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Telecom Italia Group Combining Cash Generation with Growth

FRANCO BERNABE’

TELECOM ITALIA GROUPSanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011

1FRANCO BERNABE’

Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011

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.

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.

Safe Harbour

2FRANCO BERNABE’


Since 2008, TI has delivered on Strategic Priorities

Brazil

Enhanced

Free Cash

Flow

Generation

Italy

Capital

Discipline

No M&A for Geographic Expansion

Non-Core Assets Disposal

Deleverage &

Strengthen Balance Sheet

Focus on

Core

Markets

Flexible

Net Debt

2007 2010

-4.5€bln

International

2007 2010

% Int’l Revenues

+10pp

Customer Driven

Customer Satisfaction

2007 2010

+4

Efficient & Lean

2007 2010

Domestic Cash Cost

-4€bln

TodayTI

is more:

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Revenues

EBITDA

EBITDA-CAPEX

* Revenues based on net contributions

Weight on TI Group*

Weight on TI Group

Weight on TI Group

TI Group

1 Half % yoy

14,543 1.0%

6,021 -2.0%

3,984 1.5%

34%

24%

1 Half % yoy

3,499 16.8%

948 10.6%

504 53.7%

24%

16%

~13%

Brazil

1 Half % yoy

1,511 27.8%

506 23.9%

301 29.8%

10%

8%

~8%

Argentina

1 Half % yoy

9,356 -6.7%

4,591 -6.2%

3,233 -5.1%

64%

76%

81%

Domestic

TI Group – Latest Main Results by Core MarketsEuro mln, Organic Data

4FRANCO BERNABE’


67%

13%

8%

2%8% 2%

TI retail Wind InfostradaFastweb TiscaliTele2/Vodafone Other operators

A Competitive and still Healthy Market where TI remains the overall Leading Operator

The Italian Market in a Snapshot2Q11 Fixed Market (Share on Accesses) 2Q11 Mobile Market (Share on Accesses)

TI Retail Mkt Share on BB Accesses ~54% Market Value in 2010: 23.8€bn (Fixed & BB Revenues)

TIM Mkt Share on Service Revenues ~35% Market Value in 2010: 19.4€bn (Total Revenues)

33%

32%

22%

10%2% 2%

TIM VOD Wind 3 PosteMobile Other MVNOS

5FRANCO BERNABE’


Peculiarities of Italian Spectrum Auction (1/2)Auction, Payment

Frequency bands are not immediately available A postponement of the Spectrum Auction was expected

2600 MHz

1800 MHz

800 MHz

2010 2011 2012 2013 …..

Defence

Defence

TV Local Broadcasters

Available from 2013

(employable by 2012 in a coordinated way with the

Ministry of Defence)

Available from January 2012

Declared available from January 2013

6FRANCO BERNABE’


Sweden Germany USA Spain

Levels reached today are above expectations: Bid rules aimed at maximizing the competition

Current Total Expenditure: 3.36 Bn € (value at September 19th, 2011)

LTE Network Roll-Out Investment: comparable to the cost of spectrum costs

Peculiarities of Italian Spectrum Auction (2/2)Expected LTE Coverage*

~ 50-60%

~25%

~90%

2011-2013 2014-2015 2016-2020

Cov

erag

e Ex

tens

ion

299.2+20

MHz

Already allocated On Auction

255

MHz

Italian Spectrum Allocation

* population coverage

Italian Auction Benchmarking on 800 Mhz

Starting price: 0.58

Price as of Sept 19th: 0.75

€/Mhz/Pop

7FRANCO BERNABE’


What does this Auction change: Lower Competition on Fixed Access...

