Merrill Lynch Global Telco and Media Conference - Marco Patuano presentation (30/05/2012)

0MARCO PATUANO

TELECOM ITALIA GROUP BofA Merrill Lynch Global Telco and Media ConferenceWednesday, 30 May 2012, London

TELECOM ITALIA GROUP

Telecom Italia Update and Focus on UBBBofA - Merrill Lynch Global Telco and Media Conference Wednesday, 30 May 2012, London

MARCO PATUANO – Chief Operating Officer

1MARCO PATUANO


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. Consequently, Telecom Italia S.p.A. makes no representation, whether expressed 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.

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Agenda

Group Overview

Domestic Progress Report

Focus on UBB

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Revenues EBITDA

42.0% 40.1%% on Revenues -1.9 p.p.

Revenues Trend YoY EBITDA-CAPEX

Euro mln, Organic data, %

27.2%-2.1 p.p.29.3%

+15 M€+0.5%

-43 M€-2.1%

TI Group Key Results

+373 M€+5.3%7,019

7,392

1Q11 1Q12

2,055 2,012

1Q11 1Q12

2,951 2,966

1Q11 1Q12

-0,2%

2.1%

3.7%

5.0%5.3%

1Q11 2Q11 3Q11 4Q11 1Q12

% on Revenues

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Revenues

EBITDA

EBITDA-CAPEX

Weight on TI Group

38.2%

26.7%

Euro mln, Organic Data

TI Group

1Q12

7,392

2,966

2,012

Δ% yoy

+5.3%

+0.5%

-2.1%

1Q12

1,928

505

271

Δ% yoy

+19.1%

+13.5%

-14.6%

26.0%

17.0%

~14%

Brazil

1Q12

901

289

168

Δ% yoy

+24.0%

+16.6%

+5.1 %

12.2%

9.7%

~8%

Argentina

1Q12

4,486

2,196

1,607

Δ% yoy

-2.4%

-3.4%

-0.2%

60.4%

74.0%

~80%

Domestic

TI Group Key Results by Core Markets

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** excluding Latam spectrum licences

TI Group – FY 2012 Key Guidance

Revenues

Ebitda

Capexcum ’12-’14

NFP Adj.**

NFP Adj. 2012-’14

Stable

Broadly Stable

>15 € bln

∼ 27.5 € bln

FY 2012: ∼ 27.5 € bln

FY 2013: ∼ 25 € bln

From FY 2014: < 2x Net Debt/Ebitda***

Organic Data*

TI Group – 2012-14 Plan Key Guidance **Ebitda-Capexcum ’12-’14

>22 € bln

Organic Data*

*exchange rates 2011 (R$/€ 2.33; ARS/€5.74), excluding impact from non-organic items

*** reported figure

Telecom Italia Group – FY 2012 and 2012-14 Plan Key Guidance

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Agenda

Group Overview


Focus on UBB

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Domestic Results: Trend still improvingEuro mln, Organic data, %

4,595 4,486-109 M€

-2.4%

-1.7%

-2.9%Wireline

Mobile

Total Domestic Revenues Domestic Service Revenues

EBITDA

-78 M€-3.4%

49.5% 49.0%-0.5 p.p.% on Revenues

2,2742,196

EBITDA-Capex

1,611 1,607

35.8%+0.7 p.p.% on Revenues 35.1%

-4 M€-0.2%

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Tariff simplificationprocess begins

Euro mln, Organic Data, %

Domestic Fixed: Revenue Dynamics

3,330 -2.9%

Wholesale Revenues Trend – YoY % change

Total Fixed Revenues Fixed Revenues Trend – YoY % change

3,235

Tota

lS

ervi

ces

Retail Service Revenues Trend – YoY % change

Dom

estic

Equi

pmen

t

Spar

kle

Gro

up*

*Gross of Elim. & Adj.

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‘000Euro/month/line

Flat (%)

TI retail accesses

M/S 54.3% 53.2% 52.6%

TI Retail Broadband Accesses Broadband Retail ARPU

Domestic Fixed: Focus on Broadband

88%87%87%

7,194 7,125 7,092 -0.6%

+0.3%

BB Service Revenues Highlights% YoY

TotalMarket 13,248 13,394 13,485

Confirming the right direction in TI’s Value Strategy:

Continued positive BB Service Revenues trend

QoQ ARPU increase

+1.0 p.p. of Flat offers on TI’s BB Customer Base

Increasing BB penetration (+1.5 p.p.) on fixed CB, confirming the low value of TI’s line losses

