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Telecom Italia SpA (NYSE:TI)

Full-Year 2012 Preliminary Results and 2013-2015 Plan Outline Conference Call

February 8, 2013 6:00 am ET

Executives

Franco Bernabè – Chairman and Chief Executive Officer

Piergiorgio Peluso – Chief Financial Officer

Alex Pierre Bolis – Head, Investor Relations

Marco Emilio Patuano – Managing Director and Chief Operating Officer

Analysts

Georgios Ierodiaconou – Citigroup

Giovanni Montalti – UBS

Mathieu Robillard – BNP Paribas

Torsten Achtmann – JPMorgan

James Britton – Nomura International

Luigi Minerva – HSBC

Jean-Francois Paren – Credit Agricole

Tim Boddy – Goldman Sachs

Operator

Welcome to TI’s Group Preliminary 2012 Results and 2013-15 Plan Outline Call. We have with us this morning, Mr. Franco Bernabe, Chairman and Chief Executive Officer; Mr. Marco Patuano, Managing Director and Chief Operating Officer; Mr. Piergiorgio Peluso, Chief Financial Officer; and Mr. Franco Bertone, Telecom Argentina’s Chief Executive Officer.

As usual, this event is being recorded and all participants will be placed in a listen-only mode during the company’s presentation. After TI’s remarks are completed, we will be pleased to take your questions. You may follow us today via simultaneous webcast that may be accessed through the company’s website www.telecomitalia.com, from which you can download or view our slide presentation during the conference call.

We would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those in the forward-looking statements as a result of various factors. Analysts are therefore cautioned not to place undue reliance on those forward-looking statements which speak only as of the date of this presentation and are encouraged to consult the Company's periodic filings which are on file with the United States' Securities and Exchange Commission.

I'll turn now the conference over to Mr. Franco Bernabe, please Franco.

Franco Bernabe

Thank you very much. Good morning, ladies and gentlemen, and thanks for attending Telecom Italia's conference call in which we will summarize the preliminary full-year 2012 results, and give you an outline of the new 2013-2015 plans for our Group. Marco Patuano, Piergiorgio Peluso and Franco Bernabè here with me, and together we will take you through our Group main achievements to future objectives in our core three markets.

2012 has been a year of challenges and change. One of the following factors has played out. In Italy a deeper and still ongoing recession; in Europe, positive new regulatory developments in the commission level; in Brazil, we had to deal with a number of important challenges.

We kept our path steady, delivering very sound results in line with our targets. Despite the huge improvements in the financial profile of our country, domestic macroeconomic trends progressively worsened last year with 2.1% drop in GDP, compensated partially by Brazil and Argentina, which posted an annual GDP growth of around 2.5%, and 1.8% respectively.

In this framework, our domestic operations have performed in line with our targets; even if we had to face a short decline overall internal demand and consumer confidence. In this context, on the back of our proven willingness to pay from our customers’ for fast broadband and fixed Internet services. We increased innovative CapEx. As Marco will further detail to you, we should continue to in this direction in the future.

In Latin America, the impact is (inaudible) continued delivering a sound performance, as the second strong player of the fourth largest mobile market in the world. From being a voice challenger, we have increasingly become mobile Internet providers, given the superior data speed proposition of our 3G network.

Also in Brazil as some of you have heard during the recent call, 2012 results were in line with target with further resources also in this case devoted to network capital expenditures. This has been particularly important in terms of the achievements we have made in this market TIM Participacoes has proactively and successfully built with a very intense regulatory scrutiny, delivering however on Anatel’s action plan.

After securing through a complex transition phase this important results, Andrea Mangoni, has left his position as CEO of the company, and has been replaced by Rodrigo Abreu, I wish to thank Andrea for this important contribution to the Group, and give my welcome to Rodrigo, who has an important background as CEO of Cisco do Brasil.

In Argentina, despite the slowing economy, strong momentum in mobile (inaudible) enabled us to reach our guidance for 2012 and successfully deal with a temporary scarcity of spectrum and Franco will detail in a short while.

Let’s now review together slide number three, which summarizes our key accomplishments in 2012, Group revenues grew to €29.5 billion, up 0.5% year-on-year in organic terms. Meanwhile, Group organic EBITDA was down 2% year-on-year at €11.9 billion, these results were supported by our domestic operations in combination with a sound growth in Latin America, both in terms of revenues, and in terms of EBITDA.

Our Group EBITDA margin has remained stable and above 40%, our operating free cash flow in terms of EBITDA less CapEx stood at €6.8 billion, confirming our leading performance in cash generation compared to last year.

Moving to debt reduction at the end of 2012, our net financial position was €28.27 billion, which represents a very substantial reduction of €2.1 billion from last year’s closing figure.

As you can see highlighted in the CapEx box, our year-end net debt was impacted by having made fault in Latin America and in Italy more investments, particularly in the network, which represents a key priority for all of our countries and a major source of competitive advantage for our company.

On slide four, we detailed our revenue and EBITDA performance quarter by quarter and dropping revenues in our domestic operations was more than compensated by growth in Latin America. EBITDA decreased by 2 percentage points year-on-year. But in the last quarter, we increased our EBITDA margin by 0.3 basis points keeping our growth profitability above 40% throughout 2012. These results confirm our cost control strategy across all our business units with a positive EBITDA margin trend in the last period of the year.

Let’s go to slide five. Let me now briefly comment on the key group results by business unit. The weight of our Latin American operation accounts for 38% of the Group top line on a full-year basis and 27% of consolidated EBITDA. Total domestic revenues dropped by 5.8% year-on-year and organic EBITDA decreased by 4.9%. Brazil and Argentina, in spite of the economic downturn which impacted our numbers, still remain growth markets. For consistent flow of investments into these areas, we further strengthen our foothold and laid the foundation for our future growth.

Now, let’s move to slide number six. Given the great severe economic scenario, our deleveraging strategy improved once again to be the right policy to preserve value as well as to reduce financial pressure. This year our debt reduction effort allows us to reduce our debt by €2.14 billion, lending €28.3 billion, this result was obtained, while increasing CapEx year-on-year by €281 million.

Our commitment to devoting force and then growing resources to next generation network investments will strengthen us considerably in Europe, in our new plan scenario and will increasingly place us as a head of competition. It is becoming even more a game of financial capacity and technological leadership, introducing, what I think would be a relevant probing out effect it will not be recoverable by many of the European players. My view is that not all of the operators will survive this challenging evolution phase, which TI has all the rights, features to face and emerge from as a winner.

Let us now move to the plan scenario, in 2012 Italy’s macroeconomic results were poor; more of this is expected throughout 2013, except for a slight upswing in the fourth quarter of the year. Based on the trends reported in the slide, consumer spending is not expected to turn positive this year. Especially, in relation to all the sectors, the telecom industry is expected to perform in a rather resilient way, but it will be nevertheless impacted as seen in the lower right part of the slide by further erosion in traditional business, and it will need to result to innovation at the fullest degree in order to be at least partially compensate this adverse effect.

