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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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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:
3FRANCO BERNABE’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
13
14FRANCO BERNABE’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
Appendix
15FRANCO BERNABE’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
17FRANCO BERNABE’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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%).
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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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Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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
19
20FRANCO BERNABE’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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’
Sanford Bernstein - 8th Annual Strategic Decisions Conference 2011London, 21 September 2011
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