Telecom Italia: Board of Directors examines and approves Interim Financial Statements at 31 March 2011

05/06/2011 - 07:00 AM

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  • Revenues: €7,073 million, +10.3% compared with q1 2010
  • Ebitda: €2,929 million, +3.6% compared with q1 2010
  • Adjusted net financial position: €30,622 million, down €846 million on 31 December 2010 (€31,468 million) and by €2,640 million compared with 31 march 2010
  • Shared the decision of Tim Participações to migrate to novo mercado,  a segment of the Brazilian stock exchange with high corporate governance standards

Bernabè: “Stronger operating free cash flow generation has enabled us to make further debt reductions, while the international businesses sustain Group growth with an 18% increase in organic revenues in Latin America.”

“We proudly shared the decision of Tim Participações to be the first telecommunications company to be listed on novo mercado – Bernabè stated – the capital structure streamlining will allow to maximize the value of the asset, confirming and strengthening our presence in Brazil.”

Telecom Italia Group:

Revenues: €7,073 million, +10.3% against q1 2010; stable in organic terms

EBITDA: €2,929 million, +3.6% against q1 2010; -3.6% in organic terms

EBITDA Margin: 41.4% (-2.7 pp against q1 2010)

Organic EBITDA Margin: 41.9% (-1.5 pp against q1 2010)

EBIT: €1,499 million, +6.5% against q1 2010

Consolidated Earnings before Minorities: €648 million, up €42 million on q1 2010

Net Income: €549 million, down €52 million on q1 2010

Operating Free Cash-Flow: €1,076 million (+€322 million compared with q1 2010)

Adjusted Net Financial Position: €30,622 million, down €846 million on 31 December 2010 and by €2,640 million compared with 31 March 2010

The preliminary results for the first quarter of 2011 will be illustrated to the financial community during a conference call scheduled for 10 am (Italian time) today. Journalists may listen to the conference call, without asking questions, by calling: +39 06 33168.

Those unable to connect live may follow the presentation until friday 13 may by calling: +39 06 334843 (access code 339281#).


In addition to the conventional financial performance indicators contemplated under IFRS, Telecom Italia Group uses certain alternative performance measures in order to give a clearer picture of the trend of operations and the company's financial position. These are: EBITDA; EBIT; organic difference in revenues, EBITDA and EBIT; accounting and adjusted net financial debt. For further details please see the attachment “Alternative performance measures”.

The Telecom Italia Group Interim Financial Statements at 31 March 2011 were drafted in accordance with art. 154–ter (Financial Reporting) of Leg. Decree 58/1998 (Unified Finance Law - TUF) and subsequent amendments and supplements and with Consob Communication DEM/8041082 of 30 April 2008 (Quarterly reporting by issuers of listed shares who give as state of origin).

The Interim Financial Statements have not undergone an external audit and were drafted in accordance with the international accounting principles issued by the International Accounting Standards Board and approved by the European Union (“IFRS").

The accounting and consolidation principles adopted in the preparation of the Interim Statements were consistent with those used for the Telecom Italia Group Consolidated Statements at 31 December 2010, with the exception of certain new Principles/Interpretations adopted by the Group from 1 January 2011 and already explained in the 2010 statements. These new Principles/Interpretations have no impact on the Interim Financial Statements at 31 March 2011.

No events or circumstances or variations to key variables occurred during the first quarter that required us to update the impairment test on the value of goodwill carried out for the Telecom Italia Group Consolidated Statements at 31 December 2010.

Note that the section "Outlook for the 2011 financial year", contains forward-looking statements about the Group’s intentions, beliefs and current expectations with regard to its financial results and other aspects of operations and strategies. Readers should not place undue reliance on such forward-looking statements, as final results may differ significantly from those contained in the statements owing to a number of factors, the majority of which are beyond the Group’s control.

The Telecom Italia Board of Directors, chaired by Franco Bernabè, yesterday examined and approved the Group’s Interim Financial Statements at 31 March 2011.

Franco Bernabè commented: “The reshaping of the organisation with a sharper focus means that the Group is well placed to meet the challenges of the next three years and reap the full benefits of the efforts made thus far. The first quarter results bear out the strategy of reinforcement in and domestic repositioning.

The key domestic operational indicators confirm the recovery of competitiveness in the mobile segment which began last year, and the valorisation of the fixed-line business: over the last 12 months we have seen TIM customers begin to grow again while the gradual loss of fixed-line subscribers has been halted.

