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Risk Management

06/15/2017 - 00:45 PM

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The business outlook for 2016 could be affected by risks and uncertainties caused by a multitude of factors, the majority of which are beyond the Group's control. In such a scenario, risk management becomes a strategic tool for value creation. The Telecom Italia Group has adopted an Enterprise Risk Management Model based on the methodology of the Committee of Sponsoring Organizations of the Treadway Commission (ERM CoSO Report), which enables the identification and management of risk in a uniform manner within the Group companies, highlighting potential synergies among the actors involved in the assessment of the Internal Control and Risk Management System. The ERM process is designed to identify potential events that may affect the business, to manage risk within acceptable limits and to provide reasonable assurance regarding the achievement of corporate objectives.

The main risks affecting the business activities of the Telecom Italia Group, which may impact, even significantly, the ability to achieve the objectives of the Group are presented below. 

Strategic risks

06/15/2017 - 00:45 PM

The TIM Group’s economic and financial situation is subject to the influence of numerous macroeconomic factors such as economic growth, political stability, consumer confidence, and changes in interest rates and exchange rates in the markets in which it operates. The expected results may be affected, in the domestic market, by the struggling economic recovery: growth at year-end 2016 was 0.9%, a low figure when compared to the average of the EMU countries, albeit higher than that expected for 2017. The consumption cycle, which had driven the recovery in 2013 and supported it in the following years, is slowing down also due to a more cautious attitude by households: confidence has weakened while the propensity to save is rising again. The unemployment rate continues to be at high levels, with possible repercussions on the income available for consumption.
In the Brazilian market, the expected results may be affected by the further deterioration of the macroeconomic environment, with the country currently in economic recession: for 2017, as of the second quarter, moderate growth is expected, driven by improved confidence, the recovery of investment and a slightly less uncertain political climate. The high unemployment rate of just under 12% in late 2016, could have a negative impact on household consumption. These factors mean that the consequent recognition of goodwill impairment losses cannot be ruled out.

The telecommunications market is characterized by strong competition that may reduce market share in the geographical areas where the TIM Group is engaged as well as erode prices and margins.
Competition is focused, on one hand, on innovative products and services and, on the other hand, on the price of traditional services. In addition, in the area of infrastructure competition, the growth of alternative operators could represent a threat for TIM, particularly in the years of the Plan after 2017 and also beyond the Plan period.
In the mobile market, Iliad S.A. is about to launch a new mobile operator in Italy with the aim of acquiring 10-15% of the market, as per its own announcements, by adopting the strategies it has already used for the French market. For its part, TIM intends to launch a new operator, with independent systems and characteristics to counter the entry of the new competitor.
In addition, Enel Open Fiber and Infratel have announced their plans for the development of an alternative ultra-broadband telecommunications network to the TIM network, respectively in the major Italian cities and the “market failure” areas.
In Brazil, the deterioration of the macroeconomic environment continues to negatively impact on the telecommunications market. Competitive risk comprises both an acceleration in the deterioration of the business model tied to traditional services not fully replaced by innovative services and the rationalization of consumption by customers as a result of a contraction of their purchasing power. In this scenario, the Tim Brasil group may be further impacted in the short term to a greater extent than its main competitors, due to the higher proportion of customers with prepaid services, which are more affected by the current macroeconomic situation, and by a slowdown in their replacement with postpaid customers.