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TELECOM ITALIA

Telecom Italia: 9M06 Financial Highlights

Barcelona, 15th November 2006Morgan Stanley 6th TMT Conference

ENRICO PARAZZINI

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TELECOM ITALIA

TI Group - Key Financial Results

€ mln

9M ‘06reported

YoYreported

Revenues

Ebit

23,104

5,621

3,299 +97

+5.2%

-1.8pp

+3.0%

-4.9%

9,786

42.4%

+0.8% +1.1%

-0.8pp

24.3% -2.1pp

39,504 - 1.8 blnvs. June ‘06

YoYOrganic*

Ebitda

Ebitda margin

Ebit margin

Capex

Net Debt

-2.5pp

-4.5%

2,376 -9.5%

* Excluding changes in consolidation area, exchange rate impact and other non organic items

Net Income(post minorities)

3Q ‘06reported

Yoreported

Y

7,769

1,820

1,083

3,268

42.1%

23.4%

+49

+4.6%

-1

+3.8%

-2.4%

+1.5% +2.7%

-0.5pp

-1.5pp

YoYOrganic*

.2pp

-2

-4

+3.5%

.3pp

.7%

880+11.9% excludingDisc. Operations

+20.1% excludingDisc. Operations

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TELECOM ITALIA

Update on Convergence Synergies

€ mln

2005 vs2004

IH 2006 vs2005

cum 05- IH 06 3Q 06 vs 3Q 05 cum 05- 9M 06

Operational Costs (116) (122) (238) (67) (305)

Marketing & Sales (205) (68) (273) (70) (343)

Purchasing, G&A (66) (42) (108) (77) (185)Personnel (51) (23) (74) (27) (101)

TOT Domestic Ops (438) (255) (693) (241) (934)

Central Functions (30) (121) (151) (45) (196)

TI Media (3) (3) 0 (3)TOT. OPEX (471) (376) (847) (286) (1.133)

TOT. CAPEX (178) 0 (178) (155) (333)

TOT. OPEX + CAPEX (649) (376) (1.025) (441) (1.466)

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TELECOM ITALIA

Debt structure as of September 30, 2006

Current Liabilities659

Other Non Current Liabilities (*)of which approximately € 6.0 bn revolving

facility and € 2.0 bn long rent/leasing12.777

Bonds (*)34.509

(2) Liquidity Nominal Position, represented by cash and marketable securities, stands at € 7.4 bn.

€ mln

26,6%1,4%

72,0%

Total gross debt: € 47,945 mln(1)

Cost of debt: approximately 5%

Gross Debt € 47,945

Financial Assets €( 8,441)(2)

Net Financial Position € 39,504

(1) Including € 1.473 mln of IAS adj of which € 450 mln on bonds.

€ 7,4 bn liquidity position grants full coverage of forthcoming debt maturities up to 1Q 2008

Average bond maturity: 8.66

Fixed rate portion on debt still approximately 70%

37,2% of outstanding bonds is denominated in USD and GBP (fully hedged)

Maturities and risk management

(*) including the current portions of non current liabilities (maturing within 12 months) for € 5.201 mln (of which bonds € 4.336 mln and other € 865 mln).

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TELECOM ITALIA

Medium-long term debt Maturity Profile as of Sept. 30, 2006

€ mln Bonds Loans and Long rent and op. leasing (€ 2,009) Drawn bank facility

Within 2006 2007 2008 2009 2010Beyond2011

Total M/L term debt

1.058

4.031

4.212

4.626

2011

3.768

5.410

22.753 43,858(1)Matched by a:

7.4 bn 6.5 bn 13.9 bn=+

Liquidity nominal

position (out of € 8,4 bn

total Financial assets)

of which revolving facilitymaturing

- March 2007 € 3,5 bn- August 2012 € 3,0 bn

Liquidity

Margin

(1) € 45,858 mln is the nominal amount of outstanding medium-long term debt; by adding IAS adjustments (€ 1.309 mln), deferred incomes “AVEA” (€ 119 mln) and current liabilities (€ 659 mln), the gross debtfigure of € 47.945 mln is reached.

(NB) Maturities are net of € 140 mln (face value) of repurchased own bonds.