Moving now to our two other countries, both the economies of Brazil and Argentina are showing moderately upward trends, and both the areas are again expected to grow, although dynamics are different in two countries. Brazil has the highest potential of growth for broadband penetration, but Argentina shows a higher fixed plus mobile Internet penetration. Indeed in the next three years, the share of data in Brazil is expected to increase by 11% within an evolving market. The 5 percentage points increase in Argentina is mainly due to a higher Internet penetration above the Latin American average.

Let’s move to slide number 10. This slide speaks for itself. So let me just speak a few highlights which I feel that particularly interesting of worth mentioning. Since technologies far mounting our industry, we need to be focused on in part to develop our networks. In Italy, we must leverage in our unique infrastructure to optimize our convergent approach. We also need to protect our retail market share, preserve customer base quality, increased cross-selling and convergence, expand a loyalty programs, defend best-in-class churn rate, while simplifying tariffs as well as our commercial approach.

In Brazil, we’re expanding our customer base. We’re fixed to mobile substitution and we will lead the Internet wave. While 4G rollout begins, focus is also on continued 2G and 3G expansion. Intelig, TIM Fiber and TIM Cellular networks have been integrated into one single entity and Anatel’s network and quality plans are on track.

Finally in Argentina, we are working to optimize our leading position in the mobile business, while we shall make our best efforts to make our fixed business stronger. In recent years, Telecom Argentina has delivered significant growth and balance sheet improvement. Its financial position now offers resources to expand its network capacity allowing for the upside in fixed and mobile data.

Stake of this slide is that we need to apply an innovative approach also in traditional business, where we need to resort to new ways to protect its value, we’ll see on the next slides a few indication on how we’ll push our (inaudible) speed on technology. In Italy, our fixed network is an extraordinary opportunity for value creation, our company infrastructure is valuable and as I’m speaking to you, and this very moment there are technicians in engineering, deployment, deploying fiber in the main Italian cities. Our FTTC/Cab network benefited by recent technological affiliates will allow for speeds above 100 megabits per second, in three years approximately 35% of the countries households will be connectable at a speed of over 30Mbps.

In a mobile business after the launch of the 4G service, I’m sure, we will be witnessing a far the natural selection among operators, all the three out of four have acquired an 800 megahertz spectrum and only two out of four are deploying an LTE network. LTE user experience is definitely better and clearly shows that the recent opportunity for us to go beyond the simple price competition concept, while gaining at a premium position.

Step 2 of this plan is shown on the upper side of the slide, that is indicating a development path in new services to bring us closer to the client, and for which we can obtain a premium price from over the network propositions which contain important service and security features. Therefore the development of our performing LTE and NGAN network will lead us to the consolidation of (inaudible) competitive edge and will create important long-term values.

As we turn to Brazil shortly let me just comment briefly here, having a pure mobile approach in Brazil is a great asset. That puts us in a better position to capture expected market growth. Fixed mobile substitution is still underway and data business will be once again a source of growth.

Through a number of incentives, lower entry level handset prices allow low income households to better connect to mobile services, best offering mobile data access in just two years. To guarantee quality metrics and satisfy increasing demand, we are making more important infrastructure investments mainly on voice, data capacity and coverage. We believe that broadband mobile development will help improve 3G and 4G networks and more comments in outlooks will be detailed later.

In Argentina, our strong competitive position makes us confidence; we can further consolidate and develop our mobile revenues leadership. Market trends for 2012, 2015 show that Internet access will mainly be possible to small screens; it will grow in a relevant way. Our commitment is therefore to leverage in our market share position to fully exploit our potential in the mobile arena.

In order to make the most of this combination and upscale our network to be prepared to be fully operational and exploit the outcome of our efforts, we need to carefully continually balancing our CapEx allocation as shown on the right hand side of this slide. Franco will further elaborate on this.

Back to investments, you will see from our three-year guidance the accumulative Group CapEx will amount to approximately €16 billion. In this slide, you can find evidence of the priority we are giving to the new technology investments on the plan scenario in our three major areas of presence.

Our careful cost management approach is also paramount. We will seek efficiencies as usual also on the CapEx front. Domestically, we expect to achieve approximately €200 million in CapEx efficiencies. These benefits are commonly achieved in our three core markets.

I will now hand it over to be Piergiorgio, who will explain on 2012 financial and 2013-2015 plan of the leverage.

Piergiorgio Peluso

Thank you, Franco, and good morning to you all, and then can you please move to slide 16, there are certain point of my conversation that we highlight at the bottom of the slide, operating free cash flow at a range stood at €6.5 billion, down €524 million, year-on-year mostly because of macroeconomic deterioration and depreciation of the pesos. You cannot foresee that in 2012, our working capital absorption was lower than the comparable figure for 2011, mainly due to improved flexibility and lower sales in Italy.

In Brazil, instead adding more into 4G license we only paid 10% of the total cost in 2012, so the remaining 90% will have to be paid within June 2013. CapEx reached approximately €5.2 billion, with €324 million increased year-on-year. This is the result of additional investments in innovative technologies in Italy and in Brazil and confirms our continued commitment in mobile and fixed technologies. As you can see in the right hand side of the slide, net cash flow increased and even excluding our main activities cash generation stood at €2 billion.

Let’s move now to our debt position, as you can see in slide 17, our debt maturities are evenly spread over the year, the smooth profile combined with important liquidity we carry remains a protection for the Group, and today our liquidity [cause us] redemptions up to 2015. Half of our largely and funded €8 billion Flagship Bank Facility maturing in August 2014 was rolled-over to May, 2017 and we are currently lengthening the maturity of another portion of it.

Let’s move to a brief slide 18, after our discussion about 2012 data. I’m now going to concentrate on the details of our efficiency plan, as early as suggested by Franco. In this slide we summarize the overall direction of our efficiency plans that we are implementing in our three core businesses. We have an outstanding efficiency track record in Italy as Marco will tell you about briefly and we’re implementing these approaches in our Latin American organization that [tend] cost benefit from our past experience.

In Italy, to our targeted [excellence] in customer care the creation of our single business division and the streamlining of real estate, energy and industrial, we will avail ourselves of a better platform to achieve revenues and EBITDA stabilization.

Moving to Brazil our effort will focus on networking savings, where we will organize our quality standards and create a single network for all businesses. I think Franco will give you more details during the [team participant] slide presentation.

Last but not least in Argentina in spite of the 3G spectrum translation focus has been placed on additional resource allocation factor, improved enhancement level of maintenance policies, we’ll be in a position to overcome the current situation.

Careful innovation full expectation of our capabilities coupled with a strong focus on topline standards and efficiencies will allow us to confirm our strong cash generation in our time period.

Let me now move to explain some important decision on our dividend policy. In light of the continued challenging economic conditions in Italy and of the strategic importance for the company’s growth of plan and network investment in both Italy and Brazil, we’ve decided to revising the interest of all stakeholders of our legal dividend policy, the Board intends to propose to the shareholders for the period covered by the business plan 2013, 2015. The distribution of a nine month cash dividend of approximately €450 million, such dividend policies consistent with our commitment to debt reduction.

In order to strengthen the company’s capital structure, the Board has also approved average capital issuance of up to €3 billion within our 18, 24 month period. Board’s execution will start as early as possible. At the same time rather you will continue to remain a key priority for our Group.

