BUILDING THE FOUNDATION FOR GROWTH Technology Enabler Wireless sensor networks Ambient Intelligence Addressable Markets An Evolving Industry Expansion of Adjacent Markets Consumer Electronics Market High definition IPTV User generated content User profiling & context Media & Advertising Market Virtualization Service oriented architecture Sw as a service Broadband Mobile ICT Market TLC Market Addressable Market Time 10

BUILDING THE FOUNDATION FOR GROWTH An Evolving Industry - Telecommunications Market Consolidation Liberalization The Market contains more players than the fundamental economics can justify Demand Evolution Bandwidth Bandwidth-hungry hungry applications require investments in broadband infrastructures Fixed Fixed-Mobile Convergence High quality services Tlc Consolidation Market will evolve, in a convergence framework, towards a greater stability in competition dynamics Reduced number of players in wireline (and possibly mobile) Market shifting focus to value rather than volume, reducing pressure on prices 11

BUILDING THE FOUNDATION FOR GROWTH Agenda From Defence to Transformation An Evolving Industry Pillars of Transformation and Growth Our Targets 12

BUILDING THE FOUNDATION FOR GROWTH Pillars of Transformation and Growth Serve our customers to higher satisfaction and create shareholder value Transform Domestic Business Consolidate International Presence Mine efficiency across regions and business lines Consolidate and Transform Network and Service Platforms Disciplined financial policy and focus on deleveraging 13

BUILDING THE FOUNDATION FOR GROWTH Transform Domestic Business - Quality as a Value Driver Mobility Premium Defend the value of the service Fixed Line Bandwidth Quality as a Value Driver TARGET Bridge the Gap vs Industry Average and become quality leader in three years CSI from 58.4 in 2007 to over 64.0 by 2010 14

BUILDING THE FOUNDATION FOR GROWTH Transform Domestic Business Convergence as a Value driver Control Wireline churners Retain High End customers Control churn of Low-end customer vs mobile only solutions Manage Fixed Mobile Convergence Leverage voice price up Increase voice value thanks to mobile price premium Broadband development Accelerate mobile broadband development through convergent offers Avoid price competition between fixed/mobile Broadband 15

~64K BUILDING THE FOUNDATION FOR GROWTH Fixed Broadband ~10/20M ~2/6M ADSL Flat ~256/640K ADSL free Dial up ~50/100M ADSL 2+ VDSL2 Telepresence and Mobile BB Mobile Internet IPTV and Mobile TV VoIP Web, Email Mobile Broadband HSPA2 ~7M HSPA1 ~3M UMTS ~300K EDGE ~100K GSM ~10K HSPA ev. HSPA2+ ~14M Transform Domestic Business Convergence will drive Broadband growth LTE, WIMAX ~100M ~30/40M Time Fixed Broadband market (Access mln) 10.1 2007 2010 Time 2007 2010 Mobile Broadband market (mobile browsing users, mln) 14.6 15.4 TI 6.4 8.3 2007 2010 TI 2.7 1.1 7.0 2007 2010 16

BUILDING THE FOUNDATION FOR GROWTH Bln Transform Domestic Business - Focus on Share of Wallet Digital Media and Advertising * 11.3 12.1 ~14.8 Grow in digital content distribution and web 2.0 new media Estimate TI 2007 Market Share ~ 2% ICT Services *** 14.2 14.5 ~ 15.8 Increase market share through integrated TLC/IT Services Estimate TI 2007 Market Share ~ 7%** Telecom Services *** 36.1 35.7 ~ 36.7 Focus on Value Market Share Estimate TI 2007 Market Share ~ 55% 2006 2007 2008 2009 2010 Source: internal estimates based on OVUM, Gartner, IDC, Assinform, Sirmi & ATKearney data *Excludes RAI public subscription fee ** On addressable market ***Includes equipment 17

BUILDING THE FOUNDATION FOR GROWTH Transform Domestic Business Customer Driven Organisation MOBILE FIXED Convergent Network OSS/BSS Integration New Wholesale Paradigm and broader opening of the Network OLO MVO ISP B-down of 2007 Domestic Revenues (pro-forma) 15 % Network/Field Service Integration Networked ICT services Approach Corporate / Business 26 % Mobile VoIce Mobile BB Fixed Voice Fixed BB Corporate ICT Web Portal Access Network Mobile and Web 2.0 driven strategy Consumer 59 % Already in place To be implemented 18

BUILDING THE FOUNDATION FOR GROWTH Transform Domestic Business Customer Driven Organisation Organization Gradual implementation from today until end of 2008 Reporting Continuity of fixed-mobile reporting in 2008 Pro forma representation of revenues by customer segment from 2Q08 Management Accountability Current accountability maintained during 2008 Responsibility of consumer convergent offer assigned to mobile 2009 Budget based on new accountability by segment 19

BUILDING THE FOUNDATION FOR GROWTH Transform Domestic Business - Main Targets Mobile and BB Consumer Strategy Networked ICT for Business Customers Retain the best customers through convergent offers Increase share of wallet on customers Maintain leadership on Top & Large Accounts Growth in the SME segment Increase ICT revenues and market share Domestic revenue trend reversed in 3 years time New Wholesale Paradigm Leverage on the Wholesale Market as a value creation engine Improve Relation with Regulation Authorities 20

