Telecom Italia 1Q 2011 Results (Bernabè)

TELECOM ITALIA GROUP

1Q 2011 Results6th 2011Milan, May 6th, 2011

Telecom Italia 1Q 2011 Results1Q 2011 Results

FRANCO BERNABE’FRANCO BERNABE

TELECOM ITALIA GROUP1Q 2011 Results

Safe HarbourThese presentations contain statements that constitute forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These statements appear in a number of places in thispresentation and include statements regarding the intent belief or current expectations of the customer base

Safe Harbour

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, financialresults 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 aresult of various factors.Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the datehereof, 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 ofthe date of this presentation. Telecom Italia S.p.A. undertakes no obligation to release publicly the results of anyrevisions to these forward looking statements which may be made to reflect events and circumstances after therevisions to these forward looking statements which may be made to reflect events and circumstances after thedate of this presentation, including, without limitation, changes in Telecom Italia S.p.A. business or acquisitionstrategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts andinvestors are encouraged to consult the Company's Annual Report on Form 20-F as well as periodic filings made onForm 6 K which are on file with the United States Securities and Exchange CommissionForm 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 ofnon-material amount, previously included in “Other operating expenses”, in reduction of “Revenues” and “Otherincome” in order to ensure a better comparability and intelligibility of the financial information.

1FRANCO BERNABE’


AgendaAgenda

TI Group 1Q11 Results

Telecom Italia Core Markets ResultsItalyBrazilArgentina

Appendix

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TI Group 1Q11 Key AchievementsTI Group 1Q11 Key Achievements

Operating Free Cash Flow: 1.1 bln € (+322 mln € YoY, +42.7%YoY)

Group Reported Revenues: 7.1 bln € (+10.3% YoY, Org. -0.2% YoY)

Focus on Core

MarketsGroup Reported Ebitda: 2.9 bln € (+3.6% YoY)Group Organic Ebitda: 3.0 bln € (-3.6% YoY)

Group Net Income ante Minorities: 648 mln € (+6.9% YoY)

Group Organic Ebitda Margin: 41.9% (-1.5 p.p. YoY)

Disposal Plan CompletedETECSA Cuba Cash-in: 706 mln US$ (of which 511 mln US$ in Q1)

Group Net Income ante Minorities: 648 mln € ( 6.9% YoY)Group Net Income post Minorities: 549 mln € (-8.7% YoY)

Financial Discipline

ETECSA Cuba Cash in: 706 mln US$ (of which 511 mln US$ in Q1)

NFP Adj.: 30.6 bln € (-2.6 bln € vs 1Q10, -846 mln € vs FY10 )

3FRANCO BERNABE’


Strong Free Cash Flow GenerationBrazil

Argentina

ItalyEnhance

Free Cash Flow Generation

Euro mln, Reported Data

Operating Free Cash Flow Net Cash Flow

Strong Free Cash Flow Generation

+159

Revenues 6,4137,073+660

846 Hansenet: 817 Sparkle: (282)

Etecsa Cuba: 374 Economic Interest TA (155)

1 042 901

3,587 4,144

Opex

141

-557

535

219687

754 1,076

1,030 952

1,042 901 Capex

WC

OFCF

+141

+78

+322 152

627535

+475Normalized

1Q10 1Q11 1Q10 1Q11

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TI Group: Revenues & EbitdaBrazil

Argentina

ItalyEnhance


Euro mln, %

Reported Revenues Organic Revenues

TI Group: Revenues & Ebitda

7,088 7,073

6,413

7,073

-15 M€-0.2%+660 M€

+10.3%

1Q10 1Q111Q10 1Q11

Reported EBITDA Organic EBITDA

43.4% 41.9%44.1% 41.4%

% on Revenues

% on Revenues -1.5 p.p.-2.7 p.p.

3,077 2,966 2,826 2,929

-111M€-3.6%

41.4%

+103M€+3.6%

p pp p

1Q10 1Q111Q10 1Q11

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Net Income EvolutionBrazil

Argentina

ItalyEnhance


Euro mln; reported data

Net Income Evolution

(1,430)

2,929(457)

1,042549 549

(394)0

648

(99)

EBITDA Reported

Deprec. / Amortiz.*

Net Interest & Net Income /

Equity

Income Bef. Taxes & Disc.

Ops.