In 2013, we will reduce net debt below €27 billion, target remains to go below two times net debt to EBITDA within the plan, after reaching these targets or giving the remuneration policy can go back to growth.

With this my presentation is over and now glad to leave the floor to Marc.

Marco Emilio Patuano

Thank you, Piergiorgio. Good morning to all of you, let me start my presentation with the statement. 2012 domestic targets have been delivered, this result is particularly important considering the very difficult state of the economy in Italy and the different implications it had on our main consumer and business segments as I will detail to you shortly, GDP has not recovered and regulation continue to take its toll and competition has price aggressiveness all year along. In this context, we were able, thanks to our leading business profile in an overall financial discipline to generate an outstanding amount of cash.

Let me now summarize 2012’s achievements, slide number three, as you can see domestic topline posted a minus 5.8% year-on-year results, which together with our organic EBITDA minus 4.9% year-on-year performance, complies with our mid-single digit target.

Taking a closer look to our service revenues, we can separate their minus 5.5% year-on-year result into two components; minus 3.3 percentage points are explained by operating performance, and another minus 2 percentage points come from the consequence of regulatory actions, such as the MTR sharp reductions in line with the glide path, the EU price cap for mobile data whose magnitude was not included into the original budget and the and the wholesale land rentals and price reduction from €11.9 to €11.7 per month.

Slide number four. Let us take a moment to comment our foremost achievements; €5.6 billion of operating free cash flow. Even if we have considered the MTV auction impact on debt for more than €1.2 billion in 2011, this is still an outstanding result, which proves we are doing the right thing, leveraging on our solid business profile in our cost to right-sizing capacity.

Let me point out some highlights. In box 1, we split the €639 million cost reduction into lower interconnection and from the operating efficiencies where we over performed the original target. In box 2, we see how the €163 million of higher investment and also broadband were partially compensated by €53 million of investment efficiencies.

Moving to box 3, the delta working capital improved mainly due to the reduction of receivables driven both by the revenue reduction and the day’s improvement, we expected to reverse the negative impact of [EBIT] in first quarter 2013. Slide number five, I just mentioned the different effect the economic crisis had on the consumer segment versus the business one. Let’s start with the consumer, where as you can see from the upper left blocks. In the last quarter, we registered a better year-on-year performance in service revenues, even if the economic front remained disappointing.

We have seen a different story on the business front, where constantly worsening progression was accelerated in the last quarter of 2012. By an unprecedented year-end slowdown of product sales particularly on fixed side of the large corporate cluster. The spending will be affected, did not apply on new public administration, prices was [biting] also corporate, where the performance in budget spend acceleration in December was reduced to attractive.

Slide number six, moving now to mobile, as that we can see MTRs took a year-on-year total in revenues worth €250 million. As we move down to business generated, we registered a trend improvement in fourth quarter which allowed us to close this full-year difference of minus 5.6 percentage points. This performance is even stronger in the consumer whereas we can see in the lower right frame, 2012 results were 1.9 percentage point better than 2011.

On service revenues, we can see how net of roaming cap on data and our mobile termination rates of 2012 closed year-on-year at minus 4.1% this will be better than minus 6.5% result of last year.

Turn to look now at mobile domestic KPIs, where we stabilized our customer base, while aggressive competitive behavior is clearly indicated by team retaining its best-in-class position even in the market with higher churn rate. I don’t want to miss opportunity to underline once again how moving low ARPU clients around the market just burns value for all the operators.

Slide number eight, domestic fixed business. On slide eight, we highlight a few fixed domestic KPIs. Let me start by pointing out how all have scored significantly lower net ops in 2012 versus 2011 acquiring in the last year 134,000 lines left, compared to TIs improved performance in line losses.

On fixed revenues, TI posted a minus 5.1% year-on-year with the performance on its core portion of minus 4.3%, if we exclude international wholesale activities. This result was determined, as already noted, by two different trends. On one side, consumer segment is slightly announced, while on the other side, we had an additional deterioration of business.

On broadband, on broadband the picture is the different one. We succeeded in substantially preserving our 52% market share, while 90% of our customer base is now on flat target. This approach drives the plus 3.8% ARPU growth, while the full year broadband service revenues were up by 1.2%.

On consumer customer base mix, we recorded a reduction in broadband fee free profile clients, while in the flat segment the most relevant move came from the doubling of our gold premium [guidance]. This is one more piece of evidence that, even if it remains difficult to increase the total broadband penetration, people is ready to pay for wholesale broadband services.

Slide 10, focusing now on the Consumer segment, in the mobile, we stay focused on our strategy aimed at to preserve our value. Growth of ARPU were up 5% year-on-year, number of users adopting bundle profiles is up 1, is up 6% versus last year. And the SAC/ARPU ratio was down 4% year-on-year, for the new acquisition and offers. Browsing performance recorded a double-digit growth rate year-on-year, due to wider penetration of smartphone, with a 43% growth in small screens.

Moving to the fixed services let me point out the structural difference between broadband revenue performance of OLOs and TI. Our strategy is to grow in value, TI has proven to be able to retain enough sales the higher spending customer consistently.

Slide 11, let’s now move to the restructured business segment where we integrated top clients Public Administration and SME. Clearly, this move tends to pursue higher efficiency to get commercial synergies in our offered portfolio and to sustain a creation of an ITT ecosystem.

Even in this tough environment, we can spot some encouraging areas on which we have to further build on. Browsing performance on the top segment posted a solid growth both in the reported and the normalized figures.

In the SME segment, the percentage of customer opting for net offers has grown steadily over the year. In the last quarter, however, as already mentioned, we experienced drop in fixed revenues due to the cost cutting policies applied by both large corporate and public sector. With particular regard to equipment purchase, our forecasts are that in 2013 we would score better in this area.

Now, let’s move to our strategic framework for 2013-2015. It is important to stress that is a new plan partially break the way with the past, aiming at reinforcing our investment policy by changing our approach to innovation. To strengthen our business profile, we’re pushing ahead full speed on the development of our ultra-broadband network both in the fixed and mobile business.

At the same time, we shall continue with our rolling efficiency process including some elements of novelty that I am going to expand on later. At the end of the day the combination of the new investment strategy and the global cash cost efficiency are meant to preserve the solidity of our cash flow generation.

Slide 13, our new plan takes into account a macroeconomics scenario worse than what it was expected in 2012. In Italy for 2013, we foresee a top economic environment with the expected recovery of GDP procrastinated of one year. The old plan was based on assumptions that have been reviewed.

In 2013, GDP is still going to be lagging behind and score minus 0.6% against the old estimate of plus 0.2. Consumer spending has also recorded a worse trend than expected. After the steep drop occurred in 2012, it is going to remain negative and minus 1.5% throughout 2013.

In Italy slide 14, the compound average growth rate of the TLC services market is expected to stand at minus 2% between 2012 and 2015. In 2013, the Italian market is expected to experience a 3% to 4% contraction. It is important to highlight that at the end of our plan horizon in the mobile segment Innovative services are going to grow more than what the traditional ones are going to decrease, whereas in the fixed business its revenues from traditional services are not going to be offset by the innovative ones, the market will experience a rebound due to the contribution of new services on fiber networks.