Given the size and the Price of SpectrumAuctioned, Mobile/Fixed Operators shouldinvest less on Fixed AccessTI Churn on the Way DownLTE obligations will reduce Pressure on

Digital Divide

2Q11 Fixed Market (Share on Accesses)

Above 60% of Fixed OLO’s are also Mobile Operators

OLO’s Active Sites

OLO’s Incremental Fixed Access (‘000)

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E

2008 2009 2010 2011E 2012E 2013E 2014E

67%

13%

8%

2%8% 2%

TI retail Wind InfostradaFastweb TiscaliTele2/Vodafone Other operators


FRANCO BERNABE’

…and Lower Investments in FTTx, to be made on a Market-Driven Basis…

FTTH Lower Investments No risks from Cable Operators

FTTCab

Capex fine tuning to preventFixed/Mobile Substitution

Lower Infrastructure-BasedCompetition

8

FTTx Capex


FRANCO BERNABE’

… while opening to Data Monetization from LTE Development

9

LTE is where Mobile Operators are going Worldwide Spectrum Auctioned in Italy will prevent Bottlenecks in Mobile BB growth

Network will become more Efficient Cost Savings

TI needs Spectrum to: Consolidate Leadership in Big

Screen Segment Continue acquiring High Value

Customers in Small Screen Quality Differentiation and Packet

Inspection Different Services for Different Prices

More Medium/Long Term Efficiency and Value Generation supporting ARPU and Profitability

Industry Scenario Market Scenario

10FRANCO BERNABE’


The Brazilian Mobile Market in a Snapshot2Q11 Mobile Market (Share on Accesses)

26%

25%

30%

19%

TIM Brasil Claro Vivo Oi

TIM Part is the Outperformer of the Brazilian Mobile Market

TIM back to 2°Place with 55.5 mln of Mobile Lines Mobile Market Value in 2010: 51 Bln R$

TIM’s Total Lines (‘000 Lines)

37,839 44,425

55,525

2Q'09 2Q'10 2Q'11

TIM’s Mobile Market Share (%)

23.7% 24.0%

25.5%

2Q'09 2Q'10 2Q'11

11FRANCO BERNABE’


AES opens new growth opportunities in the São Paulo and Rio Janeiro large urban areas, with a R$30billion telecom addressable market, providing TIM with a widespread network in combination withIntelig.

São Paulo and Rio de Janeiro Addressable Market

~30 million peopleMobile PC

@ Home@ Hot spot

8 million households

4.5 million households of class A and B

550 thousand companies

Value Proposition and Integration

Best choice for Consumer/Soho and Corporate/SME

Consumer / Soho

Corporate / SME

Best technologies (3G, 4G, Wi-Fi, FTTH)

Perfect experience Broadband bundling capacity

Better Corporate connectivity Clouding Voice, Data, Services

Brazil: AES Acquisition for 1.6 bln R$ supports massive Data Expansion


FRANCO BERNABE’

Main Features Expected Capex (2011E-2013E)(R$ billion)

4.5

10.1

2011E 2012E 2013E Total

Atimus Acquisition Organic Capex

TIM Participações Capital Increase

Primary public offer of 190,796,858 common, nominative,

registered and with no par value shares (8.6% of current

outstanding amount) to be issued by the Company;

Greenshoe option: offered amount of Stock, without

considering the Shares allocated to the controlling

shareholder under the Priority Offer, may be increased up to

15% (fifteen percent);

Telecom Italia has the intention to exercise its priority right in

the subscription of Shares;

Use of proceeds will contribute to investments contained in

the 2011-2013 Plan in the Core Infrastructure Network;

Transaction will contribute to the continuation of Group

deleverage, and is consistent with the Group’s Financial

Discipline aimed at growth.

The announced transaction follows strong market interest on the new TIM Novo Mercado stock, and offers an opportunity to adjust its solid capital structure to planned long-term capex without diluting TI’s economic interest.

