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Telecom Italia SpA (NYSE:TI)

Q4 2013 Earnings Conference Call

March 7, 2014 06:00 ET

Executives

Alex Bolis – IR

Marco Patuano – CEO

Piergiorgio Peluso – CFO

Luca Rossetto – Head, Consumer Department

Rodrigo Abreu – TIM Brazil, CEO

Analysts

Nick Delfas – Redburn

Carola Bardelli – Deutsche Bank Research

Georgios Ierodiaconou – Citi

Micaela Ferruta – Intermonte

Justin Funnell – Credit Suisse

Giovanni Montalti – UBS

Paul Marsch – Berenberg

Nick Brown – Goldman Sachs & Co

Luis Prota – Morgan Stanley

James Britton – Nomura

Wilton Fry – Bank of America Merrill Lynch

James Ratzer – New Street Research

Nuno Matias – Espirito Santo Investment Bank

Alex Bolis

Full year 2013 financial results conference call. Alex Bolis speaking, Head of TI Investor Relations. First of all I 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 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.

Today we have with us Mr. Marco Patuano, (Foreign Language) presentation that will deal with the new course that TI has taken. We will also have Piergiorgio Peluso, CFO who will update you on the group financial position. Describing capital and financial strengthening for the year and capital markets outlook and liability management. Rodrigo Abreu from Brazil will also be with us and we will be available of course to take questions in the Q&A section.

As usual this even is being recorded and all participants will be placed in a listen only mode during the company’s presentation. After TI's remark is completed we will be pleased to take your questions. There is simultaneous webcast that may be accessed through the company website, www.telecomitalia.com.

The slide presentation might be downloaded from the website as well and of course feel free to do this while so during the conference call. Marco over to you now.

Marco Patuano

Thank you Alex. Good morning to you all. Last November Telecom Italia carried out a full fledge the reorganization of its industrial and financial strategy. The aim was to sustain our future free cash flow generation through an ultra-broadband investment plant. As you know to fully fund this project in the 2014 – 2016 timeframe we identified and executed capital strengthening measures worth €2 billion namely the sale of our stake in Telecom Argentina for another overall consideration in excess of €700 and the issuance of a mandatory convertible bond worth €1.3 billion. Having secured this additional source of capital we’re now proceeding to deploy our three year CapEx plan which combining Italy and Brazil is close to €14 billion. About 1/4th of this amount is reserved for technology innovation in Italy in order to provide both TI and whole country a strategic economic opportunity which is well received in Italy and within Europe.

We also enjoy meaningful opportunities in Brazil through our mobile data network upgrade. This will ensure that also our Brazilian customers will enjoy the high standards of quality our group is used to deliver. As we complete our coverage 3G coverage and move on with our 4G plans the forthcoming World Soccer Championship in the summer would prove again the team is a smart quality choice. Given that 2014 is going to be an operational and financial turning point in line with our full investment prioritization. We decided to suspend the dividend on our ordinary shares with year while maintaining the minimum mandatory payment on our savers.

This means that for the funds for fiber and LTE in Italy, our larger network investment area where speed of execution is now the key. Such decision is also consistent with the objectives of our recent mandatory convertible bond issuance. The early evidence of a gradual recovery in domestic market trends make us confident that next year in 2015 who will pay the dividend on both classes of shares. While strengthening our industrial and financial profile we thought it was also time to evolve our governance.

After last December EGM we conducted a survey on best corporate practices both domestically and internationally and we had opportunity to exchange views with investors and proxy advisors. The outcome was a clear process for our Board of Directors to prevent conflicts of interest in case of any material transaction involved in Brazil or other asset for an aggregate value of more than €2 billion and the recommendation for the election and functioning of the new Board of Directors to be appointed by the Annual General meeting aiming at ensuring a majority of independent directors. A reduction in the overall number of Board members and independent and non-executive chairman, as well as a separate Chief Executive Officer and a suitable international managerial and professional profile for all the candidates.

We believe all of these will allow for a better TI with more to offer to all its stakeholders. But let's now take a look at our 2013 full year results which also provide an opportunity to take a closer look at the progress made in the fourth quarter in domestic operations. The continued positive results we’re scoring in Brazil and the fourth of [ph] debt reduction which is still an important item of our plan.

On slide number no 3; in order to be consistent with our previous target parameter we present our full year 2013 results including Telecom Argentina numbers line by line. As we already anticipate in our preliminary results press release on February 6. We’re in-line with EBITDA both group and domestic and fully delivered our debt reduction target below 27 billion.

We scored a touch weaker on revenues where at group level we closed at 27.2 billion showing minus 2.1% year-on-year organic performance this was a target of stable year-on-year.