Taxes Net Income of assets disposed

Net Income ante Minorities

Minorities Net income

% vs. 1Q10

3 6% 8 4%0 8% 2 2% 11 0% 8 7%6 9%+3.6% +8.4%+0.8% +2.2% +11.0% -8.7%n.m. n.m.+6.9%

+103 +81+12 +10 +39 (52)+0 +94+42

abs. vs. 1Q10

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* Including gains/losses of non current assets realization o/w Brasil +40 Argentina +44 Dom. (43)

Equity +29 Income from inv. (15) Net Fin. Charges (4)

o/w related to debt (29)

TELECOM ITALIA GROUP1Q 2011 Results Brazil

Argentina

ItalyEnhance


Net Debt Dynamics

31 468

Euro mln, Reported Data

-2.6 Bln € YoY

Net Debt Dynamics

31,468 30,622 (1,076) (377) +439 +156 +12

EBITDA (2 929) 633 Fi E EBITDA CAPEX WC & Others

Operating FCF

(2,929)+901+952

(1,076)

+633 Fin. Exp. (Cash impact)

(194) Fin. Accruals

(846)

2010YEAdjusted

Operating FCF* Disposals Cash Financial Expenses/ Financial

Accruals

FinancialInvestments

Cash Taxes/Other Impacts

1Q11Adjusted

+419

+20vs. 10

2009YE

33,949 (754)

(322)

(818)

+441

+0

+156 (454)

+466 32,262

1Q10 (687)

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* Argentina: (87)


AgendaAgenda



Appendix

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Italy: Revenues & Ebitda TrendBrazil

Argentina

ItalyEnhance


Euro mln, Organic data, %

Revenues EBITDA

Italy: Revenues & Ebitda Trend

0.0 p.p.% on

4,965 4,596 2,460

2,273

-369 M€-7.4%

-187 M€-7.6%

49.5% 49.5%p p% on

Revenues

1Q10 1Q11 1Q10 1Q11

Ebitda-Capex Highlights

-98 M€5 7%

Sluggish domestic demand curbing economic recovery

1,708 1,610

-5.7%gg g y

and impacting corporations & SMEs

Top & Business segments in the mobile affected by difficult YoY comparison

1Q10 1Q11

Selective approach to Int’l Wholesale Contracts with low marginality

Continuous effort on Cash Cost reduction

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Argentina

ItalyEnhance


Italy: Protecting the Value of our Customers

Drivers HighlightsMobileFixed

Italy: Protecting the Value of our Customers

mln lines

DefendTraditional Services

Fixed retail monthly fee increase from July

Line Losses reduced vs 4Q10 despite competitors aggressiveness and OLO’s win-back cap

Mobile Calling CB rebound confirmed

MobileFixed

-187k excluding

ULL Back-log

30.4 31.0

mln lines

+600k

Mobile Large Screen Usersmln lines, Consumer Segment

Services Double digit decrease in Mobile Churn Rate (-13.9% YoY)

Fixed BB Access

1Q10 1Q11

mln lines

1,853

2,332 StrengthenBB

Experience

Lever on QoS to sustain price premium and fight back the OLO’s aggressiveness

Broadband ARPU broadly stable QoQ

Leadership on Large Screen confirmed % Flat 84% 87%

7.1 7.2 +25.8%

179

1Q10 1Q11 1Q10 1Q11

D l Regained leadership on PA winning all new Consip

Top ICT Portfolio ValueICT Revenues€m

+13.3%+39%

158

179

1Q10 1Q11 1Q10 1Q11

Develop Innovative Services

Regained leadership on PA winning all new ConsipContracts (Fixed & Mobile)

Increasing ICT contracts value boosted by Cloud Computing

CloudComputing

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1Q10 1Q11 1Q10 1Q11


AgendaAgenda



Appendix

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Brazil: Revenues & Ebitda TrendBrazil

Argentina

ItalyEnhance


Revenues EBITDA


Brazil: Revenues & Ebitda Trend

28 8%% on

416 452 1,446

1,646 +200 M€+13.8%

+36 M€+8.6%

28.8% 27.5%% on Revenues

-1.3 p.p. Subsidy Policy Changed:

+23% YoY like for like

1Q10 1Q11

322

1Q10 1Q11


+208 M€+182.3%

114

Brazil confirmed as a booming economy with a solid monetary and fiscal regime

F-M substitution strategy success confirmed

182.3%

1Q10 1Q11

Voice and data revenues growing double digit

Good balance between growth and profitability

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Argentina

ItalyEnhance


Brazil: Accelerating Growth

Increase Size

Drivers Highlights

Brazil: Accelerating Growth

35 845.1

6.67.7

Increase Size TIM Brasil confirmed as the best performer for CB

growth (+24.7% YoY vs market +17.5% YoY)

Strong increase in data users @ ~600 k lines (+35.5% YoY)

42.452.8

Pre Paid

Post-Paid

Total

Mln users, %

Size

+25%

+26%

+17%

35.8

1Q10 1Q11

Sound reduction in Consumer Voice Churn Rate: - 1.2pp YoY @1.7% in 1Q11

Revenues Growth: the Key Driver D t RU gVoice outgoing revenues confirming double digit

Pre-Paid

Data RevenuesUsageVoice outgoing revenues confirming double digit growth (+13.4% YoY)

Data Revenues reaching 14% of service revenues leveraging on the success of Infinity Web

Smartphones reaching 40% of total handsets sales

100126

22%

+37%

+26%Min/month % YoY

+28%

IN

OUT

RevenuesGrowth

1Q10 1Q111Q10 1Q11

416 452

Ebitda-Capex Evolution

C lid ti f th N S b id M d l

(16% in 1Q10) -22%

Euro mln, Organic data

1Q10 1Q11

IN

E h

302130

1Q10 1Q11

Consolidation of the «No Subsidy» Model

Improve Cash Generation

Strong Net Income growth

EnhanceValue

Creation

Ebitda

Capex

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1Q10 1Q11


AgendaAgenda



Appendix

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Argentina: Revenues & Ebitda TrendBrazil

Argentina

ItalyEnhance


753


Argentina: Revenues & Ebitda Trend

1 3

Revenues EBITDA

592

753

210 257

35.4%34.1%

-1.3 p.p.+161 M€+27.2%

+47 M€+22.5%

166

1Q10 1Q11 1Q10 1Q11

Argentine economy continued its growing trend with an


+49 M€+41.4%

117

Argentine economy continued its growing trend with an expansion in consumer and industrial consumption

Solid Ebitda performance despite strong support to top line growth

1Q10 1Q11

Mobile Service Revenues boosting top line performance

Strong FCF Generation

15FRANCO BERNABE’


Argentina

ItalyEnhance


Argentina: Consolidating a Healthy Growth

Increase Customer Base

Drivers Highlights

Argentina: Consolidating a Healthy Growth

Increase Customer Base Fixed Business: Improving performance in BB

acquisitions

Sustained churn reduction (@ 1.2% vs 1.8% 1Q10) in fixed BB

Mobile*Fixed BBMln lines Mln lines

1.2 14.91.4+14%

16.9+13%

Size Strengthening Mobile position with 3G clients

more than doubled

ARS/month

Mobile Service Revenues*BB ARPU

1Q10 1Q11 1Q10 1Q11

ARS Mln 2 453 #2 mobile operator in Argentina

Sound increase in Mobile ARPU (+16% YoY)

Weight of VAS as % of Service Revenues @ 45% (+11 p.p. YoY)

7381+10%

RevenuesGrowth

+72.8%

+8.1%

+29.9%2,453

1,888

Ebitda-Capex Evolution

Accelerating Smartphone penetration with

1Q10 1Q11

E hEuro mln, Organic data

257

narrowed SAC costs

Selective CAPEX approach

Sound cash position increase

EnhanceValue

Creation

210

93 91

1Q10 1Q11

Ebitda

Capex

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*Argentine Operations only

1Q10 1Q11


AgendaAgenda



Appendix

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TI Group Revenues EvolutionTI Group – Revenues EvolutionEuro mln

+660 (+10.3%)

7,088 7,073 7,073 +551 +124 (369) +200 +161 (5) +5 (7) 6,413

551 - +200 +161 ( ) (7) -

Brazil +123Domestic +1

Argentina + 592Domestic (10)Other & Elim. (31) Organic Variation

1Q11-15 (-0.2%)

1Q10 Change in Exchange Other non 1Q10 Domestic Brazil* Argentina** Media Olivetti Other & 1Q11 Other non 1Q11consolid.

