The Telecom Italia 2009 Results and the 2010-2012 Strategic Plan Update

1. TIM Brasil
Strategic Plan Update
LUCA LUCIANI

2. 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.
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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3. Agenda
 What we did
(2009 Repositioning path)
 Where we want to go (Strategy)
 Where we are (Expected Q1 2010)
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4. 2009: TIM #2 in the Brazilian Market (4Q 2009)
Ranking
Growth Q4 vs
KPIs Size Q4 Size Q4
Q3
41.1 MM
Customer Base (23.6% Market Share) #3 #3 Volume
ARPU R$ 28.8 #1 #1
Net Services Revenues R$ 3.47 Bln #2 #1
Value
EBITDA, organic R$ 1.07 Bln
#2 #1
EBITDA margin, organic 29.6% #2 #1
Market Share TIM (Q4 09)
Stable 26.0% #2
23.6%
0
Volume Value
(# of lines) (Revenues)
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5. 2009 Repositioning Path
Quality Innovation
Network Caring Most innovative brand
%, ranking Anatel % of respondents indicated as “innovative company”
1
92 IDA* Infinity
100% 1
85
34 +9pp
1
84.1% 7.46 CSI** 28
1
+3pp
1
6.6 25 +3pp Liberty •2x advertising
•R$ ~2 Bln
1
•17 MM Infinity Pre
Industrial CAPEX 32
1
YE08 -5pp
YE09 Jan/09 YE09 •1 MM Infinity Post
*ANATEL’s performance index
**Customer Satisfaction Index ∆pp vs. previous wave
QoQ
Efficiency Plan growth Customer Base
% on serv. revenues MM of lines
Commercial -340 bps
costs and 41.1
Bad Debt* 4Q08 4Q09 42
36.4 40
Industrial -250 bps
38
R$ ~0.8 Bln costs 36
and ITX + 4.7 MM of Lines
savings
34
4Q08 4Q09 32
Personnel
30
and -120 bps YE08 YE09
G&A costs
4Q08 4Q09
* Including handset cost
Efficiency Sales / Customer Base development
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6. Marketing Approach: “Breaking the Rules”
Post-paid: Market rule Pre-paid: Market rule
•Handset based (with max 12 months fidelity) •Short local calls (aggressive promos based
•Low MOU; flat on-net vs. off-net calls (with on local calls only)
high MTR) ~190 mln of People •Long distance calls just via fixed line (or
Churn public phones)
market
A/B ~30
TIM “Breaking the Rules” TIM “Breaking the Rules”
Fresh • Pay per call vs. traditional pay per minute
• “All you can eat” community based (local
and long distance) market • Community based local and Long Distance
• Chip-only + handset sales in 12x (unlocked) (Local=Long Distance)
C
~90
Take up of Liberty and Chip Only plans Infinity (Pre-paid)
+30 MM of
people in next 23
100%=
28
5 years # of 17
D/E
23
Gross Adds
70% 61%
18
post voice customers
~70
13
consumer (MM) 0
8
1Q 10 % % 3
Infinity/ Chip-only -2
Liberty
2009 1Q 09 YE09 1Q 10
Benefits Benefits
• Customer: • Customer:
- Free to talk at lower cost - Long calls via mobile (both local and long
- SIM-unlocked phones distance)
• Operator: • Operator:
- Higher return (lower SAC, ITX and Bad - Long calls via Mobile (both Local and LD)
Debt) - Differentiation
- TIM Community valorization - ARPU increase
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7. 2009: Consistent QoQ Growth
QoQ Growth
ARPU EBITDA % organic
R$ %
27.6 28.1 28.2 28.8 FY 2009
29.6%
0
ARPU Leader 25.7%
30
0
25
+230 bps YoY 0
24.5%
20
24.6%
23.7%
0
Services Revenues
15
Outgoing 0
+9% 10
0
5 R$ MM
0
Q1 Q2 Q3 Q4 3,275 3,470 Q1 Q2 Q3 Q4
2,993 3,110 4000
3500
3000
2500
2000
1500
+3.9% +5.3% +5.9% 1000
500
0
MOU Q1 Q2 Q3 Q4
EBITDA organic
YOY -0.4% -1.7% +0.1% +1.4%
Minutes
R$ MM
1,073 1200
99 120
•Inverted trend in 2H 761
865 872
90 1000
73
100
•FY 2009
70
800
80
•12.8 Bln R$ 600
60
•~Flat YoY 400
Outgoing +14% +1% +23% 200
40
FY 2009
0
+14% 20
Q1 Q2 Q3 Q4
0
3.6 Bln R$
Q1 Q2 Q3 Q4 +9.6% YoY YOY +21% +20% -2% +5.4%
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8. Agenda
 What we did
(2009 Repositioning path)
 Where we want to go (Strategy)
 Where we are (Expected Q1 2010)
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9. Strategy: 5 Tasks to Create Value
Grab growth opportunities
Net Revenues, Bln R$ CAGR Incremental
’09-’12 Market
+5% 122 +17 Task #1:
105 120
1 Voice
52 +7