The result was mainly due to a lower domestic figure without top line showing minus 9.4% year-on-year. But on slide 4, we detailed a new parameter of Telecom Italia 2013 full year results. For this purpose Telecom Argentina has been treated as a discontinued operation held for sale in compliance with agreement signed on November 14, 2013.

Having adjusting the parameter accordingly the new figures show an organic group revenues reduction of minus 5.2% year-on-year while in this context EBITDA was down 7.6%. On this new basis we set the 2013 – 2016 CAGR targets we announced to the market last November and get a stable organic performance both for group revenues and EBITDA.

Slide number 5, consistently reports domestic in Brazil which respectively account for almost 70% and 30% of our group revenues of €23.44 billion. Full year 2013 group EBITDA closed at €9.75 billion wit Italy waiting 82% and confirming it's very high relative importance. Let me draw your attention upon our sound EBITDA less CapEx figure which is at a sizeable level of €5.35 billion. Let’s now start with overview of domestic operations. During 2013 we reached total revenues worth €16.2 billion showing a high single digit decline of minus 9.4% year-on-year. I would like to draw your attention on the significant improvement we posted in Q4 versus nine months with a performance of minus 7.7% year-on-year compared to minus 10.0%.

This goal has been reached by a better result both in the mobile and fixed business proving that our strategy is on the right track to deliver an improving set of results in the forthcoming future. On the right side you can appreciate the overall improved domestic service revenue trend which in Q4 faired more than 1 percentage point better than in the full year figure. Moving now to EBITDA the year-on-year result of minus 9.8% for 2013 is in-line with our negative high single digit target while our last quarter closed almost 3.5 percentage points at minus 6.4%.

On mobile on slide 7, while 2013 has shown some significant challenges in terms of further and final MTR cuts and competitive pressure we’re very pleased to see that in the last quarter of the year team regained the revenue leadership it has lost in 2010 in the Italian market equating it's long time number one position in market share. Total revenues improvement quarter-on-quarter was 2.4 percentage points with Q4 standing at minus 11.2% year-on-year supported by a non-subsidized growth in handset sales of 12.7% any by better service revenue trend which stood in minus 14.3% on year-on-year.

Value added services show a meaningful improvement, in the last quarter of 2013 the balance between the browsing and the SMS component further progressed to a positive terrain. Innovation has more than compensated traditional. As an outlook for 2014, the consistently improved results we expect on business generated combined with the fading away of the MTR drag should enable a very visible upturn in mobile service revenues, which we expect to improve by a double digit percentage versus full year 2013.

While the 2013 summer campaign will be remembered as one of the fiercest ever seen in Europe it looks much further away in time and context than just a few months ago. The whole market has led towards a sustainable pricing and bundle sizing while 4G investments are more sensible economic returns are calling.

Week by week throughout autumn 2013 the case was built for better MNP performance, less fixed mobile substitution, outgoing ARPU uptrend on entry level prices and appropriate value generation in ultra-broadband. All this is happening already and will progress further proving that putting down our foot last summer was the right thing to do.

Now let’s move to fixed where we’re making our way yet more time is needed to accrue the full power of our dual and triple play offers which were recently and successfully introduced. As you can see in slide 9, total fixed revenues performed minus 7.1% year-on-year in Q4 allowing for a stable quarter-on-quarter service revenues trend and minus 7.2% year-on-year. While we’re keeping full speed in deploying our fiber network throughout our country we’re constantly upgrading our commercial proposition in the consumer business to contrast the still ongoing negative trend in service revenues which in the fourth quarter posted a year-on-year performance on minus 5.5%.

At the same time we’re progressively reaping the benefits from our business client division work in the last quarter of 2013, the trend improved to minus 9.5% almost a percentage point better quarter-on-quarter. Continued positive evidence that was called in broadband were lines grew by 23,000 after many quarters of light erosion while preserving a positive ARPU performance.

For fixed consumer we wish to point out that our broadband market share is holding well. Within an overall line erosion trend. We’re now equipped to fight line erosion fully exploiting our successful Tutto offers, which as you know combine unlimited fixed voice with access and flat broadband. By year-end 2013 this bundle was adopted by more than 500,000 customers supporting broadband growth and endorsing a new loyalty concept for the use of fixed lines. As shown by a sharp growth in fixed to mobile volumes which is indicated in the bottom left of this slide. Fixed business clients KPIs needed to be interpreted bearing in mind that the growing adopting of new technology such as VoIP make the overall number of lines which in any case is showed lower quarter-over-quarter erosion and less meaningful indicator.

We think that rather than the number of lines revenues are now the most significant indicator to access the health of these part of our operation in particular ICT-1s [ph] which were up 5% year-on-year in the last quarter.