BUILDING THE FOUNDATION FOR GROWTH Consolidate International Business Europe Latin America Int.l Wholesale Enhance TI positioning, eventually exploiting opportunities in the consolidation process Consider exiting less attractive markets Grow in Brazil strengthening mobile proposition and exploiting convergent options Focus to increase the participation in Sofora (Telecom Argentina) Focus on the Italian Hub for the Mediterranean, Middle- East, South-East Asia Innovative solutions for Multinational Companies Monitor business opportunities on high growing markets Build Financial Partnerships and Alliances 21

BUILDING THE FOUNDATION FOR GROWTH Consolidate International Business - Main Targets Overall Increase international contribution to Group results and growth prospects Germany Continue to profitably expand the company, focusing on market success and operational excellence and efficiency Focus on International Growth Brazil Generate more value from the customer base and increase profitability Build share in the fixed-line and broadband markets Profitably penetrate low-arpu customer base 22

BUILDING THE FOUNDATION FOR GROWTH Mining Efficiencies and Synergies Optimization of Field Services costs Reduction of Overhead costs TARGET 2008-2010 2010 cash costs efficiencies (vs. 2007) 1.2 B B (including 0.7B from synergies with Telefonica) Cash costs reduction in IT services Optimization of technical infrastructures costs Convergent Wholesale network and Service Customers WHOLESALE platforms Information Business systems Customers BUSINESS (OSS/BSS & IT Infrastructure) Private CONSUMER Customers Access Network Optimization of sales and customer care costs Synergies with Telefonica 23

BUILDING THE FOUNDATION FOR GROWTH Consolidate and Transform Network and Service Platforms Focus on Investment Return and Pay Back Period Service Platforms Network Platforms IPTV broadcasting and VOD Middleware Platforms for Net Computing, Storage, Asset Management Full IP Managed Unified Communication Platform Broadband Fixed 90% ADSL2 and 8% NGN by 2010 Broadband mobile 85% High Speed 3G and first deployment of LTE by 2010 Dynamic HDTV Platform Software as Service Suites Context Aware Services platform Sensor Networks Expert Systems Deployment of a convergent broadband network based on FTTx, LTE and Femtocells QoS Policy Management Features 24

BUILDING THE FOUNDATION FOR GROWTH Disciplined financial policy and focus on deleveraging Focus on deleveraging Priority of debt reduction Monetisation / disposal of non core activities Shareholder remuneration Dividend policy to be sustainable in the long term Deleveraging Capex and portfolio management to maximise returns Cash flow will be prudently used for organic growth Strengthening position of key existing international assets 25

BUILDING THE FOUNDATION FOR GROWTH Agenda From Defence to Transformation An Evolving Industry Pillars of Transformation and Growth Our Targets 26

BUILDING THE FOUNDATION FOR GROWTH TI Group 2008 targets and 2009-2010 guidance bln, % 2007 Actual 2008 Targets 2009-2010 Trends Organic* Organic* Organic* vs. 2008 Revenues 30.9 ~31.0 CAGR 2008-2010 = +1% / +2% EBITDA EBITDA Margin 12.25 39.7% ~38.5% (excluding 1998 Licence Fee income for ~ 0.5 bln ) EBITDA margin % ~ 39.0 % CAPEX 5.4 ~5.4 (including 0.5 bln 3G Licence in Brasil) Cum. 2008-2010 = ~15.0 Capex reducing YoY Net Financial Position NFP/ Ebitda 35.7 3.1x < 3.0 x NFP and ratio to EBITDA Reducing YoY 2010 NFP/EBITDA ~2.5x * Assuming perimeter as of 31/12/2007 excluding TI France, 2007 exchange rates and including restructuring costs 27

BUILDING THE FOUNDATION FOR GROWTH Domestic 2008 targets bln, % 2007 Actual 2008 Targets 2009-2010 Trends Organic* Organic* Organic* vs. 2008 REVENUES 24.2 Fixed revenues 15.7 Mobile revenues 10.0 >23,0 ~15.0 ~ 9.8 Domestic revenue trend reversed in 2010 EBITDA EBITDA margin % 10.8 44.5% ~44.0% (excluding 1998 Licence Fee income for ~ 0.5 bn ) EBITDA Margin % Broadly Stable CAPEX 4.1 ~3.5 Cum. 2008-2010 2010 = ~11.0 * Assuming perimeter as of 31/12/2007 excluding TI France, 2007 exchange rates and including restructuring costs 28

BUILDING THE FOUNDATION FOR GROWTH Building the Foundation for Growth: Our Roadmap Transform Domestic Business Consolidate International Business Exploiting Efficiencies and Synergies Financial Discipline Improve quality Customer knowledge Convergent offers Develop ICT market Continue Growth in Latin America Strengthen Position in Germany Portfolio Monitor Customer segment organization Convergent Network and IT model Efficiencies and Synergies with Telefónica Investment and Portfolio Management Shareholder Remuneration Domestic revenue trend reversed in 3 years time Focus on International Growth Group EBITDA Improvement Deleveraging 29