Slide 15, we introduced the main key domestic priorities both on the revenue generation front and on costs fitting them into one coherent master plan that will drive our teamwork and consumer business and [also]

Starting from consumer, main themes are customer based defense and the strong commitment to continue leading on innovation, which will allow us to deliver all advantages coming from the deployment of our new fiber and anti networks, thus enabling us to compensate for the erosion of the revenues coming from the traditional services. Talking about the business segment, the priority for traditional services in both the mobile and fixed is to preserve customer base for reducing churn levels, for SMEs and keeping our market share in the large segment. In innovative services Telecom Italia will keep on pushing on cloud and ITT services

New drivers of cash cost efficiencies come from customer care operation, real estate, energy and industrial costs, business segment restructuring and for CapEx efficiency, the creation of the new goal for IT services.

Focusing on mobile consumer segment in slide 17. The major challenges for traditional services come from competition and regulation. The first (inaudible) is the customer base dynamics. We will lock it in by increasing the penetration of bundles and offerings that preserving us from an unexpected price limitation.

Innovative mobile services are going to be boosted by the increasing penetration of devices enabling mobile Internet services, and by the spreads of new VAS based mobile product. Regulatory factor will hit 2013 reported figures but we still are different from our competitors in the favorable condition for a complete offsets of the negative impact on profitability. The combined effect of this dynamics will allow us to come back to growth. In the business model where Internet related services have a significantly higher incidence on service revenues.

Next slide. As in the mobile business, we needed to protect the value of our fixed customer base by retaining our high value customers, and increasing the penetration of flat offers. The excellence of our processes and the increasing quality of services through our technological leadership will be a key factor. In the area of innovation, we will increase broadband service revenues through the adoption of fiber based ultra-broadband, and the development of VAS contest of reduced Internet platform such as music, gaming, storage and video, where we are already experiencing good early evidences of success.

Also in the fixed business in 2015, we envisioned innovative services to offset the progressive lower decrease in revenues from Voice and accesses. Business segment, so let us move two business segments. Two segments will benefit from the new organization, but we’ll keep some peculiarity that suggest to still present our strategy split in the usual two main areas. Starting from the last corporate, we’re working to maintain at the current low churn supporting deduction through a careful profiling and more specifically on mobile, we are focused to further increase both the total line per client and the penetration of mobile broadband leveraging on device management.

The key area of contribution would be our Cloud services replicating the very strong 2012 performance. Branded growth comes also from machine to machine services, where TIM holds a 30% market share and has the potential for a double-digit growth during the plan.

SME has been the area most affected by macro and where we have many action to take in order to contrast to the negative trend. Let me point out a few, customer base through enriched offers that we’ll use features from the large segment portfolio adopted and delivered carefully to the target clients.

Level of high innovative device penetration to increase vast adoption and push on convergence to increase loyalty, driving fixed and mobile Internet services clients by four times within 2015. Slide 23, moving to efficiency, let me remind you, first of all, our excellent track record on OpEx cumulative reduction. In the past five years, we’ll in aggregate €5 billion of savings.

Moving into more detail in this front, excluding the low hanging fruit of interconnection, cash cost efficiency in the same period reached about €4.5 billion, €2.8 billion of which were OpEx. Achievement rate was more than 100% this prepares well, of course, for the 2013-2015 domestic efficiency plans.

In the next three years, we are aiming a domestic efficiency work cumulatively $1.3 billion bet on top of running a positive historical projects that have newly identified three areas of action.

Number one, new TI Caring Services division merging eight caring teams into one; real estate, energy and industrial [costs]; and number three, the new business division with the integration of large business and business units into one, which we spoke about before.

The first project that involves the Customer Care division has been implemented during the month of December, and it is finalized to increase productivity, improve supervisor worker ratio, and introduce important efficiency on running costs, such as the one that derived from the reduction of about 15% of the core and 122 work sites.

There is also a very important in-sourcing potential. There are many make or buy options. This project is worth in terms of efficiency about €0.2 billion not only related to labor cost. On real estate, energy and industrial costs, we forecasted efficiencies for €0.5 billion due to increased – through increased efficiencies.

We also have identified savings areas in better use of our facilities through building management both office and industrial spaces optimization and product re-negotiations. Energy management leveraging on a most efficiency energy planning, energy trading opportunities, and the adoption of green energy solutions, and linear customer support processes and better logistics.

Starting from the 1 of January, we created the new business division aimed at integrated headquarters, improved the efficiency and the performance of sales channel. Moreover, we want to stress on ICT to rise for its position in SME segment, raising performance standards to corporate lines once.

Investments, let’s now close up with two slides, which focus on where we are investing rapidly on 26, we’re chasing the internet growth, which is moving at full speed all over Europe both on fixed and mobile, intercepting its high value fully using our integrated and convergent approach.

Now move to slide 27 please, finally, we highlight now two conflicts, one, how IT investments also play an important role on our overall efficiencies, further enabling our lean and efficient approach on technology investments, which enable us fast and cost effective fiber and LTE rollout plan.

On this slide, you can also see updated target, which show a relevant progression from the previous plan, fiber will cover well above 30% of the household reaching more than 125 series, more than 7.5 million customers could be served at the end of 2015 the most important industrial districts would be reached in fiber.

LTE would reach more than 60% of the population including urban areas, tourist locations and rural areas in adherence with LTE auction requirements.

Keeping mobile ultra-broadband leadership in coverage and quality is our goal.

Let’s move to the takeaways. Revenues in 2013 will experience a reported performance similar to 2012, absorbing the sharper effect of regulatory measures. On the full 2012-15 horizon, we’ll forecast a negative low single-digit CAGR with an access speed flat year-on-year. Profitability will follow a similar trend, conforming for 2013 the performance similar to 2012. 2012-15 CAGR is expected negative low single-digit with an access speed flat year-on-year. CapEx, we’ll see the strengthening of network infrastructure both NGN fixed and LTE. We expect to invest €3 billion per year with a total of approximately €9 billion in three years.

Thank you everybody. Alex, the floor is yours.

Alex Pierre Bolis

Thank you, Marco. I am pleased to turn the floor over now to Mr. Franco Bernabè.

Franco Bernabè

Thank you Alex and good afternoon everyone. 2012 figures, I will be presenting here preliminary. Positive 2012 result was presented to the Board of the company on February 27 and to their financial community in the following day.

Please refer to page three of the presentation for the main preliminary results. 2012 reported figures grew by over €0.5 billion to €3.8 billion setting a €17.5 year-on-year growth. Last quarter growing rate was down to 9.4% from 20.7% of the previous nine months because of the combined effect of exchange rate deprecation of the local currency to the euro and a slowing economy.

Organic four quarter year-on-year growth was 18.4% of being 19.6% for the full year. 2012 reported EBITDA grew 8.3% to €1.1 billion, the fourth quarter €15 million non-recurring exceptional cost item were posted, this reflect the full estimate cost of streamlining the management structure in the organization, this efficiency program was finally executed in the fourth quarter 2012 and will be completed this year, without affecting 2013 results.