On slide 11, referring now again to overall domestic with further compare our two retail segment by highlighting the constant growth and the percentage of flat traffic further confirming the importance of bundles also in fixed consumer. The increasing adoption of convergent offers in mobile consumer which hit 41% of total activation in December thus paving the way for a newly launched triple play smart offer. A visible improvement in business data driven by ICT where innovative services such as cloud gain an ever increasing importance. A reversed trend versus 2012 in human customer base growth in the mobile business which in December 2013 was larger than the previous year.

Let’s move now to our Brazilian operations on slide 12. We show our key economic indicators for the full year. Organically revenues were up 6.2% reaching €6.95 billion while EBITDA improved to €1.8 billion with a margin of 26.1%. CapEx stood at €1.35 billion with a double digit growth of 14.3% year-on-year proving our commitment to invest and grow in this huge country.

On slide 13, let’s take a look at what TIM [ph] Brazil has been recently doing to further strengthen its operation along four main drivers. On the commercial front, postpaid acquisition grew further and amounted to more than 50% of the full year net adds. These proves that our offer segmentation is paying off. On the network side, we have stabilization and performance improvement as confirmed by a number of Anatel quality indicators. On the institutional front discussions are making good progress and are meaningful as I saw from recent meetings.

And last on people value, I wish to remark how all the recent M&A rumors did not dent by an inch. Our strong management team and corporate spirit. Having now spoken about the group operating performance in the last quarter of 2013 our CFO, Piergiorgio Peluso will complete the picture from the financial point of view. Please Piergiorgio.

Piergiorgio Peluso

Thank you Marco and hello to you all. After Marco’s clear strategic and operational update let me now give you some further insight on debt and cost reduction, on the ongoing 2014 financial strength and plan as well as on our active debt management. So let’s start with achievement of our year-end 2013 debt target. On slide 3 we can see how during the course of 2013 the group net financial position decreased by about €1.5 billion versus year-end 2012 reaching €27.807 billion. As already highlighted in 2013 net cash flow generation was affected by one off of around €0.5 billion the first portion was about €300 million comes from the last quarter 2012 deferred suppliers payment and around €0.2 billion is due to the Brazilian Frequencies payment in second quarter 2013.

Let me further point out our year-on-year positives. Cash financial expenses and financial accruals decreasing by more than €70 million and the cashing of the first tranche of the Telecom Argentina disposal for around €80 million. In 2013 dividends cash taxes and other payment amounted to a total consideration of about €1.7 billion. Now before moving to the second slide on my presentation let me highlight how the deleveraging performance in 2013 despite not a bit difficult macroeconomic scenario is a clear evidence of Telecom Italia’s cash generation ability which remains amongst the highest in our sector.

Let’s now focus on the key factor for the protection of our free cash flow generation, the domestic cash cost saving program. As shown on slide 4, on year-on-year basis efficiency over delivery is targeted within our overall 2013 domestic cash cost reduction program. Of this total contribution of the €770 million we know that the OpEx component amounted to €406 million that is more than 60%. You will find further details in the backup section but let me underline the continued OpEx reduction remains a key priority also for 2014 – 2016 plan and we will be supported by various transformation projects that will allow us to identify further cost cutting areas and new different ways to run our business. Marco will tell you more about these.

Let’s now have a quick look at the debt maturities profile and available liquidity margin at the end of 2013. On slide 5, we provide you with our current group debt profile featuring an even distribution of maturities overtime backed by a stable liquidity margin of €13.6 billion. Obviously the figure no longer includes Telecom Argentina’s cash position. A detail of our liquidity position is provided in the backup section.

On this chart I would like to highlight how our total liquidity margins covers all this maturities until well beyond our planned scenario, including the undrawn portion of our bank lines which have been recently rolled over to 2017 and 2018. But recently evidence of our funding efficiency indicates that we will not wait until then to return to debt markets.

As you already know about the rapid execution we have shown on a €2 billion capital strengthening portion of our work in 2014 – 2016 of one off measures. The EGM of last December approved the underlying capital increase needed to serve the November 2016 conversion of the mandatory issue. On Argentina in 2013 we have already cashed in the first tranche of $109 billion the balance is expected within first half of 2014.

Let me remind you that in our contract with the buyer there is no price adjustment mechanism for any foreign exchange fluctuation, and that also the remaining proceeds are in U.S. dollars which we have already fully hedged against euros.

Moving down through the list we found towers in Italy and in Brazil, as well as TI Media Broadcasting, which are a further improvement source of liquidity for our plan. Negotiations on the announced integration between TI Media Broadcasting and RTR [ph] are ongoing.

Specifically on Brazil the tower deal offers is a possibility to cut their cost associated with the forthcoming 4G license attribution. Of course we will fully participate to this key strategic opportunity. As 2014 is a turning point for our business evolution all decision impacting our financial structure need to be consistent. This is why yesterday Board of Directors decided to suspend for 2014 dividend payment on ordinary shares. While preserving minimum mandatory payment for savers of €2.75 per share amounting to a cash out of €166 million.