100
6
Mobile Voice 2 45 Task #2:
2
80
+4 Mobile data
Mobile BB 60
50
48 -2 40
Task #3: Service
Fixed Voice 3
20 Convergence Revenues
Fixed BB 8 16 +8 0 Growth
2009 2012 &
Task #5 - Efficiency Task #4 - Build a solid Network Margins
Improvement
% on Revenues
Commercial •One back-bone
costs and - 250 bps MAN
Bad Debt* 2009 2012 •Property
backhauling
Industrial costs -200 bps Back-hauling
and ITX - +
2009 2012 •Capacity in 2G
Back-
Personnel and -50 bps bone
•Coverage in 3G
G&A costs
2009 2012
* Including handset cost
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10. Task #1 - Voice: “Keep the Pressure”
Penetration: Usage:
Source of growth
“Regional” approach Push on FMS (positive elasticity)
Develop current TIM Market Share Pre-Paid: Leveraging LD
TIM % of population
Main A/B C
100%
Penetration Usage Data Competitor MOU LD
80% 25
60% 20
X 10
15
40%
Expected results Ex. NE Ex. SP Ex. RJ
10
20%
5
0
>180’ 0%
1Q 09 1Q 10
Willingness to use: LD via
12
10
8
fixed and mobile
MOU 6
4
Willingness to pay: LD via
mobile
2
0
2009 2012
Strong Intermediate “Virgin
Maintain 10
TIM Areas Areas” Post-paid: “Cut the wire”
ARPU leadership Areas
9
Monthly fee (R$)
8
7
6
5
Outgoing 40 39
4
3
2
1 45
0
•Include
40
2009 2012
Tough for Explore
35
•Includes 200 unlimited
30
CAGR new Untapped min. F-F Local
25
on-net
20
~10% comers Market (Local + LD)
15
Customer 10
Fixed Liberty
base incumbents
2009 2012
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11. Task #2 - Mobile Data: “Ready to Go” as of H2 2010
Source of growth “Me too” strategy
•Internet experience via mobile smartphone
(micro-browsing)
Penetration Usage Data
•Selective approach on internet key (browsing)
Brazilian Internet Market TIM “Breaking the Rules”
MM of persons •Mobile Internet in a profitable way
• On average, 23 hours/
• Average age: Soon in the
month per user on the Enabling factors
Internet (top in the world)
29 years internet • 50% of the users access • Fast Network roll-out (14 Urban population coverage
from public places 75%
Mbps downlink and 2.8 50%
~190 uplink in main cities) 30%
• Low-end handsets with
126 rich internet experience 2009 2010 2012
62 (<100 USD)
• Affordable and simply
33 29
tariff plans
Total Not Current Without With Expected results
population Internet internet a PC a PC >20%
users users at home at home ~11% 0
0
VAS / 0
0
0
0
Boost VAS
Service Revenues 0
0
contribution
(%) 4Q 09 2012
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12. Task #3 - Convergence: Attack Fixed Incumbents
Intelig “Option Value” Supporting evidences
Fixed Consumer “Attack to Fixed
(LD) Incumbents”
Convenience
Minimum
Business “Convergence
Rates (cent R$/min) monthly cost (R$)
(Voice & Data) and Solutions”
Wholesale “Reference Partner for 40
emerging Telco” 30
45
40
30
20
35
25
30
20 25
10
Expected results
20
15
0
15
• Intelig: F-F Long Distance 10
10
R$ Bln
5
~2 calls via “23” code
5
0 0
• Bundling of fixed Incum Intelig Fixed TIM Fixo TIM Fixo
solutions (TIM Fixo/Web) Incumbents Post-paid Pre-paid
-bents
~3x Quality
IDA
110,0
100.0 94.9
83.7
100,0
73.0
90,0
~0.7 80,0
Residential
•Cross- selling: direct sales force
70,0
Business integration (TIM and Intelig) 60,0
•Solutions for Top Customers 50,0
(voice, data, fixed and mobile)
Wholesale •Partnership with local utilities
40,0
(ex:AES) Telesp Embratel Intelig TIM
2009 2010 2011 2012
Mobile
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13. Task #4: Build a Solid Network
Network Infrastructure Network targets and priorities
2010-12 2010
Key actions
Backbone 3G Coverage ~6,000 ~3,500
Backhauling Metro (# antennas)
 One single backbone
1
(TIM - Intelig) 2G Capacity >50,000 >15,000
PoP PoP Leased
lines
(# TRX)
2G Coverage 1,500 750
 Link to Intelig MANs
2
(# BTS)
Node-B BTS BTS
Radio
 Roll-out microwaves
3 ~10,000 >4,000
back-hauling
backhauling
Access Access Access Efficiency & reliability in Back-Hauling
3G/HSDPA 2G/Edge 2G/Edge
 Double 3G coverage
4 MW replacing leased lines
2009 2010
5
 Double 2G capacity 65% 35%
Buy Buy
vs. vs.