Excluding non-recurring exceptional cost item year-on-year EBITDA annual growth was 9.8% and as high as 12.7% in the fourth quarter despite of exchange rate depreciation, I mentioned before, organic year-on-year growth excluding non-recurring costs was 22.4% in the fourth quarter, and 11.7% for the full year.

All in all both revenues and EBITDA growth was strong despite of slowing economy and after a grim second and third quarters, EBITDA strongly recovered in the fourth quarter. Based on reported third quarter figures, we are doing better than competitors in the top line and delivering higher EBITDA growth than they do, fixed and mobile integration is proving effective and is a strong advantage of a competition.

CapEx stated around €550 million and expenditure that were freed from the cancel frequency option were reassigned improve mobile access capacity and coverage, as well as to fully revamp existing 3G technology.

By the end of the year, net financial position was €563 million from €417 million a year before with no advance instruments in foreign currency in the balance sheet.

Please turn to page 4 for the mobile business. In Argentina, the mobile business did well with 782,000 net adds to 90 million lines by the end of the year. This line does not refer to Paraguay where we operate an additional 2.3 million lines. In the third quarter 2012, our revenue share among the three main players in the market increased to 34.5%. Fourth quarter figures are not yet available from competitors though we believe we’ll confirm our leadership.

Subscriber base value get growing as 58% of 2012 net adds we were postpaid contract lines, and smartphones and 3G handsets accounting for over 90% from sellout in the fourth quarter.

Although price adjustments were limited to contract lines in the fourth quarter, full year ARPU grew 12%. Minutes of usage and text traffic were broadly stable while our VAS revenues going 33% year-on-year to 7 million pesos exceeded voice revenue this year. A 3G handset upgrade program was executed to improve frequency used efficiency and data service though VAS revenues growth was affected by frequency spectrum shortage.

Personal Black consolidated as the premium brand in the market. First MNP year was success. We consistently led net port-ins since the start of the process in April 2012 as much as 83% of port-in lines were postpaid contracts. The advantage over competition puts us in a position to capitalize on our leadership and control subscriber acquisition and retention costs as we did in the last part of 2012. Please turn to page five for comments on the wireline business. FTTC deployment is underway and over time will offset the bandwidth gap with competing cable operators. Upselling of bandwidth upgrades and video streaming boosted revenues and made ARPU increased by 18% for the 1.6 million broadband lines.

Voice and wireline mobile product bundling have maintained monthly channel rate at 1.4% in a very competitive market, driven by cable operators to higher access bandwidth. Flat Voice pricing and supplementary service mitigated the impact of regulated tariffs, broadband penetration grew in 39% of installed wirelines. ICT business is making shape and we experienced a significant increase of order backlog both in the private and government sectors.

Page six please, revenues double-digit growth guidance was met, 2012 revenues were up 19.6% to 22.1 billion pesos. EBITDA double-digit growth was a close call 6.6 billion pesos reported EBITDA was up 9.6%, excluding non-recurring exception in cost item posted in the fourth quarter full-year EBITDA growth was 11.1%. CapEx amounted below the 18% of revenues, of revenue guidance, because of equipment import affected by delays in clearing customs due to certain foreign trade restriction that temporarily applied to our suppliers, because of that 2012 CapEx was down from guidance to 3.3 billion pesos or 15% revenues.

Page eight, please, while following a weak 2012, economy is expected to recover in 2013.

Mobile competition will be shift into revenue share, possibility and data services for the existing customer base in the market. Fixed line penetration is approaching maturity. The requirements of the mark datasets and the growing number of always on customer demand additional frequency for the mobile industry. 1.7, 2.1 gigahertz band auction process is likely to start in 2013. RAN sharing is being considered for our LTE in the new frequency bands.

We expect to retain 2012 strong performance of MNP, postpaid confers and mobile Internet. We also expect our revenue share to remain excess of 34% among the three main players, retaining revenue share leadership and second place in Lion’s share with over 32% in the market.

Our wireline share should be around 48% of the two main voice players and 34% of the three main broadband players. Broadband business priority shall be a sustained value generation in the subscriber base and FTTC network upgrade. Being among the main players into market, we will continue developing ICT services.

Please turn to page nine for mobile business goals and action plans. Our mobile line should grow at 4% average annual rate with ARPU growing at 12% per year. Improving customer experience is a priority together with consolidation of revenue share, a new segment leadership. We shall promote mobile Internet across the four customer base as a factor of revenue growth and brand identity. Operations show qualities on improving the quality of service received by our customers. We shall develop a multi channel approach growing ecommerce and web caring, and leveraging on social media to get closer to our customers.

[Bundling] up selling shall be primary driver to grow revenues and realizing the value of our customer base. Instantly, our broadband wireline should grow at 4% average annual rate with ARPU growing at 15% per year.

A primary goal should be increasing broadband penetration among existing wireline customers. We shall improve service provision timeline and network delivery in terms of coverage and access bandwidth. To achieve that, we shall accelerate FTTC deployments, improved core network capacity and quality of service.

Our value proposition to residential customers shall encompass video streaming in constant delivery. Consolidated gain in market we should integrate connectivity with hosting and cloud computing.

Page 11, for the CapEx plan, in 2012, CapEx to revenue percentage dropped to 15%, because of temporary restriction of imports to the country as I mentioned before, 2013 CapEx shall increase to 17% of revenues or 4.7 million pesos that would include 2012 carryover.

Main CapEx driver should be the upgrade of mobile access capacity and delivery service. By the end of 2012, we completed the full planning process in 2013, execution schedule to deploy low visual impact sell site to a (inaudible) current restriction for the local authorities in ramping installation permit for full size tower six-sector antennas and a complete technology upgrade of 3G site as well as the extension on our network reach to minimize domestic growth.

We shall expand our content delivery network and accelerate FTTC deployment. Core network capacity shall be upgraded to accumulate growth of customer and data services improving end-to-end fault tolerance. Data center hosting cloud computing capabilities shall also be upgraded.

Conclude with a takeaway, double-digit revenue growth shall come from improved customer experience, mobile data and increased broadband wireline penetration. Double-digit EBITDA growth shall be deliver confirming operation and carrying cost with improved quality of service and a better customer experience. We shall leverage our market leadership to rationalize acquisition and retention cost.

We shall continue streamlining overhead expenses. CapEx priority focus is to deliver better network service quality, extending a reach and capacity of mobile access, especially for mobile data. FTTC deployment shall accelerate to effectively compete with cable operators. While I believe that we deliver solid growth and a consistent result I mean with 2012 economy we are looking forward to even stronger results and consolidated leadership in 2013.

Thank you very much. I’ll now pass the call over to the Chair.

Alex Pierre Bolis

Thank you Franco, I will ask now the word to Mr. Bernabe. He will now briefly update us on the Brazilian operations and conclude this presentation with the new group targets.

Franco Bernabe

I would like to highlight the main achievements in 2012 results in Brazil, first of all, while going against considerable headwinds in 2012. TIM Brazil has shown outstanding resilience, teamwork skills, reaction power and the great commercial strength.