For this reason Telecom Italia’s payout reduction from 2014 is about €290 million and it contributes to the increase towards the broadband investment in Italy, our key element to support future governance cash flow generation. As Marco already mentioned, we have taken the view that skipping a dividend payment in ordinary shares for 2014 is also consistent with our overall capital strengthening exercise and with the call for new equity we made for the market by issuing a mandatory convertible. On the basis of our current forecast in 2015 we intend to pay dividends on both classes of shares. This is of course is fully consistent with our debt reduction target for 2016 when our net debt EBITDA ratio is expected to turn towards 2.1 times including the benefit of the mandatory convertible conversion due that year.

Recently we have been quite busy on the new issue and liability management fund, financial markets are showing a renewed confidence in Italy as our government bonds spread to German bonds [ph] is hitting a new low of about 180 basis points. Precisely one year ago this price stood at 320 basis points. The scenario is changing since Italy which is the third largest Eurozone economic is emerging from recession. TI's credit spread followed with this course, and in close correlation with the sovereign yield TI's five year’s credit for swap decreased by 130 basis points in one year. As you know our January 2014 €1 billion issuance was very well received at the market with approximately 600 investors placing an order.

This was a good way to test our ability to refinance at low cost, even if we currently are in high borrowing with certain rating agencies. We already pointed out that with the last issuance we said the second lowest component ever for any Telecom Italia's seven-year bond. I have heard in the recent past some comments on the market suggesting that Telecom Italia's would struggle to refinance debt after a couple of downgrades in the high yield territory and our leverage is too high. Recent facts and actions disprove such concern.

Our capital market department is recently being involved in the early redemption of our 750 million hybrid bond issued last year and today the launch of a new euro denominated buyback for four bonds expiring between 2014 and 2016 totaling €500 million. In terms of relationship with our investor base we’re available and willing to provide a direct price liquidity to our secondary market. And also the buyback will allow us to optimize our treasury management.

Thanks for your attention and back to Marco now for his further consideration.

Marco Patuano

Thanks Piergiorgio. So these was the review of Q4 results. But the rapid turn that TI has been taking since last November aiming at a clear investment strategy and bringing back the value of our stock to the core of the company’s attention deserves further comments. The last three years for domestic are not a good proxy for the environment of the 2014-2016 plan, why? Well simply because nothing is the same.

We spoke already about investments and governance that’s run through the other differences. Marginality has been a distinctive feature of TI since a long time. The new transformational approach we’re taking digs deep into the various traditional and innovative components with a goal to profoundly involve areas of operations or stop them when they no longer bear a strategic importance.

At the same time we turn on the lights on adjacent and entirely new businesses currently with lower marginality for which we take an entrepreneurial view. Regulation, after years of relevant changes which deeply affected our accounts a unique wind of opportunities is now opening both at Italian and European levels which can effectively narrow the gap between the U.S. and the European telecommunication markets both in terms of ultra-broadband coverage and service adoption. We expect regulatory authorities to move towards a framework that stimulates and encourages long term investments by means of wholesale price stability, growth predictability and more retail flexibility. These paves the way to enhance and accelerate the transition to more investment-friendly regulatory policies. Economic environment, the last three years have shown accumulated negative Italian GDP performance of minus 4% which really created a strong headwind to which perform against.

The plus 0.1% improvement shown by the Italian economy in the Q4, 2013 after nine consecutive quarters of contraction bodes well for 2014 when lower interest rates on the Italian sovereign debt and a continued growth of the global economy together with the potential investment inflow shall contribute to the ongoing slight recovery. GDP growth is expected to gain further momentum in 2015 and 2016 as prevailing cumulated forecasts for our plan period stands around 3%.

Therefore, Telecom Italia’s ultra-broadband network to roll out acceleration will fit into a virtual cycle. The newer framework sets the pace for a different outlook for operations and performance. On wireless ARPU after three years of strong dilution caused among other the regulatory discontinuities and by a non-sustainable competitive environment we’re opening to a recovery. Just to avoid misunderstandings. These improvement will be gradual given the direction we’re coming from but the path for stabilization is set. On fixed lines we have in our dual and triple play offer strategic new ammunition to defend excess erosion.

On fixed broadband we continue with our ARPU positive performance by upselling and regaining customers through fiber and innovative content. We started to see again signs of growth in our lines portfolio. TI is gaining traction; let’s take a look at the underlying engine [ph].

Key messages on slide 16 are, we’re by far number one in fiber with the foot print approaching 20%, we’re the only place with national coverage plan. We’re further enabling our roll out through infrastructure sharing agreements not only with competitors like Fastweb but also with leading utilities like Enel.