558

5.799

3.199

3.820

2.114

4.330

17.126

3.000

3.0006.000

2.627

296

296

392

798

8322.970

500

34.059

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TELECOM ITALIA

Telecom Italia: solid foundations for an evolvingbusiness model

Barcelona, 15th November 2006Morgan Stanley 6th TMT Conference

RICCARDO RUGGIERO

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TELECOM ITALIA

9M 2006 financial performance and business overview

Evolution of TI’s business model

Agenda

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TELECOM ITALIA

€ Mln., %, Organic Growth

9M 06 Δ Δ%

Ebitda %

Ebit %

Revenues

Ebitda

Ebit

27.6%

45.7%

12,633

5,767

3,491

9M 05

28.8%

46.1%

12,825

5,908

3,693

-1.2pp

-0.4pp

-192

-141

-202

-1.5%

-2.4%

-5.5%

9M 06 Δ Δ%

European Project

-16.0%

+6.0%

662

40

-106

9M 05*

-19.6%

-1.9%

465

-9

-91

+3.6pp

+8.0pp

+197

+49

-15

+42.4%

n.m.

-16.5%

9M 06

Total BU Wireline

9M 05

25.5%

43.7%

13,295

5,807

3,385

27.1%

44.4%

13,290

5,899

3,602

-1.6pp

-0.7pp

+5

-92

-217

+0.0%

-1,6%

-6.0%

Broadly Stable domestic margin. Increasing weight of European Project on Wireline revenues and profitability (EBITDA margin at 11.1% in 3Q 06, from 5.4% in 2Q 06 and 1.0% in 1Q 06)

-0.5% excluding F2M cut (~128 € mln.)

Δ Δ%

* Including Liberty Surf from 1/1/05

Wireline: 9M 06 Domestic and European Project

Domestic

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TELECOM ITALIA

13,200

7,614

1,061

1,305

2,604

7,052

1,123

1,290

2,936

377 13,295

239 232

-562 +62 -15 +332 -7662

+285

Voice

Business Data

Internet

Subs., Adj. & Other

EuropeanProject

Wholesale -7.4% -1.1% -2.9%+5.8% +12.7% +75.6%(+42.4% org.)

+0.7%(0.0% organic)

+95 mln. €

9M 069M 05 Voice Internet Business Data Wholesale Subs., Adj. & Other

EuropeanProject

€ Mln, %

Revenue growth analysis (reported data)

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TELECOM ITALIA

540 712

548 816

190

605

657

209

655

745

196

540

548

225

Wireline KPIs – 9M 2006Domestic Wireline: Traffic market share% on total traffic volume (voice + online)

Market share maintained close to 70%

Domestic Wireline: Total BroadBand Portfolio‘000 lines

European Project – BB Customer Portfolio(‘000)

‘000 linesDomestic Wireline: Retention campaigns

1Q 05 1Q 06 2Q 05 2Q 06 3Q 05

9M 05: 728 9M 06: 918+26%

3Q 06

319355

244

196

282249

ResidentialBusiness

(10,4%)

Sep 05 Sep 06

+0.2 pp

Sep 04

+0.8pp

71.8% 72.8%72.0%

Wholesale

Retail

Total Domestic

+565

+750

+185

Dec ’05

890

4,817

5,707

Sep ’06

1,075

5,382

6,457

Dec ’04

599

3,411

4,010

D Sep vsDec ‘05

1,313

Dec 05 Sep 06

1,7181,471

Mar 06

1,596

Jun 06

+158k +122k+125kNet additions

Total clients: 2,014k (190k NL; 839 D; 985 F)

The Netherlands

Germany

France

157

263

198

277

179 184

39

56

84

78

71 60

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TELECOM ITALIA

Leading position in European BB achieved in 3 years

The European BB Project 2004-06

Germany. End 2003: Hansenet acquisition (75k BB

customers). Sep 06 816k BB customers. Close to #2 operator

(15% mkt share) after AOL acquisition. EBITDA positive since

’03 and FCF>0 since 2Q ‘06.

France. End 2004 start-up. Sep 2006: ca 1 mln customers

(72% BB). Expected to be EBITDA positive from ’08 and FCF

breakeven from ’09.

The Netherlands. Started up in 2000. DSL wholesale provider.

~40% EBITDA margin.

Proportionate* retail BB customers (Mil.) – Sep ‘06

6.8

8.28.2

3.9 (**)

Int’l

DomesticRetail

Source: Company Data

(*) Based on Equity stakes. TI includes AOL D

(**) TEF June 06.

(***) Including AOL Germany customers

European Project’s EBITDA breakeven reached in 1Q 2006. Double digit EBITDA margin (11.1%) achieved in 3Q

2006-07 Germany and France focus on: subscriber growth; coverage extension; integration of AOL with Hansenet; strengthening of TI’s position in France

Free cash flow breakeven expected in 2008: in line with objectives and with the standard cash profile of BB startups

Business model (Alice brand, focus on ULL, service and IT platforms) can be replicated in other countries (Plug and Play Model),should any opportunities arise.