The company has fortified itself is now more committed to product improvement for its 70 million customers. From the operational viewpoint, we managed to deliver solid progress the customer base grew above market average and we achieved a new record minutes of used figure while recording a significant increase in data users. We maintain our leadership in customer base growth for the 10 consecutive quarter, ranking number one in the prepaid segment and winning the second position for the postpaid. We managed to keep our topline growth rate in line with the end of the last quarter, and to further accelerated a growth, yielding and EBITDA margin expansion in the last quarter of 2012.

Finally, our net income showed constant improvement over the past quarters, delivering 1.5 billion reais in 2012, 17% growth year-over-year, we’ve had that a lot of details yesterday, on TIM Brazil’s call. So I will move on to TIM Brazil’s plan outline. I believe Brazil’s still offers a very good opportunity for the few mobile business. With fixed mobile substitution is still catalyzing and accelerating the process.

According to a recent report from the Federal Statistic Institute over 55% of households in Brazil, only use mobile phones, if we add a 50% premium of fixed versus mobile fees it is quite intuitive that fixed mobile substitution will continue to accelerate, having a very limited presence in the fixed business and no legacy to defend, TIM enjoys a unique market position. And we will continue to leverage on it. In Brazil the strong source of growth in the telecommunications business mainly constant data once again let me underline TIM’s price discount position is outstanding broadband speed. This gives us quite a competitive advantage. Out of the 68 million households in Brazil, roughly 40% have Internet services at home, and allows proportion of them, approximately two thirds of connectivity up to just 2 megabit per second.

Webphones and low-tier smartphone sales are skyrocketing in Brazil. Currently, 41% of our customers already have web (inaudible) phones and more than 21 million customers use data on a monthly basis. Mobile data services are more priced efficient when compared to fixed broadband with a much lower end to barrier, a feature that fits well with the emerging middle classes.

In the last slide, we highlight our vision for business growth in the coming years’ remains intact. The expected rates of growth will continue to be our main guideline, keeping the community size as our main value, and of course leveraging further of fixed mobile substitution of voice services, which should leave minutes of use to grow more than 200 minutes per users by 2015 versus an average of 136 in 2012.

Data services are expected to maintain double digit growth as web-enabled phones and data uses, it increasing at a remarkable rate. In Brazil, data is going mobile, and mobile broadband is now three times larger than fixed broadband. In summary both Infinity and Liberty platforms for voice and data would support top-line high single-digit growth for the next three years.

Wrapping up in Brazil, TIM Fiber is expected to deliver positive results this year, after the startup phase and the prioritization towards mobile infrastructure. We’re now ready to accelerate that business further and gain relevant value from fixed broadband.

Let me now say a few words on the new broadband business launched in 2012. TIM Fiber manage to launch a full operational fixed broadband in just a few months, in this period TIM by investing an amount equivalent to €30 million managed to pass more than 500,000 households.

Due to an innovative network architecture, TIM Fiber offers ultra-broadband Internet with speeds of up to 50 megabit per second without investment for subscriber equivalent about €300 per connected home.

Moving forward, TIM will keep investing in residential broadband with a very selective approach. The idea is to optimize investment by thinking areas with high demand and limited investment requirements. We actually aim to develop our coverage of more than 2 million households, maintaining higher occupancy of our infrastructure and low CapEx for subscriber therefore maximizing our return on asset and at the same time without taking away resources from our co-business which is the Mobile.

It is worth nothing that our focus is and will continue to be increasing our network capacity with a priority of quality improvement, for this in mind we have increased our CapEx guidance with 10.7 billion reais for the 2013-2015 periods versus 9.5 billion reais in the previous plan

The increment is justified by additional efforts in terms of 2G and 3G network quality, enhancing 3G coverage and deploying 4G networks. For the 2G and 3G networks we are focusing more on quality than on expanding coverage. This way, we are confident to reach not only on our test quality KPIs but also to exceed them. Equal important total CapEx also includes the development of our network to reach more than 53,000 kilometers of Fiber network by 2014, delivering our FTTS project to the top 44 Brazilian cities and connecting more than 33,000 sites with Fiber.

Before moving to our group targets on this slide, you can find Tim Brasil’s main target for the new plan. Expressed in local currency, revenues and organic EBITDA are expected to grow at a high single-digit compound annual rate for the overall plan. And we have mentioned, of course, CapEx already.

Next, we now finally wrap up on Telecom Italia’s Group plan guidance. For 2013, the Group expects a stable revenue performance in a slightly declining EBITDA at a low single-digit base. We also expect in 2013, a group net financial position inside €27 billion. Looking to the medium-term, we expect a 2012-2015 Group revenue and EBITDA CAGR growing low single-digit. Furthermore, for 2016, we expect our net debt-to-EBITDA ratio to go below two times, while cumulative organic 2013-2015 CapEx are expected to be around €16 billion.

And now, at this point I want to thank you for your attention for this lengthy presentation. And I will turn the floor back to Alex.

Alex Pierre Bolis

Thank you very much, Franco. We are now open to your questions.

Question-and-Answer Session

Ladies and gentlemen the Q&A session is now open (Operator Instructions). Thank you. First question comes from Mr. Georgios Ierodiaconou from Citi. Mr. Ierodiaconou please.

Georgios Ierodiaconou – Citigroup

Hello and thank you for taking the questions. A couple of clarifications upon the –firstly, on the dividends for this year, you have to report net income numbers. So I was wondering whether the €450 million target will be distributed similarly as before between the two classes of shares. Second question is around free cash flow generation. If I understand correctly, looking at your estimate, there is at least €1.25 billion deleveraging, and therefore €150 million dividend that will be paid. So that implies a free cash flow generation of approximately €1.7 billion which is significantly lower than the previous years. Is it down to spectrum, or are there any other one-off cash outflows that you think may impact the number for 2013? And then finally regarding your €3 billion of capital increase or hybrid that you mentioned, could you please confirm that this does not refer to a capital increase or a mandatory convertible, and it’s probably going to be something like perpetual bond or other type of light hybrid? Thank you.

Piergiorgio Peluso

Yeah, thanks for the question and let me explain the third point, the new dividend policy, as I was saying we have a dividend policy of, which implies a distribution of €450 million per year, which means that this year in April 2013, we will distribute 450 million dividend related to the 2012 results. So this will apply from the next distribution, which means this April. In terms of our numbers, the new dividend per share on the ordinary will be on average, will be equal to 1.97 euro cents which implies around 3% on current prices. For the savings share new dividend policy will be equal to €0.307 with a dividend yield of 5.4% on coverage prices.

In terms of net debt in 2013, as we’re seeing the objective is to reach a level of €27 billion. This number is affected by the dynamics of the working capital of some non-recurring items of approximately 0.2 billion of euro relating to the payment of 4G licenses in Brazil, 90% of the cost license was accounted to 2012 but will be paid in 2013. And for the €0.3 billion for the deferred of the payments on the 2012 domestic business to adopt the new procurement legislation solidarity.