The red dots that you see on the map tell you about geo-marketing which means that using fiber to strengthen our presence where our market share is lower while capitalizing through upselling where we’re already strong.

What about the number of fiber lines to-date? We’re talking in 10s of 1000s but showing an impressive progression. In the first two months of this year we have more than doubled the active fiber customers that we had by the end of 2013. We will be talking about 100s of 1000s by December 2014. We will track these build up on a quarterly basis. Our leadership in LTE coverage is even more impressive, while the Italian second player according to latest public information at the end of 2013 has reached 18% for 3G Italian penetration, TIM stood at 49%.

Revenue wise we’re going to monetize this position by tailoring the size of data bundles to consumer demand evolution in order to best manage connectivity upgrade and delivering unique high quality premium content based services. Having said that, the best way to look at our fiber and LTE plans is convergence. There is a new triple play offer out on the market since a couple of days. It's called Smart [ph] and it's ours.

Why are we introducing it? Well, there is various mobile lines of typical Italian family follow the prepaid multi-operator rational these offer intents to capture the lines of the entire household under the modular umbrella of fixed access combined with basic or unlimited voice in a broadband plan plus a potential number of up to five modular mobile packs of voice, SMS and/or data in a single bill. The entry level price of this offer is €39 per month broadly in-line with a equivalent of the single components of internet Senza Limiti at €20 a month and of the mobile 400 2G bundle which TIM is now selling at €20 a month.

So this means as light discount for a big upside for both our clients and us, as we open the door to summing up for the mobile voice and data lines to households fixed assets. In KPI terms with our smart offer we’re going to favor the increase of mobile lines density per household in an all Telecom Italia environment, protect ourselves from the cord-cutting risk, and converge mobile churn rates to a much lower level of fixed broadband. Given the successful precedent of the first Telecom Italia convergence offer such as Scon Terra Dopia [ph] which has attracted about 1 million lines to-date and the Telecom Tutto fixed dual-play offer launched last September now featuring about 600,000 active users you can work out for yourselves the kind of numbers that we expect in terms of adoption for a new triple and forthcoming quadruple-play strategy which, as you can see in slide 18 is at the top of our key projects.

I will regularly update you on them including aside convergence also. Ultra-broadband monetization, mobile tower valorization and domestic rebranding. Now on cost savings. Despite some different opinions on the street which say that these as an area for Telecom Italia were given its past achievements is increasingly difficult to perform our answer is getting it done through discontinuities. This is what we call transformation which indeed means that underwriting our €1 billion OpEx savings targeted for our 2014 – 2016 plan with a help of projects we have on this slide.

Today I wish to mention two of them, network and IT delayering. On the first one we know that all main TLC operators around the world are decommissioning and resizing some of their networks. On this area which also involves of course CapEx savings we have 22 projects within the planned timeframe among which I mentioned as particularly significant. The replacement of old generation VoIP platform with interactive media system ones. The migration to a single all IP contact center of our huge and currently multi-system supported customer care. A continuous phase out of ATM platform and the rationalization of national long-distance transport and back-boning. Moving to information technology, at TI we’re talking about a complex environment which includes 16,000 servers and more than 1000 applications. Our delayering priorities here include a convergent company plan to evolve all our platforms to a single integrated client management system. And an all-line TLC plan to enable all traditional channel functionalities to operate via digital routes such as web, apps, social, significantly lowering the cost to serve. Brazil. On Brazil, in addition to the very important investment related themes we have already addressed. I will like to highlight a few key marketing points which are essential for top line performance. In a nutshell, we are the mobile challenger there, and will play this role full speed.

As you can see on slide 8, our party is opening a new mid-value market through capped postpaid schemes like the successful TIM Controle offer that grew year on year 45% in terms of customer base and that has being the main contributor to postpaid erosion in 2013 expansion in 2013 a part of our operation that grew 15% year-on-year in terms of lines.

A big push on mobile data where we have a no legacy status on fixed and where we’re concentrating investment not only in the main centers but all over the steadily growing country. Governance, since I told you about governance in my initial remarks is line nine we provide you with a summary of the underlying benchmarking exercise we conducted.

So here we’re at our closing slide which confirms the path and the target we have shared with you last November. After our recent €2 billion capital strengthening we have all the resources. We need to fund very significant investments in Italy and Brazil. Our plan is for the underwritten by cost cutting performances and financially backed up by a very large and constantly refreshed liquidity position. On Brazil we have clarified our position. We’re here to stay with the rational attitude to future options. One final comment, Europe is opening to consolidation as again proven by action in France this day. If we compare the European and the U.S. situation we see immediately striking differences.

In market and cross border consolidation increasingly appear to be very sensible options in Europe. In this picture we’re conscious that one of our biggest upsides lies in a better domestic performance. The whole company is working for this and results are progressively accruing. I wish to leave you at this point with a positive mid-term indication on domestic EBITDA that we expect to bottom out in 2015 and to return to a sustainable stabilization and growth from 2016 onwards.