Continued efforts on Group efficiency have allowed us to increase cash generation and achieve a further reduction of net indebtedness of €2.6 billion from the first quarter of 2010.

We proudly shared the decision of TIM Participações to be the first telecommunications company to be listed on Novo Mercado. The capital structure streamlining will allow for maximum value enhancement, confirming and strengthening our presence in the country.”

TELECOM ITALIA GROUP

On 13 October 2010 the Sofora – Telecom Argentina Group entered the consolidation area following the increase from 50% to 58% of Telecom Italia Group's stake in Sofora Telecomunicaciones S.A., the Telecom Argentina Group holding company. In January 2011 and March 2011 further equity purchases were made raising the Group's economic interest in Telecom from 16.2% to 21.1%. The Sofora data are presented within Telecom Italia Group under the BU known as the " Business Unit".

In 2010 the following companies left the consolidation area: HanseNet Telekommunikation GmbH (a German broadband carrier) already posted under Discontinued Operations, which was sold on 16 February 2010; Elettra (included in the Domestic Business Unit – International Wholesale), sold on 30 September 2010; BBNed Group (included in Other Operations), sold on 5 October 2010.

Revenues in Q1 2011 amounted to €7,073 million, up 10.3% from €6,413 million in the first quarter of 2010 (+€660 million). In terms of organic variation, however, consolidated revenues fell by 0.2% (-€15 million).

In detail, the organic variation in revenues is calculated by excluding:

  • the effect of changes to the consolidation area (+€551 million, mainly due to the entry of the Argentina BU);
  • the effect of exchange rate variations (+€124 million, resulting almost entirely from forex gains of the Brazil BU amounting to €123 million).

Revenues, broken down by business unit, are as follows:

 

 

Q1 2011

Q1 2010

Change

(Euro mln.)

 

%

 

%

absolute

%

%

organic

Domestic

4,956

65.0

4,974

77.6

(378)

(7.6)

(7.4)

 - Core Domestic

4,396

62.2

4,714

73.5

(318)

(6.7)

(6.7)

- International Wholesale

317

4.5

398

6.2

(81)

(20.4)

(18.5)

Brazil

1,646

23.3

1,323

20.6

323

24.4

13.8

Argentina

753

10.6

-

-

753

-

27.2

Media, Olivetti and Other Operations

131

1.9

151

2.4

(20)

(13.2)

 

Adjustments and eliminations

(53)

(0.8)

(35)

(0,6)

(18)

(51.4)

 

Total Consolidated

7,073

100.0

6,413

100.0

660

10.3

(0.2)

EBITDA came to €2,929 million, up €103 million (+3.6%) on the previous year period, the EBITDA margin standing at 41.4% of revenues (44.1% in Q1 2010). In organic terms EBITDA fell by 3.6% with a 1.5 percentage points slide in EBITDA margin (41.9% in Q1 2011 compared with 43.4% in Q1 2010).

The following table shows a breakdown of EBITDA and EBITDA margin by business unit:

 

Q1 2011

Q1 2010

Change

(Euro mln.)

 

%

 

%

absolute

%

%

organic

Domestic

2,236

76.3

2,451

86.7

(215)

(8.8)

(7.6)

% of Revenues

48.7

 

49.3

 

(0.6) pp

 

0.0 pp

 

Brazil

452

15.4

381

13.5

71

18.6

8.6

% of Revenues

27.5

 

28.8

 

(1.3) pp

 

(1.3) pp

 

Argentina

257

8.8

-

-

257

-

22.5

% of Revenues

34.1

 

-

-

 

 

(1.4) pp

Media, Olivetti and Other Operations

(14)

(0.5)

(10)

(0.4)

(4)

 

 

Adjustments and eliminations

(2)

(0.1)

4

0.2

(6)

 

 

Total Consolidated

2,929

100.0

2,826

100.0

103

 3.6

(3.6)

% of Revenues

41.4

 

44.1

 

(2.7) pp

 

 

EBIT amounted to €1,499 million, up €91 million (+6.5%) from Q1 2010, with the EBIT margin standing at 21.2% (compared with 22.0% in Q1 2010). The organic EBIT variation was a positive €18 million (+1.2%) and organic EBIT margin rose from 21.4% in Q1 2010 to 21.7% in Q1 2011.

Consolidated net income amounted to €549 million, down €52 million (-8.7%) with respect to the first quarter of 2010).

Capex for the first quarter of 2011 amounted to €901 million (down €141 million compared with Q1 2010) broken down as follows:

(Euro mln.)