So excluding these items, the dynamics of operating free cash flow returns to normal levels in the region of €6 billion. In terms of the hybrid, no the average which will not include mandatory or other instruments related to the share and this will be just average. The program will be of the Brazilian and as I would say we will shortly begin the execution of the first transfer. We are discussing with the rating agencies the terms and condition in order to have the confirmation of the 50% equity components of the average.

Georgios Ierodiaconou – Citigroup

And if I can follow up on that. When you say a target of up to €3 billion, is that for the size of the hybrids or the equity credit you will get from the rating agencies will be around €1.5 billion? Or is it a €6 billion hybrid for €3 billion …

Unidentified Company Representative

Exactly the (inaudible) means an equity component of €1.5 billion.

Georgios Ierodiaconou – Citigroup

Okay, very clear. Thank you very much.

Unidentified Company Representative

Thank you, Georgios. Next question please?

Operator

Next question comes from Giovanni Montalti from UBS. Mr. Montalti, please.

Giovanni Montalti – UBS

Hi, good morning. Could you give us an update on the networking of there has been a lot of focus on your transitional investments. So I was wondering, if this changed your stance on the current negotiation that we have with (inaudible). Thank you.

Unidentified Company Representative

No, this doesn’t change it remains an interesting option open to us. As you said quite correctly there are on ongoing negotiations, we don’t have a full visibility of the impact as soon as we have better visibility, we will have detail conference call.

Giovanni Montalti – UBS

Thank you.

Unidentified Company Representative

Next question please.

Operator

Next question comes from Mr. Mathieu Robillard from BNP Paribas. Mr. Robillard please.

Mathieu Robillard – BNP Paribas

Good afternoon, thank you very much. I have two questions first with regard to your free cash flow relating to the previous question. So basically you’re saying that this €500 million are bit exceptional this year 2013 compared to previous years. But still with the gap between what you have been generating around €3 billion in 2012 versus what your successful with your guidance for 2013.

So are there other elements, such as higher tax paid or higher financial charges that impacted the free cash flow in 2013 and is not recurring. Second I had a question about the debt rating, are you confident that if you successfully issue – distribute products that you mentioned, you will be able to maintain your current debt rating. And finally a point of clarification in terms of the cost cutting, the domestic cost cutting Marco talked about €1.3 billion of savings, I just want to understand that was net savings and if that included the reduction in interconnection or should we have reduction in interconnection on top of that? Thank you.

Unidentified Company Representative

Let me start with the free cash flow question. Probably as we talked about clear my reply in my in my previous answer, if you look at the operating free cash flow in 2012 compared with operating free cash flow in 2013 adjusted for the 500 billion of over contradiction as I was referring to. We can see free cash flow in the region over $60 billion, don’t know which is stable. So there is no material difference between the operating free cash flow in 2012 and operating free cash flow project in 2013 adjusted for these lands. Then, of course, you need to deduct the net financial expenses in taxes and the number that we are projecting for 2013 is brought in line with the 2012.

In terms of – the question was the rating agencies. We are discussing with the rating agencies in these days, and of course, we would present to the rating agencies in the next days the detail plan. And we will have the results after the discussion.

Unidentified Company Representative

And the last – Marco, speaking the question about costs. No, it does not include interconnection costs. If you want a total figure, you’ll have to add almost €0.5 billion coming from interconnection costs, almost everything on 2013, and a slight portion on 2014, due in 2015.

Mathieu Robilliard – BNP Paribas

And in terms of the cost cutting, besides the [interco] you just highlighted what it should be for 2013, but the other efficiencies of some of them, are we going to see them in 2013?

Marco Emilio Patuano

If you go back for a while page 24 of the presentation, you have the split of the efficiency program between 2013, 2014 and 2015 with the previous plan. The previous plan was saying 0.2, 0.2 in 2013 and 2014, now we are planning 400 million in 2013, so 200 million more and 100 million more in 2014 and another 600 million coming from 2015 that of course was out of the horizon in the previous plan.

Mathieu Robilliard – BNP Paribas

Great, thank you very much.

Marco Emilio Patuano

You are welcome.

Alex Pierre Bolis

Thank you, Mathieu. Next question please.

Operator

Next question comes from Mr. Torsten Achtmann from JPMorgan. Mr. Achtmann, please.

Torsten Achtmann – JPMorgan

Good morning. And first of all, on your net debt target in 2013, the €27 billion, does that already include the proceeds from the hybrid, or would that be a reduction and you would get much closer to the €25 billion? And secondly, on the domestic business, you have said that in Q4 the business environment turned very bad and that was the main driver of it. Any comments can make on the progress so far in 2013 has that been improving or is that something you have to assume, will it progress throughout 2013? Thank you.

Piergiorgio Peluso

First, for your question on the hybrid, as you know the hybrid from an accounting standpoint is included in the net financial position, so the hybrid that we will execute in 2013 is included in the 2013 objective of 27. Of course from a rating standpoint we will have (inaudible), which is an equity component. But in terms of our accounting, the average is in the net financial position and of course it is correct to be including the 27.

Marco Patuano

It’s Marco speaking. Let me spilt in two parts, the answer. First of all fix better the consumer segment, no major changes in the climate, but a big change coming from April 1 because we in the fixed business we have already announced to the market, to the customers, to the authorities that we will increase the monthly fee almost $0.70 across the $0.80, which will support our fixed revenues.

And on top of these, we have completely redesigned the tariff scheme for the fixed that can slightly improve our total revenues starting from April 1 on the consumer. Of course in the mobile, you have to consider then the first half of the year is having impacted by that the two step cut in MTR. So reported figures will be quite heavy, but this will be for the whole China market, it’s not company specific.

On these, let me just use your question to underline something that I think is important. If you look 2012 figures for TIM, you can see that the underlying trend has a negative spike of – in Q3. But the trend is solid improvement in the underlying performance. It’s not the same for old players in the market, but we – it means that we have already performed the price repositioning, and cannibalization phenomena are really very modest, very small. On the Enterprise segment, the macroeconomic situation is still quite tough. So we are forecasting for Q1 something very close to Q4 maybe slightly better for just comparison effect.

Torsten Achtmann – JPMorgan

Okay, thank you.

Unidentified Company Representative

Thank you.

Unidentified Company Representative

Thank you, next question please.

Operator

Next question comes from Ms. Anna Oldinger from Nomura. Please.

James Britton – Nomura International

Actually, it's James Britton from Nomura. I've got a couple of questions on the domestic mobile assets. Firstly, can you say what percentage of your mobile base is on the MNP rates today as opposed to the legacy mobile rates? Just trying to assess the re-pricing risk ahead in the next couple of years. And then secondly a point of detail on the Q4 performance, I see that the business roaming revenues actually achieved a short turnaround in Q4 and actually if you strip out, but there is a roaming the other mobile revenue lines deteriorated and is this a one-off impacted surrounding in Q4, can you just clarify please. Thanks.

Unidentified Company Representative

Well, MNP we have – we improved quite significantly in Q4. The net effect is still slightly negative, but we are much better positioned than Q3. The aggressiveness of some of our competitors is still there. Of course, there are different kinds of phenomena and what we are looking at is how to prevent MNP in valuable customers.