Thank you so much. Thank you for being patient for the long presentation and back to Alex.

Alex Bolis

Thank you Marco we’re starting out our Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions). The question comes from Mr. Nick Delfas from Redburn. Mr. Delfas please.

Nick Delfas – Redburn

I've got two questions. The first one is on VDSL. Could you talk a little bit about how you're marketing that product and how you expect the pricing of ultra-broadband to develop; whether you are planning to price it quite close to existing services or not? And then, secondly, it's quite surprising to see your slide on LTE. Maybe you could share with us a little bit more of what you're seeing from your main competitor who famously, has £7 billion to spend on fixed and mobile investments. Thanks very much.

Marco Patuano

Let me start from the second one please, I personally think that LTE is a complete change in the consumer and the customer behavior when you start to prove how differential is performance not just in terms of speed but in terms of the unique service you get. We decided to ask our network department to be very concentrated in boasting the speed and let me give you some little numbers of the early evidences. First, business customers like it very much. We have terrific adoption of LTE among high value business customers.

Second, data usage tends to triplicate once you start using the LTE service. And the feedback we get is that the quality of our network is very good. We gave a look a crowd sourcing evaluation of the quality of our LTE network and it is ranked one of the best in the world. So I think instead of competing cent by cent in order to design a market that is every day more price driven our answer is having it quality driven and a performance driven market campaign and competition. I didn’t get very well your first….

Alex Bolis

I guess it was about VDSL performance right Nick?

Nick Delfas – Redburn

Yes. Well, also I just wanted to know what you're seeing from Vodafone who obviously are saying that they're going to invest very fast in LTE. It doesn't appear that that's actually the case right now in Italy.

Marco Patuano

Yeah. VDSL, well we first started deployment in 2013 now we’re full speed in deploying VDSL. As you know we’re using FTTC and its ticking up since we start selling it on geomarketing with the geomarketing strategy. What we see is that once you start to have some more experience it cost a bit less than what we expected and we roll out a little bit faster than what we originally expected. So I think that for 2015 we will be able to spend the same amount of money we had in the plan with slightly better coverage this was the plan. The take up has been very, more at the very beginning. Now it's accelerating constantly.

Our delivery is doing well so we have no very long time to serve procedures. Vodafone, Vodafone has announced a huge investment. What we declared is that we see their proposal in two different ways where we have already built our network it's a wholesale topic, it's a wholesale issue. So if Vodafone wants to buy from us fiber or if they wanted to reach with us an agreement like the contingent model that has been designed in Germany. We’re more than pleased to discuss with them as we’re doing and where we have not yet built the network if they want to build the network it would be selling up to not to share some of the costs.

What is clear is that we’re also launching tests in area in which we’re the only one to provide the service and with the vectoring and it's working very well.

Operator

Next question comes from Ms. Carola Bardelli from Deutsche Bank. Ms. Bardelli.

Carola Bardelli – Deutsche Bank Research

Just a couple of questions from my side. So VimpelCom CEO yesterday said that when they reached the scale it aimed, and so it's now focused more on prices and margins rather than growth. So I wonder if you expect them to potentially increase the prices also for their existing customer base and would you follow them in case they did? Secondly, I was wondering when you will be able to add content to your new convergent triple play offer; if we can have some indication there and then maybe a little bit of an update on the Italian and Brazilian towers disposal process, and if you can also on the real estate side. And very lastly, maybe if you could give any guidance on the next year's dividend or if it's too early. Should we consider a percentage of free cash flow or is it too early to give any indication on that front? Thank you.

Marco Patuano

Well VimpelCom it's always welcomed any price increase and we will be delighted to move in this direction but I think that if I have to imagine something furtherly fixing the Italian market, the situation of the Italian market I would say downsizing the data bundle at the entry level. So all the operators are making bundles that are too big, so what I assume is sooner or later this year reducing the quantity of mega or even giga that today we include because otherwise we end up making the broadband, the mobile broadband too cheap which is incoherent with investment we’re making.

Content, well as you know we started with contents on the mobile. Our Series A, so the soccer league on the mobile, is doing fairly well. It's every week one of the sports app more downloaded and used in Italy. Now we added Sochi, the Winter Olympics with Sky [ph]. So we as everybody knows we’re in deep talks with Sky, discussion are progressing very well so I’m confident that in the second part of the year we will be able to deliver a quadruple play. Now for, I leave towers to Piergiorgio but I give a short answer to your last question. The only thing I can tell you is that given the figures, given the environment, given everything we have in our hands the only thing I can tell you is that we strongly assume that next year a dividend will be paid.