12


FRANCO BERNABE’

Brazil ArgentinaItaly

Continue the Deleverage Program

Generate Sustainable Growthin Shareholder Remuneration

Strengthen Our Assets leveraging on:

Flexibility Customer Centric LatamFootprintEfficiency Innovation

TI Group’s Financial Discipline: balancing Cash Generation with Growth

Euro Bln

33.9

2009

34.531.5

2008 2010 2011

29.5

€5 bln Net Debt Reduction Before Spectrum Auction

2012

27.5

2013

~25

Target<28 Bln€Confirmed

2010 2011 2013

+15%

Euro Bln

1.01.2

Yearly Growth:15%

5.0 5.8DPS ord.€cent

Enhance Free Cash Flow Generation

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Appendix

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TI Group 1H11 Key Achievements

Focus on Core

Markets

Financial Discipline

NFP Adj.: 31.1 bln € (-2.5 bln € vs 1H10, -0.35 bln € vs FY10 post 1.3 bln € 2011 Dividend Payment)

Operating Free Cash Flow: 2.5 bln € (+360 mln € YoY, +16.7%YoY)

Group Reported Ebitda: 6.0 bln € (+4.3% YoY)Group Organic Ebitda: 6.0 bln € (-2.0% YoY)

Group Net Income before GW Writedown, ante Minorities: 1.4 bln € (+12.5% YoY)Group Net Income before GW Writedown, post Minorities: 1.2 bln € (-3.5% YoY)

Group Ebitda – Capex: 3.9 bln € (+228 mln € YoY, +6.1%)

Group Reported Revenues: 14.5 bln € (+10.0% YoY, Org. +1.0% YoY)

Goodwill Writedown: 3.2 bln €

16FRANCO BERNABE’


857

1,443

529

231

1H10 1H11

2,152 2,512

1,560 1,428

2,021 2,037

7,490 8,566

1H10 1H11

Euro mln, Reported Data

Operating Free Cash Flow Net Cash Flow before dividends

Revenues

Opex

Capex

WC

OFCF

13,22314,543+1,320

-16

+132

+360

-1,0761,386

1,674

+586

+288+20.8%

Hansenet: 811 Sparkle: (282)

Etecsa Cuba: 386 Economic Interest TA (155)

Normalized

+16.7%

TI Group – Delivering Strong Free Cash Flow

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Regulatory Update

Take-awaysKey issues

The new glide path for MTR, based on a BU-LRIC cost model, has been submitted byAGCom to public consultation in June 2011

Final decision, expected by September, may reduce the dimension (currently +31% in2013) and the duration (from 2 to 1 year) of H3G asymmetric termination charge

The impact of MTR cuts on TI’s total revenues (including both wholesale and retailones) is expected to be neutral rather than negative as in the case of only mobilecompetitors, with a consequent improvement in TI competitive position

Mobile Termination Rates (MTR)

In July 2011 AGCOM has published its final decision approving a 60% increase ofOLOs’ maximum thresholds for migrating fixed customers towards TI. The new OLOs’working capacity thresholds, entered into force on August 7th, 2011, are a driver forthe reduction of TI’s migration orders backlog for fixed customers (win back)

OLOs working capacity thresholds for fixed customer migration

orders

In June and July 2011, AGCOM has authorized the commercial launch of the firstF+M offers integrated with data packages. TI has avoided onerous delays in theachievement of this significant market innovation through the application of thenew “replicability” assessment (e.g. price test) methodology defined by AGCOM(499/10/CONS Decision)

New retail bundled offers (Fixed + Mobile)

Retail Fixed Access Monthly Fee

TI was enabled to protect the value of fixed access through the Retail AccessMonthly Fee increase which was authorized from July 1st 2011. Price moved upfrom 13.40 €/month (VAT excluded) to a 13.75 €/month (worth +2.6%).


FRANCO BERNABE’

+9.6%‘000

‘000

Domestic Mobile trends

30,545 31,038 31,260

2Q10 3Q10 4Q10 1Q11 2Q11

1,850 2,028

2Q10 2Q11

CB Change YoY+715

TIM is Leader on Gross Adds Market Share

Gross Adds

Total SIM cards

Consumer Outgoing Prices – YoY % change

1Q10 2Q10 1Q11 2Q11

QoQ PricesStabilizationsince YE’10

-31%

-26%

Consumer SMS & Mobile Browsing

SMS

Users

Usage

Prices

BroadlyFlat

Small screen users

Browsing

+23%

Small screen revenues

+26%

No SMS cannibalization from Data

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FRANCO BERNABE’

1Q11 2Q11

-4.9%

-3.5%

-4.9%

-3.5%

Total Service Rev.Core Domestic Service Rev.