arearate impact organic

itemsOrganic Elim. Organic organic

items

18FRANCO BERNABE’

* Average Exchange rate (Real/Euro): 2.28 in 2011, 2.49 in 2010 * * Average Exchange rate (Peso/Euro): 5.49 in 2011, 5.31 in 2010


TI Group Ebitda Evolution

+103 (+3.6%)

Euro mln

TI Group – Ebitda Evolution

3,077 2 966 2 929 +206 +35 +10 (187) (4) (3) 2,826 2,966 2,929 +206 +35 +10 ( 8 )

+36 +47 -(4) (3) (37)

Brazil +35

Organic Variation1Q11

-111 (-3.6%)44.1% 43.4% 41.9% 41.4%

Argentina +210Domestic (1)Other & Elim. (3)

1Q10 Change in lid

Exchange i

Other non i

1Q10 O i

Domestic Brazil* Argentina** Media Olivetti Other & Elim. 1Q11 O i

Other non i

1Q11consolid.


itemsOrganic Organic organic

items

19FRANCO BERNABE’



TI Group Ebit Evolution

+91 (+6.5%)

Euro mln

TI Group – Ebit Evolution

1 518 1 536 1 499 (117) 113 +33 (4) (7) (37) 1,408

1,518 1,536 1,499 +94 +6 +10 (117) +113 +33 -

(4) (7) (37)

Brazil +6

22.0% 21.4% 21.7% 21.2%Organic Variation

1Q11+18 (+1.2%)

Argentina +92Other +2

1Q10 Change in lid

Exchange i

Other non i

1Q10 O i

Domestic Brazil* Argentina** Media Olivetti Other & Elim. 1Q11 O i

Other non i

1Q11consolid.


itemsOrganic Organic organic

items

20FRANCO BERNABE’



Even and Back Loaded Maturities

1 500

Bonds Loans (of which € 1,623 long-term rent, financial and operating lease payable) Drawn bank facility

Even and Back-Loaded Maturities

€ 6.80 blnG

13,807 37,109(1)

Euro mln

11,139

1,500Group LiquidityPosition

+€ 7.83 blnUndrawnPortion of

2Q 2HBonds 1,791 1,126 Loans 296 332

437

2,668

1,6712,250 27,312

Portion ofFacility

/Committed=

€ 14.63 blnGroup

Liquidity

5,482

2,8462,687

Loans 296 332 2,087 1,458

1,225

1,175

3,408

2,7571,500Liquidity

Margin

3,984

4,758

628

814

1,3508,297

2,917

3,1703,545

(1) € 37,109 mln is the nominal amount of outstanding medium-long term debt by adding IAS adjustments (€ 729 mln) and current liabilities (€ 447 mln), the gross debt figure of € 38,285 mln is reached.

N.B. Debt maturities are net of € 180 mln (face value) of repurchased own bonds (TI Spa € 850 mln 5.25 % Notes due 2055), € 77 mln (face value) of repurchased own bonds (TI Spa € 750 mln 4.75 % Notes due2014) € 35 mln (face value) of repurchased own bonds (TIF € 1 050 mln 7 75 % Notes due 2033) € 209 mln (face value) of repurchased own bonds (TIF € 2 000 mln 7 50 % Notes due 2011) and € 187 mln (face

Within 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Beyond 2016 Total M/L Term Debt

21FRANCO BERNABE’

2014), € 35 mln (face value) of repurchased own bonds (TIF € 1,050 mln 7.75 % Notes due 2033), € 209 mln (face value) of repurchased own bonds (TIF € 2,000 mln 7.50 % Notes due 2011) and € 187 mln (facevalue) of repurchased own bonds (TIF € 1,000 mln 7.25 % Notes due 2012).


TI Group 1Q11 Results P&LI Quarter

2011 2010 Abs. %

REVENUES 7,073 6,413 660 10.3

Other Operating Income 48 53 (5) (9.4)

TI Group 1Q11 Results - P&LEuro mln – Reported Data

TOTAL REVENUES & OTHER INCOME 7,121 6,466 655 10.1

Total Purchases of materials and external services (2,995) (2,498) (497) 19.9

Personnel (990) (938) (52) 5.5of which payroll (980) (931) (49) 5.3

Other operating costs (398) (265) (133) 50.2Other operating costs (398) (265) (133) 50.2