Piergiorgio Peluso

Yes on towers both in Italy and Brazil we’re working internally at this moment on the transaction trying to design all the detail before access into the market. So for the moment we’re working internally and we confirm the timetable of going to the market to sound the market potentially in the first half of this year but for the moment the work is internal. While on the Telecom Italia Media transaction, as I was saying the cash on our let’s say in advance stage and we have seen that we can reach an agreement probably earlier. Thank you.

Operator

Next one come from Mr. Georgios Ierodiaconou from Citi. Mr. Georgios, please.

Georgios Ierodiaconou – Citi

A couple of questions, please. And firstly, can you update us on the trends you are seeing since the start of the year around mobile number possibility and some of the comments you had in the outlook statement and the report regarding voice trends in fixed and mobile? Maybe you could give us an indication of what you are seeing in terms of deterioration. Secondly, if you could comment around the April price increases we've seen last year in fixed, whether there is any scope to repeat those in 2014. And then finally, a couple of quick questions on below EBITDA items, if you could give us an indication on how you expect interest costs to progress given the changes you are doing to your treasury management scheme; and any guess also on the tax rate you expect to pay on the cash flow statement and any working capital moves. Thank you.

Alex Bolis

Thank you Georgios. So just to recap the questions here because the voice wasn’t really too clear. First one was on MNP trends and were generally voice trends in both fixed and mobile and second one was about fixed repricing, monthly rental fee repricing. You alluded to the fact that last April we increased monthly rental fee and your question was you’ve anything on your radar screen in this direction in the future. Third one was on below EBITDA items including tax rate and cost of interest and the last one of course will be to Piergiorgio. First one to Marco. Thank you.

Marco Patuano

Well in order to be even more clear I give you broad sense of our MNP and then since I’ve here with me Mr. Rossetto, who is the Head of the Consumer Department. I leave also to comment Mr. Rossetto. Well MNP when the market is fully saturated as it is now is just value destruction. I honestly believe that we need to keep the market rational to cool it down to avoid unnecessary effect that we internally call washing machine, a customer that moves around from one operator to another.

You know until few months ago there were special commissions to the sales channels just for stimulating MNP, which is wrong. So I leave to Mr. Rossetto for further comment.

Luca Rossetto

Thank you Marco. Last quarter the donor trend was quite healthy in terms of MNP because we have double digit decrease in donor outflows due to MNP ranging from 22% in October to 38% minus in November that’s a clear sign of a cooling down of the market. That benefited the industry as a whole and Telecom Italia specifically due to the fact that commissioning that is paid when you get customers in has been much lower and it has been beneficial also to the acquisition ARPU. So that’s an overall trend that we see also in the first months of the year and industry wise we can believe it's a healthy trend overall.

Marco Patuano

Okay the second was ARPU and the fixed…

Luca Rossetto

No it was actually if I understood well Georgios was monthly rental rate increase on fixed starting from last April.

Marco Patuano

Well today what we have is clearly an evidence that customers without broadband are subject to heavy fixed mobile substitution. Also in Italy, we have a negative mobility premium so the price for the mobile voice is lower than the price from fixed voice. So, in order to keep the line losses effect and the control what we do is to avoid unnecessary actions that can further stimulate line losses in customers that are without broadband. So we will be very prudent and we will find the appropriate ways in order to keep at the appropriate level of our ARPU in the fixed. For the third I leave it to Piergiorgio.

Piergiorgio Peluso

Yes both two questions one on financial charges and one on tax rate. On financial charges as you’ve seen our cost of debt is 5.5% and we expect December to remain stable also in 2014. On the tax rate our overall consolidated number of tax has remained constant from 2012 to 2013, although 2012 enjoyed a significant benefit in the region of 300 million of tax credit related to the fact IRAP was deductible from IRIS, which means that we have been able in 2013 to reduce our current tax rate which also in this case we expect it to remain in 2014.

Operator

Next question comes from Ms. Micaela Ferruta from Intermonte. Ms. Ferruta, please.

Micaela Ferruta – Intermonte

Three questions, the first, is there any evidence that macro is improving among your business revenues besides ICT which we have seen up in Q4? Then second on 2014 and domestic EBITDA. Is there any guidance that you could share with us besides saying that it's going to bottom in 2015? And then finally on consolidation, is there any update or color that you can share with us on the potential for consolidation in Italy and whether or what you would be willing to do to facilitate the transaction with, something in the price I'd like to know whether you would be willing to buy assets from a potential Windows [ph] and 3G combination in order to help the transaction go through. Thank you.