5,4

3,2

2,8

0,75,45,5

1,42,7

TI (***) FT DT TEF

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TELECOM ITALIA

+5.3% excluding termination cut (340 mln€)

Revenues

EbitdaEbitda %

EbitEbit %

CapexCapex/Rev.

Organic*

Δ Abs Δ %

Reported Data

9M 06 9M 05 Δ Abs Δ %

+3.1% excluding termination cut (171 mln€)

9M 06 9M 05

€ Mln, %

7,507 58 0.8%7,565

52.5%51.0% -1.5pp3,942 -83 -2.1%3,859

3,037 -203 -6.7%40.5%

2,83437.5% -3.0pp

680 581 99 17.0%

7,507 58 0.8%7,565

3,925 -50 -1.3%52.3%

3,87551.2% -1.1pp

3,020 -170 -5.6%40.2%

2,85037.7% -2.5pp

7.7%9.0% -1.3pp

TIM Italy: Main Results 9M 06 vs 9M 05

* Excluding exceptional items

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TELECOM ITALIA

41.9% 39.4% 39.7% 40.0%

7.6%

2,170

5.9%

1,613

40.5%

11.3%

3,421

40.3%

10.0%

2,979

+1,080SIM, ‘000

40.3%

12.4%

3,892

Market Share TIM EoY (%)

UMTS penetration (%)

UMTS* Customers

* UMTS customers that generated traffic on TIM’s 3G network in the last 90 days

- 142

+1,322+1,137

+1,088+744

Dec '04 Jun '05 Sep '05 Dec '05 Mar '06 Jun '06 Sep '06

TIM Italy: strong customer base trend

Success of new offers continues:

TIM Tribu: over 2,1 mln lines

TIM Relax: ~2 mln lines

TIM Famiglia (F/M family net): over 1,2mln lines

Welcome Home (ethnic): ~0,7mln lines

Contribution of Business customers to net adds (222k) remains strong, in spite of 3Q’s seasonal bias towards consumers

31.48830.408

26.259 26.11727.254

28.57629.664

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TELECOM ITALIA

Service revenues (YoY % chg) Service rev. before F2M cut (YoY % chg)

EBITDA (organic YoY % chg) EBITDA margin (Organic YoY pp chg)

1Q 06 2Q 06 3Q 06 1Q 06 2Q 06 3Q 06

1Q 06 2Q 06 3Q 06 1Q 06 2Q 06 3Q 06

The new commercial

strategy generates

increasing volumes

and leads to a

positive impact on

margin in the third

quarter of 2006

Further acceleration

in revenue and

EBITDA growth

expected in 4Q 06

TIM Italy: revenue and margin turnaround

+0.4 pp

-1.9 pp-1.8 pp

+5.4%

+3.9%+4.0%

+0.9%

-1.0%-1.1%

-2,8%

1,1%

-2,0%

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TELECOM ITALIA

Δ % YoY

Outgoing Voice revenue trend

Voice revenues continue to grow, confirming price elasticity effect

1Q4Q3Q 2Q 3Q

Outgoing traffic prices down ~6% YoY on average Flat prices

2005 vs.2004 2006 vs.2005

Total traffic* volume % chg YoY

+1% +4% +8% +5%+7%

Outgoing price flat (vs. heavy promotions in

3Q 05)

* Incoming + outgoing, excluding visitors (10.8 bln in 3Q 06)

Outgoing traffic price chg

5.3%

1.6%1.0%

3.6%

-2.2%

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TELECOM ITALIA

TIM Brasil: Main Results 9M 06 vs 9M 05

Data Reported - EuroMillion Euro, %

Data Reported - ReaisMillion R$, %

9M 06 9M 05

Revenues

EbitdaEbitda %

EbitEbit %

CAPEXCAPEX/Revs

9M 06 9M 05Δ Abs Δ % Δ Abs Δ % Δ %

Service Revenues: +24.2%(+18.5% net of Bill&Keep)

Organic Growth%

21.5%

86.5%

77.9%

7,595 6,251 1,344 21.5%

1,644 877 767 87.5%21.6% 14.0% 7.6 p.p.

-128 -567 439 77.4%-1.7% -9.1% 7.4 p.p.

895 1,465 -570 -38.9%11.8% 23.4% -11.6 p.p.

21.8% margin

2,792 1,985 807 40.7%

604 279 325 116.5%21.6% 14.0% 7.6 p.p.

-47 -180 133 73.9%-1.7% -9.1% 7.4 p.p.

329 465 -136 -29.2%11.8% 23.4% -11.6 p.p.