Q1 2011

Q1 2010

Change

 

%

%

 

Domestic

663

73.6

752

72.2

(89)

 

Brazil

130

14.4

277

26.6

(147)

 

Argentina

91

10.1

-

-

91

Media, Olivetti and Other Operations

17

1.9

13

1.2

4

Adjustments and eliminations

-

-

-

-

-

Total

901

100.0

1,042

100.0

 (141)

% of Revenues

12.7

 

16.2

 

(3.5) pp

Cash flow from operations stood at €1,076 million, up €322 million from the same period of the last year, evidence of the Group's cash generating capacity.

Adjusted net financial debt (excluding the purely accounting and non-monetary effects of the valuation at fair value of financial derivatives and related assets/liabilities) at 31 March 2011 is €30,622 million, down €846 million with respect to 31 December 2010 (€31,468 million). Operational management, together with receipt of €374 million for the sale of the stake in Etecsa , amply covered the disbursement of €155 million for equity purchases in Q1 2011 to increase Telecom Italia Group's economic interest in Sofora - Telecom Argentina Group from 16.2% to 21.1%. With respect to 31 March 2010 adjusted net financial debt is down by €2,640 million.

Accounting net financial debt stood at €30,972 million, down €1,115 million from 31 December 2010 (€32,087 million).

At 31 March 2011 Group headcount stood at 84,144 employees, of whom 58,026 in Italy.

***

BUSINESS UNIT RESULTS

Figures for Telecom Italia Group included in this press release refer to the following business units:

  • Domestic Business Unit: includes domestic fixed-line and mobile-line voice and data services provided to end users (retail) and other carriers (wholesale), Telecom Italia Sparkle Group business (International Wholesale) as well as associated support operations;
  • Brazil Business Unit: refers to mobile (TIM Brasil) and fixed-line (Intelig) telecommunications operations in Brazil;
  • Argentina Business Unit: comprises fixed-line (Telecom ) and mobile (Telecom Personal) telecommunications in Argentina, and mobile services (Nùcleo) in Paraguay;
  • Media Business Unit: includes TV network-related activities and operations;
  • Olivetti Business Unit: focuses on the development and manufacturing of digital printing systems and office products and IT services;
  • Other operations: includes financial firms and other smaller operations not strictly related to Telecom Italia Group's core business.

Figures for Telecom Italia Media at 31 March 2011 can be found in the press release issued on 4 May 2011, following the Board Meeting's approval.

DOMESTIC

Domestic revenues amounted to €4,596 million, down 7.6% on Q1 2010 (€4,974 million) and with an organic variation of -7.4%.

Highlights:
 

Core Domestic Revenues

Core Domestic revenues amounted to €4,396 million, down 6.7% on Q1 2010 (€4,714 million) and with an organic variation of -6.7%.

The performance of the individual market segments as compared with Q1 2010 is as follows:

  • Consumer: revenues fell by €224 million (-9.2%), due mainly to services (-€219 million, -9.2%) and marginally to product sales (-€5 million, -10.4%). The fall in revenues from services is almost entirely attributable to weakness in voice services, both for fixed-line (voice revenues: -€76 million, of which -€41 million traffic and -€27 million access) and mobile (voice revenues: -€126 million, of which -€91 million outgoing voice and -€35 million incoming voice). Such results stem from the thoroughgoing review of the product offering in the previous financial year to combat competitive pressures, arrest the loss of customer base and trigger an upward trend in revenues, as we have already witnessed in the first three months of the year.
  • Business: revenues fell by €65 million (-7.3%); the decline in the services component, of €61 million (-7.1%) is less steep than in Q1 2010 (-8.2%) and essentially in line with Q4 2010 (-6.9%). Sales efforts were aimed at containing the erosion of the fixed customer base and the acquisition of higher quality new mobile customers. In the fixed-line segment the fall in voice subscribers for the quarter was around 30,000, substantially confirming the figure for Q4 2010; BroadBand subscribers rose by around 19,000, up from the previous quarter (+12,000). The mobile segment saw an increase of around 3,000 human lines (+25,000 in Q4 2010).
  • Top: total revenues fell by €48 million (-5.8%), less than in the previous-year period (-€64 million,     -7.2%). The comparison benefits in particular from the stronger performance of the fixed-line business thanks to higher sales and a smaller decline in services, as well as a positive trend in ICT revenues (+10.6%). Meanwhile, revenues slipped in the mobile segment (-14.0%).
  • National Wholesale: the increase in revenues (+€18 million, +3.6%) was driven by growth in OLO (Other Licensed Operators) Local Loop Unbundling, Wholesale Line Rental and Bitstream customers.