So that’s the most important part of – it’s not on the keeping the churn rate under control, but segmenting the churn rate between high value customers, standard customers and low value customers, what we experience is of course, higher churn in low value customer. And we are quite good in defending the upper parts of that parameter of our customer base.

All in all, the balance is still negative, but we don’t want to step in a fight in order to respond to every move just for rebalancing MNP effect that is mainly on low value lines. Roaming; there are some contracts that are signed between operators generally at the beginning of the year and take effect sometimes retroactively sometimes proactively. So there is a normal trend. This happened in 2012, this happened in 2011. So if you look the underlying trend of roamers is not changing very much. What is changing quite significantly is the year-on-year comparison that shows a macro effect that is more a comparison fact. If you see the quarter-on-quarter progression, there are no spikes in 2012 figures. Thank you.

Unidentified Company Representative

(Inaudible) next question.

Operator

Next question come from Mr. Jean Paren from Credit Agricole. Mr. Paren, please.

Jean-Francois Paren – Credit Agricole

Yes. Good afternoon, thank you. I’ve got one quick question. This is regarding the rational behind issuing €3 billion hybrid bond (inaudible), if I understand. You have a targeted net debt EBITDA of 2.0 times. I just wonder why in that perspective you would need a hybrid bond, if you could explain that. Thank you.

Unidentified Company Representative

Well, I think that as it was clear from the entire presentation. I think that we want to strengthen our infrastructure both in Italy and in Brazil and Argentina, but at the same time we want to keep our deleverage impact. So I think that what we really want to have through this hybrid is something that doesn’t impact on our capital structure and does not affect our shareholders. I mean you have seen other companies that have chosen different task.

We think that our shareholders have to be protected. This is an instrument that there is an innovation that we can use effectively to protect our shareholders, and at the same time, achieving the deleveraging plan that we are aiming for. So I think that in a sense that it’s the best of both words. We keep growing on investments with strongly push on investments. You’ve seen it in Italy. You’ve seen it in Brazil. You’ve seen it in Argentina, but we don’t, we focus our company from the deleveraging target.

Jean-Francois Paren – Credit Agricole

Thank you.

Operator

Next question comes from Mr. Luigi Minerva from HSBC. Mr. Minerva, please.

Luigi Minerva – HSBC

Yes, good morning. First question is on your push for convergence. It was mentioned in Marco Patuano slide. I was wondering if it’s a bit more demand driven or if it’s rather justified into an OpEx or CapEx rationale. And additionally if you believe the regulator and continue more premises in allowing you to offer core play products. I mean a few years back, they blocked it.

The second question is more a big picture one and it’s on the fragmentation of the European Telecom’s industry with a bit of comment from the European Commission over the last month. And I was wondering if you can comment on whether you sense the conditions for a more progressive approach from the Brussels on to review the level of fragmentation in the sector in Europe. Thank you.

Franco Bernabè

Let me answer on this question then I’ll turn it to Marco to answer the first question. What I’ve seen in the last two years, is a progressive improvement in the attitudes of the European Commission. I think that the European Commission is starting to recognize that we have a problem in Europe and this problem can be cured only through a consolidation of the market and better operating performances.

We have had the Commissioner Chris giving a much better regulatory environment for copper pricing, for fiber pricing and moreover it has, she has clearly indicated that she will keep this favorable condition steady for the next several years up to 2020 in order to promote investments.

At the same time, we have had the Commissioner, Vice President Almunia, saying that we, of course there is an opportunity for a more integrated European market, a unique single European market for telecommunications. Of course, there are no indications or no guidelines on the side of European Commission on that front, but certainly what I noted is a much more favorable approach on both sides, on the Competition Commissioner side and on the Digital Agenda Commissioner side.

So, I’m pretty positive that the telecommunications environment will change for the better. And it appeared which is hard to define however, because, of course, these political decisions take always a lot of time, but I see a strong improvement going forward. Thank you.

Marco Emilio Patuano

Marco speaking. Was the confidence is partially driven by the demand and partially driven by the technology let me say that today customers are using convergent applications is the Facebook fixed mobile depend to use its fixed mobile depending when you’re. I think that we have to stop thinking convergency as a fixed mobile convergency, it is a fixed mobile and cloud convergency.

So I think that we are in a very unique position to offer a broad portfolio of convergence services. The regulators I think that the regulators always are, Italian regulator is a good one in technological understanding, what are the effects of the technological change. So I think that it’s anachronistic today to consider convergency just a commercial matter, it’s not a commercial matter, it’s a change of our business model. So I think that is something that all the regulators will understand and would rule. Thanks.

Luigi Minerva – HSBC

Thank you.

Alex Pierre Bolis

Yeah, we apologize with everybody queuing, we understand as a few of you out there. And we have unfortunately room only for one last question and we will be happy to take addressed that from our IR department. So please the last question?

Operator

Last question comes from Mr. Tim Boddy from Goldman Sachs. Mr. Boddy please.

Tim Boddy – Goldman Sachs

Yeah thanks. I just wanted to follow-up on a few of the points that have been asked. First of all, just to clarify, there was a question about net OpEx savings, and I think on your slide you indicated that was €600 million because the €1.3 billion savings across the period are offset by some volume growth, upward pressures on costs.

I wanted to understand if I'd correctly captured that; and also understand why the savings are so back-end loaded in 2015. Secondly, in terms of the question around the network spin-outs, Swisscom's CEO said yesterday in their analysts' meeting that he couldn't conceive how to do such a thing given the operational complexities involved, and seemed very cautious on it happening. It would just be helpful to get a feeling as to whether you are more or less confident having had, I'm sure, a lot of discussions in the recent months on the possibility of spinning it out; and indeed, whether you think it could happen this year, or is it more of a sort of 18-month plus opportunity given the complexities involved? Thank you.

Franco Bertone

Well, I’ll answer immediately on the second question on the complexities, and then I leave it to Marco to answer the first, there is one specific reason why we think the complexities can be handled, and this reason is in the fact that, we started, three, four, we started almost five years ago now with the organization of an access, which has been a very innovative organizational structure that allows us to think at a project, which is more ambitious in positive term. So, we have already a five years experience that is encouraging in terms of the possibility of reaching that goal. Other companies, of course are in a different organizational position. Thank you.

Marco Emilio Patuano

And the first part of the question, you are right, it’s a different kind of efficiency the one we’re pursing and we are now changing really the processes and changing the processes that means really working hard on all the different aspects on how to do, how you manage, and how you plan your operations, so this is part of the answer. Another part of the answer comes from the fact that some contracts have to reach their natural expiring date. So we have also to be careful that some savings have a timeframe that is almost exceeded by the contracts in place. So this is likely below that because we are the €200 million year one. So it’s slightly below that. But I think that there is an incredible amount of effort if you consider that we are already one of the most efficient operators in Europe and the highest free cash flow generation among the European players. So being more efficient is always possible but a little bit tougher. Thank you.

Tim Boddy – Goldman Sachs

Thanks very much. It’s excellent.

Alex Pierre Bolis

Thank you everybody for your time and questions, your attention on our company. And have a good afternoon.

Operator

Ladies and gentlemen, the conference call is over. Thank you for calling.

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