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Euro mln, Organic Data

Mobile Revenues: 1Q12 Results at a Glance

Total Mobile Revenues

Mobile Service Revenues Trend – YoY % change

Handset revenues

Service revenues

1,650-29

-1.7%1,679

Normalized (*)

~-2.5%

Total Mobile

-3.7%

Normalized (*)

~-4.5%

+71.1%

(*) Leap year

Mobile Handsets Revenues Trend – YoY % change

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Community Users (*)

Growth

Continues

Consumer Mobile - The Value of the Options

* TIMx, TIM Young and Tutto Compreso Ricaricabile

Apr-12

5.5 mln

2Q11

4.4 mln

1Q11

4.1 mln

3Q11

4.6 mln

Increasing Loyalty

Avg €/month

∆ Outgoing ARPU exAnte/exPost activation

Neutralizing CB cannibalization

+1.4 mln

Churn rate

-8p.p.

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Domestic Mobile – Surfing the Data WaveIncreasing Smartphone Penetration in All Segments

Smartphones increasingly Service-driven

Bri

ngin

g In

nova

tion

to t

he

Mas

s M

arke

t Operating Systems on TIM ‘s Network - The Android Growth

Dou

blin

g sm

artp

hone

pene

trat

ion

on

CB

Furt

her

roo

m fo

r gr

owth

Smartphone Penetration on Customer Base

~1,3 mln

May 2012 Dealer Convention

Of which >75% Smartphones

Data Bundle users and Renewal Rate

Number of Data connections by Device (*)

+~20%

2.2mln1.9mln

Renewal rate 79%87%

+1,9X

* Peak of traffic on the average day of the second week of each month

Dec’11 Jan’12 Feb’12 Mar’12 Apr’12

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Agenda

Group Overview


Focus on UBB

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14

Capex Allocation

Strengthen the Network for a Technological Leadership

UltraBB Roadmap

CustomerService& TrafficDriven

Network Development

Network Maintainance

Acceleration

Decrease

HSPDA 42 Mbps LTE

NGAN Roll-out

Mobile Coverage

Optimize 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

2014100 Cities (including all

main ones) covered throughFTTH&Cab Technology

~¼ of Housing unitspassed with >30 Mb/s

Speed

2014More than 40% of

population covered by LTE

Optimization

Network Capex

2012-2014 Plan

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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 14,442

84100

2014 January2012

June2012

Roadmap 42MB coverage

The advantages of 42MB

With PREMIUM offers Customers have an effective perception of Higher Speed

Fiber Bakhauling Dual Carrier NetworkPriority

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

SpeedQualityPriority

15

2012-2014 Plan

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Ultra Broadband in MotionUltra Broadband in Motion

42 Mbps coverage in progress in 50cities

Ongoing trials extended to Turin, Milan, Rome and Naples

100- cities FTTCab Plan begins, with 30 of them to be connected in 2012 / 1H2013. Retail commercial launch expected in 4Q

Reference Offer for wholesale NGAN Access Services submitted to Agcom in March. Final approval expected by September

Fixed Mobile

Maintaining a fixed & mobile coordinated approach

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The Context

Low ICT culture Low e-Goverment level

European Digital Agenda Main Objectives:

Percentage of users that have never used a PC E-Government IndexGlobal Rank

#38

#15

#10

#9

#4

Low Broadband Penetration

Broadband penetration (as % of tot. accesses)

Source: Eurostat 2011Source: ONU «E-Government Survey» 2010Source: Eurostat 2010

Demand status in Italy:

> 30 Mb/s2020

> 2 Mb/s

50% 100%0%

2013

100 Mb/s

Basic BB

Ultra BB

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Specific advantages for TI from FTTC

Improved performances

Lower Average Length of Local Loop guarantees

highest speed for a FTTC solution

No impact on legacy services (no switch-off)

Capex optimization

Utilization of a relevant portion of existing TI’s

Access Network

Fix and Mobile UBB Synergy

Leveraging on past investments

Ducts/Passages already existing in large part

km0 2 4 6 8 10 12 14

100

90

80

70

6050

40

30

20

10

0

Italy

United Kingdom

Japan

France

Germany

U.S.A.