International Wholesale Revenues

In Q1 2011 the International Wholesale segment (Telecom Italia Sparkle Group) posted revenues of €317 million, down €81 million from the same period of 2010 (-20.4%), mainly as a result of weaker voice figures (-€73 million).

Besides the breakdown by market segment given above, the following revenue figures are distinguished by technology (fixed-line/mobile).

Fixed-Line Telecommunications Revenues

In Q1 2011 revenues amounted to €3,331 million, down €167 million (-4.8%) from the previous-year period. The organic change in revenues was negative by €158 million (-4.5%).

At the end of march 2011 retail accesses stood at 15.1 million; it is worth noting that the reduction in lines in Q1 2011 (-206,000) has been contained compared with the corresponding period of 2010         (-233,000), thanks to commercial efforts aimed at maintaining and increasing the customer base.

The total BroadBand portfolio amounted to around 9.1 million subscribers (+73,000 compared with 31 December 2010) of which over 1.9 million wholesale (+54,000 on year-end 2010).

 

Retail Voice
Revenues amounted to €1,437 million, down by €132 million owing to a reduction in the client base, pricing pressure on voice traffic and the effect of fixed-line-mobile replacement. In April Telecom Italia announced simpler tariffs from July for calls from fixed-line phones with no time-band constraints and a new subscription fee. The simplified offering is intended to enhance customer appreciation of the service and win new customers.

Internet
Internet revenues came to €422 million, down €28 million (-6.2%) from Q1 2010, mainly due to lower content/portal revenues following the termination of the soccer rights agreements.  It is worth noting an upturn in the number of BroadBand customers where domestic retail subscribers have reached 7.2 million following the contraction in the last quarter of 2010, though the competitive environment remains challenging. Flat-rate customers continue to grow and have reached 87% of all retail broadband clients (84% in the same period of 2010) partly thanks to the introduction of the new “Internet senza limiti” offer aimed at the consumer segment.

 

Business Data
Revenues from the Business Data amounted to €364 million, up €13 million (+3.7%) from Q1 2010, despite the current negative economic climate and the contraction in prices of traditional leased line and data transmission businesses. In the ICT segment revenues climbed to €21 million (+13.3%) thanks to growth in product sales (+€14 million) and services (+€7 million).

 

Wholesale
At the end of March 2011 the customer portfolio of Telecom Italia’s Wholesale division consisted of approx. 7.0 million voice subscribers and 1.9 million Broadband subscribers.

Overall, revenues from domestic Wholesale services amounted to €789 million, up €40 million (+5.3%) compared to the same period of 2010. The upward trend in revenues in this sector is ascribable to growth in the alternative operator customer base, which is served by a variety of access types. Revenues for the Wholesale International division were €226 million.

 

Mobile Telecommunications Revenues
The key operating indicators show a structural improvement and confirm the repositioning strategy on the mobile business: the customer base grew by 20,000 lines from the end of 2010 to reach 31.0 million with a churn of 5.5% in the quarter, down from 6.4% in Q1 2010. Revenues for the quarter amounted to €1,679 million, down €228 million (-12%) from the same period of 2010. Revenues from services fell by 11.7% and revenues from products by 22.4%. The quarter was characterized by a number of discontinuities among which the effects of the repricing of pay-per-use data traffic and the promotion of bundled offerings in line with the AGCOM 326 resolution. Excluding these effects, the variation would have been -8.9%. Improvements in revenues are expected in the second half of 2011, partly thanks to the termination of the promotions launched in 2010.

 

Outgoing voice
Revenues amounted to €876 million, down €115 million (-11.6%). Comparison with the first quarter of last year is penalized by the commercial strategy introduced during 2010 intended to make rates more competitive. The upturn in volumes has only partially compensated for lower prices that tend to remain at the same level as Q4 2010.

 

Incoming voice
Revenues stood at €283 million, down €66 million (-18.9%) from Q1 2010, mainly due to the lower mobile termination rates (-€39 million in the retail segment).

 

Value added services (VAS)

Revenues came to €475 million, down 6.9% on the previous year period. This was mainly attributable to the decrease in interactive VAS (-11.0%). Revenues from browsing fell by 6.9%. VAS revenues account for around 29.1% of total revenues from services (27.6% in the first quarter of 2010).