Make 35% 65% Make
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14. Task #5: Efficiency for a Sustainable Growth
Commercial costs and Bad Debt** Net Service Revenues
% on Revenues Bln R$ “high single
CAGR 09-12
digit” growth
-250 bps  Chip-only Intelig
13.5
 Bad debt TIM
2009 2010 2011 2012 2009* 2010 2011 2012
Industrial costs and ITX EBITDA Margin
-120 bps dilution
% on Revenues
by Intelig
 Intelig >500 bps
24.9% ~30%
-200 bps  Community
based
offering
2009 2010 2011 2012 2009* 2010 2011 2012
Personnel and G&A costs EBITDA% – CAPEX%
% on Revenues
EBITDA %
-50 bps ~6% >15%
 Efficiency
CAPEX %
2009 2010 2011 2012 2009* 2010 2011 2012
*: 2009 Proforma Intelig 12 months ** Including handset cost
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15. Agenda
 What we did
(2009 Repositioning path)
 Where we want to go (Strategy)
 Where we are (Expected Q1 2010)
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16. Sales Force Restructuring Speeds up Customer Base Growth
Customer Base Key Success 1Q 2009 vs.
Factors 1Q 2010
Post Paid Business
MM of customers Productivity
Productivity
41.8 Coverage 1Q09 vs 1Q10
36.1
Capillarity
+ 1Q09 vs 1Q10
+61%
0%
1Q09 Feb ‘10 1Q10 -
- 0% + # agents
Net Adds Post Paid MNP Post Paid Pos Paid Consumer
MM 1
% Port IN / Port Out Productivity
0
156%
0
Quality
+
0
0
+172%
100%:
0
0
0
0
In=Out 0%
-0.4 -0.3 0
-1
32%
1Q09 1Q09 1Q10 E -
Reported Excl. clean-up 1Q09 1Q10
- 0% + # point of sales
Net Adds Pre Paid SAC / ARPU Pre Paid Consumer
Productivity
MM 2
1
Efficiency
+16% SAC / ARPU
0.8 1
Traditional +
1
2.5 x Alternative
1
channels
0.1
1
0
0% channels
Alternative 0.5 x
0
channels Traditional +193%
1Q09 1Q09
0
-
1Q10 E channels
Reported Excl. clean-up
- 0% + # point of sales
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17. Visible signs of Company's turnaround:
Expected Q1 2010 Results
YoY % - Service Revenues YoY % - EBITDA, organic
-54% handset
revenues
Q4 2009 +1.4 % Q4 2009 + 5.4 %
Q1 2010 “Mid single Q1 2010
“Double
digit” digit”
Handset
revenues
Vs. 2010 Company’s Guidance Vs. 2010 Company’s Guidance
“On track”  “On track” 
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18. TIM Brasil - Take Aways
Repositioning of the Company based on quality, innovation and
2009 efficiency
Path Able to grow QoQ in 2009, confirming #2 position in Brazilian mobile
market
 Ready to grab market growth opportunities:
 Voice: further penetration and FMS
 Mobile Data, as of H2 2010
Strategy
(2010-2012)  Convergence / Intelig “Option value”
 Fast roll-out of solid network infrastructure
 Efficiency to combine top line growth with improving profitability and
cash
Visible signs  Q1 2010 confirming YoY growth acceleration (Revenues and EBITDA)
of turnaround
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