IAS/IFRS

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TELECOM ITALIA

TIM Brasil: market position

mln Lines

TIM Brasil Customer Portfolio

Market Share 22.2% 22.9%21.3%

Mar 05 Jun 05 Sep 05

16,818,3

20,2

23.4%

Dec 05

23.5%

Mar 06

21,0

% GSM 69%

14,6

75%79%

82%85%

22,3

87%

24.3%

Jun 06

24,1

25.1%

Sep 06

89%

Market continues to grow and penetration reaches 51% (~65% of pop. above the poverty line)

Net adds in 3Q remain strong at 1.8 mln, with post-paid stable at 21% of customer base

Improving TIM Market Positioning on Customer Base YoYvs main Competitors:

from -13.2 pp to –4.9 pp vs Vivofrom +1.1 pp to +2.0 pp vs Claro

Outperformance vs. n. 1 competitor continues

Benchmarking (R$, BRL GAAP)

EBITDA marginARPUVivoTIM Brasil

3Q 05 3Q 06

+16% +20%

MoU

3Q 05 3Q 06

+20% +22%

3Q 05 3Q 06

-12pp -1pp

Service revenues market share

3Q 05 3Q 06

-11pp -1pp

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TELECOM ITALIA

Agenda

9M 2006 financial performance and business overview

Evolution of TI’s business model

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TELECOM ITALIA

2005: the “One company Model”

In order to:face structural discontinuities and high competition in the Fixed and Mobile marketsprotect growth and profitability of the Group

Telecom Italia decided to implement an integrated management of the fixed and mobile business through the development of a “one company model”The fixed and mobile convergence allowed us to:

generate about 1.5 Bln. euro (2005-9M06) efficiency from integrationmaintain the leadership in offer innovationmaintain European leadership in profitability*

*Based on 1H06 EBITDA margins of both domestic fixed and domestic mobile

Market Scenario Trend Telecom Italia objectives

Fixed:Voice market under pressure, increased competition Internet and broadband the only market drivers

Mobile:SIM growth rates still strong (in spite of high penetration at ~110%)high pressure on pricing and handset subsidy

New ultrabroadband technologies(VDSL2, WiMax/WiBro/LTE, etc.) start to appear

Telecom/media/ICT convergence paves the way for new market growth trends

Telecom Italia pursues growth in the “pure TLC” market, through:

Fixed market: maintaining leadership in voice services and broadbandMobile market: regaining leadership in the competitive positioning

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TELECOM ITALIA

Fixed

Mobile

The development of:Ultrabroadband, “All IP” Networks, both fixed (FTTx/VDSL2) and mobile (4G) Content and ICT services distribution platforms,

Enables the evolution of telecom services

Mainly Voice and Internet access servicesBandwidth up to 20MBps (best effort)

Integrated Voice + Internet + HDTV + VAS + ICT servicesUltrabroadband access (50 Mbpsguaranteed) Market driven coverage

Predominantly VoiceNarrowband Internet access (128Kbps)VAS = SMS/MMS

Integrated, IP-Based Voice and DataUltrabroadband (10 MBps)VAS include interactive TV contentdistribution

Today Tomorrow

Evolution of the Convergence model: Fixed and Mobile Ultra-BB; Telecom – Media – ICT Convergence

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TELECOM ITALIA

Evolution of Telecom Italia’s Convergence Model

Objectives of the current strategic framework:

facilitate the definition of the regulatory framework

gain more flexibility to face new market challenges

Development of Fixed (NGN2/VDSL2) and Mobile (4G) Ultrabroadband technologies

Development of Fixed and Mobile convergent offers

Distribution of TV Content and ICT solutions

identify further cost efficiency sources and allow new investments

One Company ModelUltrabroadband Convergent

Telecom-Media-ICTCompany

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TELECOM ITALIA

Reshaping our relationship with the NRA

Driving the regulatory framework towards greater flexibility for TI in the development of retail and wholesale offers, with particular reference to:

Flexibility in pricing for Top business clientsAsymmetry in the customer acquisition/win-back proceduresTraffic reverse termination pricing Constraints on bundled/convergent offers

Broadband will become the standard fixed and mobile access over the next few years

Telecom Italia wants to invest and transform its network developing an All-IP, Ultra-broadband infrastructure (Next Generation Network)

It is key for TI to have the maximum visibility on returns, on both the retail and the wholesale markets.

Telecom Italia has started negotiations with Italy’s NRA (AgCom) setting a path towards a regulatory environment that further opens the telecoms market to free, fair and symmetric competition while stimulating additional investments in next generation infrastructures.

Issues to be addressed

Framework and objectives

A further effort to guarantee all operators equal conditions of access to T.I. network (local loop), both from an economic and operating point of view

The access network separation could be envisaged with independent management, including the creation of a separate unit

Our proposal