 

Handset sales

Revenues amounted to €45 million, down €13 million (-22.4%) from the same period of 2010. The strategy of pushing smartphones continues, favouring the penetration of BroadBand services.

 

  • EBITDA for the Domestic business unit amounted to €2,236 million, down €215 million from the same period of 2010 (-8.8%). EBITDA margin was 48.7%, down 0.6 percentage points from the previous year period. The contraction in revenues is partly compensated by selective control of expenses and strict containment of fixed costs.
  • Organic EBITDA came to €2,273 million (-€187 million, -7.6% compared with Q1 2010), the EBITDA margin at 49.5% of revenues remaining unchanged on the same period of 2010.
  • EBIT for the Domestic BU amounted to €1,222 million, €144 million lower (-10.5%) than Q1 2010, with EBIT margin of 26.6% (27.5% in the corresponding period of 2010). EBIT benefitted from a €66 million reduction in amortisations, explained by the smaller amortisable amounts due to lower levels of investment over recent years. The organic change in EBIT was negative by €117 million (-8.5% in the first quarter of 2010) while EBIT margin came to 27.4% of revenues (27.7% in Q1 2010).
  • Capex amounted to €663 million (down €89 million compared with Q1 2010). The capex margin was 14.3% (15.1% in Q1 2010).
  • The headcount stands at 56,469 employees.


BRAZIL

(average real/euro exchange rate 2.28000)

Revenues of TIM Brasil Group in Q1 2011 came to 3,752 million reais, 456 million higher than Q1 2010 (+13.8%). Revenues from services grew to reach 3,463 million reais, up from 3,176 million reais in Q1 2010 (+9.0%). Revenues from product sales increased from 120 million reais in Q1 2010 to 289 million reais in Q1 2011 (+140.8%). ARPU (Average Revenue Per User) stood at 20.8 reais in Q1 2011 compared with 24.0 reais in Q1 2010. The total number of lines at 31 March 2011 was 52.8 million, up 24.7% with respect to 31 March 2010, representing a 25.1% market share.

EBITDA amounted to 1,031 million reais, up 82 million reais from Q1 2010 (+8.6%). The EBITDA margin was 27.5%, down 1.3 percentage points from Q1 2010. This result is partly a consequence of the lower incidence of service revenues, hit by the higher costs of licence fees linked to growth of the customer base, and partly due to lower margins from handset sales due to chip-only sales.

EBIT amounted to 418 million reais, an improvement of 256 million on Q1 2010. This can be ascribed to the higher contribution of EBITDA compared with Q1 2010 and a reduction in amortisations of 172 million reais (613 million reais in Q1 2011, 785 million in Q1 2010).

Capex amounted to €297 million reais (down €392 million reais compared with Q1 2010). Contributing to this were the lower capitalization of the costs of client acquisition (subsidized handsets and free loans), and delays in tenders for the supply of network equipment, concluded in March 2011 with significant savings whose benefits will be felt over the course of the year.

The headcount stands at 9,991 employees.

ARGENTINA

(average real/euro exchange rate 5.48989)

The restated Q1 2010 figures for the Argentina BU are provided for information purposes only (illustrative and comparative) and therefore not included in the consolidated results of Telecom Italia Group, given that the BU was consolidated with effect from 13 October 2010.

Q1 2011 revenues came to 4,134 million pesos, an increase of 883 million pesos compared with Q1 2010 (3,251 million pesos) thanks to growth of broadband and mobile client base, as well as ARPU. The principal source of revenues for the Argentina Business Unit was mobile telephony which contributed 70% of consolidated revenues and grew by 33% compared with Q1 2010.

Fixed lines in service (4.1 million at 31 March 2011) were up slightly from 31 December 2010 (0.1%) largely thanks to bundling with Internet services. Despite the freezing of tariffs imposed by the Economic Emergency Law of 2002, ARBU (Average Revenue Billed per User) grew by 6.3% compared with Q1 2010 as a result of sales of packages including minutes of traffic and value added services.

Telecom 's overall broadband client portfolio at 31 March 2011 counted 1,407,000 subscribers, 27,000 more than December 2010 with growth of 2.0%. At the same time ARPU (Average Revenue Per User) rose thanks to a pricing strategy involving also fewer promotional discounts designed to win new customers and build loyalty. The Data segment has also seen gains in market share on dedicated Internet and IP VPN, as well as datacenter services.