Last mile length benchmark

FTTH FTTC

-50% / -75%

per l

ine/

cape

x

%

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FTTC is frequently preferred by EU incumbents

Best incumbent’s choice(where network structure allows)

Vectoring technology enhances FTTC speed up to 100 Mbps in downstream and up to 15 Mbps in upstream (considerably above current market demand and existing services)

xDSL still evolving (accelerated DSL includes also: Bonding, Phanthom, G.Fast)

Advantages in Implementation: • Rapid Deployment• More Coverage• Lower Invasiveness

More value for money

Exploiting and maximizing value of existing access infrastructure (copper)

The cost for a FTTC solution is a fraction of FTTH’sAdequate match for expected demand«FTTH ready» on a selective basis approach (market-driven)

European incumbents with a FTTC strategy

Speed Capex per line

Deployment timing

FTTH FTTC

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TI’s 2-step strategy on NGAN

Step 1: FTTCab

Step 2: FTTH

30 - 100 Mbps

100 Mbps – 1 Gbps

Use of existing network elements:

•Cable ducts

•Cabinets

•Copper sub-local loop

Use of FTTCab primary Network

New elements•Fiber secondary network•Fiber deployment in the customer’s building•New modem in the customer’s house

Deployment costs > 3x FTTCab

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TI Fixed UBB Plan: 2012-2014 and beyond

About 60% cities target in the North (i.e. Milan, Turin, Genoa); NewCo Trentino NGN for Trento region

About 20% cities located in the Central part of the country (i.e. Rome, Florence)

About 20% cities located in the South(i.e. Naples, Bari, Palermo)

2014 within 20202012-1H201330 cities 100 cities

Moving towards

DAE Targets

Driver for NGAN Plan:

Density of population;

Leverage on existing infrastructure (i.e. ducts already in place in most of 100 targeted cities)

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TI’s Convergent Approach to Fixed and Mobile UBBThe Value of our Core Asset

Acc

ess

Net

wor

k Key asset both for fixed and mobile Huge capital and time already fruitfully investedHigh CapillarityStrategic asset in the economic , social & regulatory landscape

Yesterday Today: Pervasive Ultra Broadband

UBB

Super Internet +

NGAN Fttx HSPA+ LTE

NGN

Fixed Network

Fixed & Mobile Network

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TELECOM ITALIA GROUP

Thank you – Q&ABofA - Merrill Lynch Global Telco and Media Conference Wednesday, 30 May 2012, London

MARCO PATUANO – Chief Operating Officer

24MARCO PATUANO


Bonds Loans (of which long-term rent, financial and operating lease payable € 1,497) Drawn bank facilityEuro mln

€ 6.16 bln Group Liquidity Position

+€ 7.00 bln

Undrawn Portion of Facility/Committed

=€ 13.16 bln

Group Liquidity Margin

Robust Liquidity Margin and Well-Distributed Debt Maturities

689

1,652

1,211

1,264

731

865

1,966

8,378

1,790

3,335

2,857

1,768

2,250

1,900

11,357

25,257

250

1,999

2,249

2,479

5,237

6,067

3,032

2,981

2,765

13,323 35,884 (*)

(*) € 35,884 mln is the nominal amount of oustanding medium-long term debt by adding IAS adjustments (€ 805 mln) and current liabilities (€ 824 mln), the gross debt figure of € 37,513 mln is reached.N.B. Debt maturities are net of € 646 mln (face value) of repurchased own bonds (of which € 354 mln related to bonds due in the next 24 months).

Within 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Beyond 2017 Total M/LTerm Debt

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4.0%

6.7%

68.0%

Bonds

25,521

Total Gross Debt Net of Adjustment: Euro 37,513 mln

Gross debt Financial assetsof which C & CE and marketable securities

- C & CE- Marketable securities

- Italian Government Securities- Other

37,513(7,201)

Bank Facility

2,248

Bank & EIB

5,734

Op. Leases and long rent

1,512

Other

2,498

Maturities and Risk Management

Average debt maturity: 7.32 years (bond only 8.38 years)

Fixed rate portion on gross debt approximately 72.4%

Around 47% of outstanding bonds (nominal amount) is denominated in USD, GBP and YEN and is fully hedged

Cost of debt: ∼5.5%

15.3%

6.0%

Euro mln

Net Financial Position 30,312

N.B.The figures are net of the adjustment due to the fair value measurement of derivatives and related financial liabilities/assets, as follows:- the impact on Gross Financial Debt is equal to 2.545 €/mln (of which 789 €/mln on bonds);- the impact on Financial Assets is equal to 1.878 €/mln.Therefore, the Net Financial Indebtedness is adjusted by 667 €/mln.

Well Diversified and Hedged Debt

(6,158)

(159)

(527)(666)

(5,492)

Merrill Lynch Global Telco and Media Conference - Marco Patuano presentation (30/05/2012)

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Transcript of Merrill Lynch Global Telco and Media Conference - Marco Patuano presentation (30/05/2012)