Capitalized Cost and Others 191 61 130 213.1

EBITDA 2,929 2,826 103 3.6% on Revenues 41.4% 44.1%

Depreciation & Amortization (1,431) (1,412) (19) 1.3

Writedowns and revaluations of non current assets 1 (5) 6 -

Gains/losses of non current assets realization 0 (1) 1 -

EBIT 1,499 1,408 91 6.5% on Revenues 21.2% 22.0%

Income (loss) equity invest. valued equity method (4) 25 (29)Other income ( expenses ) from investments 17 2 15Net Financial Income / (Expenses) (470) (474) 4

Income before Taxes & Disc. Ops. 1,042 961 81% on Revenues 14.7% 15.0%

Taxes (394) (355) (39)

Income before Disc. Ops. 648 606 42

Net income (loss) of assets disposed 0 0 0

Net Income (ante Minorities) 648 606 42% on Revenues 9.2% 9.4%

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Minorities (99) (5) (94)

Net Income (post Minorities) 549 601 (52)% on Revenues 7.8% 9.4%


TI Group 1Q11 Main Results by BUI Quarter

REVENUES 2011 2010 Abs. % D ti 4 596 4 974 378 (7 6)

I Quarter

REVENUES 2011 2010 Abs. %

Domestic 4 596 4 965 369 (7 4)

Reported Data Organic DataEuro mln

TI Group 1Q11 – Main Results by BU

Domestic 4,596 4,974 -378 (7.6)

Wireline Domestic 3,331 3,498 -167 (4.8)Tim Domestic 1,679 1,907 -228 (12.0)

Brasile 1,646 1,323 323 24.4Argentina 753 0 753Media 52 57 -5 (8.8)Oli tti 78 73 5 6 8

Domestic 4,596 4,965 -369 (7.4)Wireline Domestic 3,331 3,489 -158 (4.5)Tim Domestic 1,679 1,907 -228 (12.0)

Brasile 1,646 1,446 200 13.8Argentina 753 592 161 27.2Media 52 57 -5 (8.8)Olivetti 78 73 5 6 8Olivetti 78 73 5 6.8

Other Activities 1 21 -20 (95.2)Elim. -53 -35 -18 (51.4)TI Group 7,073 6,413 660 10.3

EBITDA 2011 2010 Abs. %

D i 2 236 2 451 215 (8 8)

Olivetti 78 73 5 6.8Other Activities 1 0 1 -Elim. -53 -45 -8 (17.8)TI Group 7,073 7,088 -15 (0.2)

EBITDA 2011 2010 Abs. %

D ti 2 273 2 460 187 (7 6)Domestic 2,236 2,451 -215 (8.8)Brasile 452 381 71 18.6Argentina 257 0 257Media 2 2 0 0.0Olivetti -14 -10 -4 (40.0)Other Activities -2 -2 0 0.0Eli 2 4 6

Domestic 2,273 2,460 -187 (7.6)Brasile 452 416 36 8.6Argentina 257 210 47 22.5Media 2 2 0 0.0Olivetti -14 -10 -4 (40.0)Other Activities -2 -5 3 60.0Elim 2 4 6Elim. -2 4 -6-

TI Group 2,929 2,826 103 3.6EBITDA MARGIN 41.4% 44.1% -2.7 pp

EBIT 2011 2010 Abs. %

Domestic 1,222 1,366 -144 (10.5)

Elim. -2 4 -6 -TI Group 2,966 3,077 -111 (3.6)EBITDA MARGIN 41.9% 43.4% -1.5 pp

EBIT 2011 2010 Abs. %

Domestic 1,259 1,376 -117 (8.5)Brasile 184 65 119 183.1Argentina 125 0 125-Media -13 -13 0 0.0Olivetti -15 -11 -4 (36.4)Other Activities -2 -8 6 75.0Elim. -2 9 -11-

Brasile 184 71 113 158.0Argentina 125 92 33 35.4Media -13 -13 0 0.0Olivetti -15 -11 -4 (36.4)Other Activities -2 -6 4 66.7Elim. -2 9 -11 -

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TI Group 1,499 1,408 91 6.5EBIT MARGIN 21.2% 22.0% -0.8 pp

TI Group 1,536 1,518 18 1.2EBIT MARGIN 21.7% 21.4% 0.3 pp

Investor Relations

Telecom Italia 1Q 2011 Results (Bernabè)