The Personal client base in grew by 549,000 by the end of March 2011 to reach a total 16.9 million customers, 30% of which with post-paid contracts. Meanwhile, thanks to the acquisition of high value customers and our leadership in Smartphones, ARPU grew by around 16% to top 47 pesos (41 pesos in Q1 2010). Much of this growth is attributable to value added services (including SMS) and Mobile Internet, which together represent around 45% of mobile telephony revenues.

In the Núcleo client base grew by 1.2% from 31 December 2010 to reach 1,901,000 lines at 31 March 2011. The company has established a reputation for the best 3G Internet service (as regards speed), supporting the continued healthy growth in lines.

EBITDA reached 1,410 million pesos, an improvement of 260 million pesos (+22.6%). The EBITDA margin was 34.1%, 1.3 percentage points less than in Q1 2010, mainly due to the higher incidence of sales costs.

EBIT amounted to 684 million pesos, a fall of 72 million pesos (-9.5%). The reduction is entirely attributable to the adoption of the purchase price method resulting in costs of 270 million pesos, mainly due to higher amortisations, which were absent in Q1 2010. Excluding such charges EBIT would have shown an increase of 198 million pesos (+26.2%). The EBIT margin was 16.5%, down 6.7 percentage points from Q1 2010. Without the effects of the purchase price method, the incidence on revenues would have been 23.1%, essentially in line with the previous-year period.

Capex amounted to 502 million pesos, down 1.4% from the same period of last year.

The headcount stands at 15,738 employees.


OLIVETTI

Revenues in Q1 2011 were €78 million, up €5 million compared with the same period of 2010. Sales felt the positive effect of renewed offerings through the Telecom Italia and Olivetti channels. A particularly important contribution came from sales of new product lines (Data Cards, Netbooks, Notebooks, Tablets) and income from services.

EBITDA was a negative €14 million, €4 million lower than in Q1 2010. The fall was linked to lower margins on traditional products (especially inkjet and specialist printers) not yet sufficiently offset by the positive effects of new products and services.

EBIT was a negative €15 million, down €4 million compared to Q1 2010.

Capex amounted to €2 million, up €1 million from the same period of last year.

Headcount came to 1,087 employees, (997 in and 90 overseas).

***

OUTLOOK FOR THE 2011 FINANCIAL YEAR

As regards Telecom Italia Group's outlook for the ongoing financial year, the goals linked to the main economic indicators, as described in the 2011-2013 Industrial Plan, foresee the following outcomes for the whole of 2011:

  • Organic revenues and EBITDA largely stable compared with 2010 (considering 12-months' consolidation of the Argentina Business Unit);
  • Capex of around €4.8 billion;
  • Adjusted net financial debt of around €29.5 billion by year-end 2011

     

TIM PARTICIPAÇÕES’ MIGRATION TO NOVO MERCADO

The Board of Directors has also approved the migration of its subsidiary TIM Participações to Novo Mercado, just announced by TIM Participações. Novo Mercado is a segment of the Brazilian Stock Exchange listing companies having a higher corporate governance level, and whose capital is only made up of ordinary shares.  Such a transition will be subject to the approval of both TIM Participações Shareholders’ Meetings, gathering the two different types of shareholders, and will entail the conversion of preferred into ordinary shares in a share swap ratio of 0.8406 ordinary shares to one preferred share, put forth by TIM Participações’ Board of Directors, based on the weighted average ratio between the prices of the two share classes over the last 60 days.

***

The Board of Directors noted the appointment of Elio Cosimo Catania as Chairman of the Internal Control and Corporate Governance Committee and Chairman of the Committee for Appointments and Remuneration.

It went on to confirm Andrea Mangoni (Head of Administration, Finance and Control & International Development) as manager designate for the preparation of accounting and corporate documents, a position he has held since December 2009.

***

PARTIAL SPIN-OFF OF MATRIX

The Board of Directors approved the partial spin-off of Matrix S.p.A. (100% owned subsidiary) by transfer to Telecom Italia of the “Captive Market & Technology” business unit, which provides the design, development and delivery of web products, mail and broadband services to end clients of Telecom Italia.

The operation is designed to internalise and improve the efficiency of a phase of the production process, at the same time allowing the subsidiary to focus on other markets.

As foreseen by the Bylaws, the spin-off (which does not entail any changes to the capital of the two companies involved) will be decided by the Telecom Italia Board of Directors under the terms and conditions of article 2505 of the Civil Code. The operation is expected to be completed within the year.

***

The Manager designate for the preparation of accounting and corporate documents, Andrea Mangoni, hereby declares, pursuant to paragraph 2, Art.154-bis of Italy’s Financial Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.

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Milan, 6 May 2011