YoY %

0.8% 0.0%

5.9%8.2%

1Q10 2Q10 1Q11 2Q11

Service Revenues QoQ trend stabilization

2Q11 Core Domestic Service revenues (net of International Wholesale): -3.5% YoY, stable QoQ and significantly better than total Fixed performance (-5.1%)

Strong ICT Service Revenues performance offsetting Traditional data decline

Domestic Fixed trends

Key highlights

YoY %

TI has been successful in defending a solid market share on fixed accesses (~ 67%)

Improving line losses trend despite the new rules on win-back to be implemented on August 7 (as per Agcom’s Decision 62/11/CIR)

Decline in OLOs commercial activity anticipating a more rational competitive scenario

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TIM Part Offering Summary

► Long-term investments matched with long-term fundingFinancial discipline

► Fibre network deployment in the NO/NE area (40%)

► Accelerate 3G expansion nationwide (20%)

► Improving the metropolitan fibre network (20%)

► New services and commercial investment (20%)

Use of Proceeds

► 190.796.858 Voting Shares (Novo Mercado) , over R$ 1.7bn (€ 727mn) at current pricesPriority Offer

► October 4th Expected Pricing

► Up to 9.461.510 shares (15% of the offering to the market )

► Over R$ 85mn (€ 36mn) at current pricesGreenshoe Option

► Telecom Italia committed to subscribe its portion of the priority rights (66,94% of the equity offering); in case of fully exercise of the option immaterial dilution to 66.68%

Telecom Italia’sPriority Rights

► TI Group NFP decrease due to minority proceeds for approx . € 250mnNet Debt evolution

21FRANCO BERNABE’


Spectrum Allocation

TI Vod Wind 3 Total bef. Auction

New Spectrum

Total Aft. Auction

700 MHz ‐ ‐

800 MHz ‐ 60 60850 MHz ‐ ‐900 MHz 2x12.8 2x12.2 2x9.6 69.2 69.21800 MHz 2x15 2x15 2x15 90+20 30 120+20

paired 2.0 GHz 2x15 2x15 2x15 2x15 120 120unpaired 5 5 5 5 20 15 35paired 2.6 GHz ‐ 120 120unpaired ‐ 30 30

Total 90.6 89.4 84.2 35.0+20 299.2+20 255 554.2+20

2x10(reserved)

22FRANCO BERNABE’


2010 2011 2012 2013Others Domestic T&O

3.1

79%

21%

82%

18%

€ Bn, % Cum ‘11-13 ~8.7 bln€~3.0

Italy: Capex 2011-13 Plan

Total Capex Highlights

BB & Ultra Wired and Wireless Wired Access Wireless Access Transport

66%

88%

2%11%

2010 2013

2,000

10,000

150

12,000

2010 2013 2010 2011 2012 2013

20 Mbps Availability on

ADSL

50/100 Mbps Availability on

FTTX

Multistandard band SW defines Nodes

Nodes with high speed Backhauling

Cash Costs/Petabytes

PetabytesADSL Evolution (IP DSLAM, DSM, Vectoring)Selective Deployment of Fiber (GPON

with FTTH and FTTC architectures)

Multistandard and SW defined Access Nodes (80% of existing Nodes)High Speed Backhauling (>70% existing

Nodes)Launch of first commercial trials LTE in 2013

Introduction of Full Packet Transport and replacement of legacy technologies (PDH, ATM, SDH)

1,500

2,500

Network Platforms: Towards UBB in Wired and Wireless

access Optimization and de-layering in the

Transport and Core Network Service Platform: Focus on Cloud Architectures and

Content Delivery Networks NG network intelligence for Customer

and Context Aware Services

23FRANCO BERNABE’


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

Even and Back-Loaded Maturities

€ 5.06 blnGroup Liquidity Position

+€ 7.83 bln

Undrawn Portion ofFacility/Committed

=€ 12.89 bln

Group Liquidity Margin

Euro mln

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