Marco Patuano

Business revenues, yes we see some improvements. Let me say that the pressure today comes from what is what we can call very traditional services namely voice. Voice is falling quite heavily and broadband for SMEs data and are between stable and is slightly growing and ICT is growing very consistently and what is very interesting is that we’re moving up into the value chain. One year ago we were just infrastructure provider so infrastructure as a service and now we’re scaling up in the pile of the value and of the services and as you can easily imagine the more you go closer to the software part of the service the more attractive is the profitability of the service. Today we are on cloud services the market leader in Italy with market share that is closed to 15% just for cloud services and closed to 25% for full ICT services. So I think that we’re doing fairly well.

What is the trend expected? The trend we expect is a 2014 in which we continue to progressively recover both on the business fixed and the business mobile. Consolidation, well we’re more than favorable to any consolidation given the fact that we can help the consolidation to happen. We cannot be the ones who drive the consolidation because the consolidation in order to be effective has to rebalance the market and not create a giant and keeping another player which remains much smaller.

What does mean help the consolidation to happen? Well of course I think there are a certain number of remedies that have to be identified even proactively in case a consolidation is designed. We’re more than open minded to participate. It can be with frequency, it can be with some assets, it can be with eventually with other parts that can determine synergies with our business. So we’re very open minded but we’re not on the driving seat. So if it happens we will be there.

Domestic EBITDA, Piergiorgio?

Piergiorgio Peluso

Thanks Marco. As you know we don’t have an explicit target for revenues EBITDA and net debt for this year. So, we cannot of course give you a guidance specific for 2014 as Marco have mentioned again in this presentation. We confirm the CAGR that you’ve seen in the presentation, low single digit decline for domestic and positive mid-single digit growth in Brazil and at the group level stable targets for revenues EBITDA. Most specifically in 2014 we expect EBITDA to be slightly lower than one approximately previous year but as you know and we have discussed those before the continued OpEx/CapEx reduction remains a key priority and we expect a significant impact in support from the transformation project that will allow us to further cost cutting areas and we expect an EBITDA less CapEx level to have a contribution from these new projects.

In terms of let me also be broad on your question also, net financial position, the trends underlined also for 2014 and the guide to a stabilization of competitive dynamics and price war, of course, and also the dynamics of the net working capital that we’re seeing in this month and the work we’re doing in order to optimize the net working capital are consistent with the guidance that we have given. In the first quarter of 2014 in terms of net financial position we expect a net cash flow in-line with the first quarter of 2013.

Operator

Next question comes from Mr. Justin Funnell from Credit Suisse. Mr. Funnell, please.

Justin Funnell – Credit Suisse

A couple of questions, please. Firstly, on the new triple-play offer, the fixed-mobile bundle, we've seen in Spain Telefonica launch a reasonably similar concept two years ago, and there was a period where the down-sell, existing customers moving to the plan and saving money was bigger than the up sell. I'm just wondering whether we should see a similar effect with you or perhaps that you will be targeting this offer more at customers, just specific customers and try and controlling that down sell effect.

Secondly, first of all, you don't disclose churn. I'm just wondering if you could talk a little bit not just about ports, but total gross adds. I presume your total gross adds fell quite significantly in Q4 versus previous quarters, and presumably we’re looking at a lower run rate to gross adds. I'm just wondering what that all means for SAC and SRC. Presumably, the margins we saw improving in Q4 can continue. I just wonder if you can give us some more color behind that. And then finally, in the LTE auction in Brazil, do you think that's likely to go through, to go ahead before you've got a decision to make on selling the asset?

Alex Bolis

So the first two questions Justin, thank you very much will go Marco, on the third one we will try to Rodrigo Abreu. If you could again Justin mention, we didn’t really hear too clearly. On the down sell and up sell, the first question you were mentioning. Could you again repeat and elaborate a little bit more on the down sell and up sell?

Justin Funnell – Credit Suisse

In Spain, we saw Telefonica Fusion launch a similar triple-play plan two years ago. It's a very famous plan and it's been pretty successful in time. But in the initial phase, there were more customers on existing plans shifting to it to save money than there were single-play customers that were up selling to it. So there was essentially a negative effect on revenues in the first few quarters and a more positive effective later on. Do you think we'll have a similar trend with TI as well on business or for some reason that you will instead control the down sell but perhaps just targeting at both kinds of the customers?

Marco Patuano

Well Justin the element of a convergent offer are quite clear. So what is the attractiveness for the customer, what is attractiveness for the operator? For the customer there are, the initial driver is definitely convenience so they want to get for a cumulative purchase act something that sounds cheaper.

I think that what is really important for us is to create an environment in which we can start up selling, we can start creating the possibility of lowering the churn quite significantly and having a more loyal environment and create an opportunity to up sell or to deliver to the customer the real value we can give to him.

It's quite, quite, interesting that for example we launched the concept of shared data plan and the concept of shared data plan did not take up at the very beginning but once we started to explain to the concept of shared data plan to families immediately it started to take up. So it's important to create environment in which the possibility of transferring value inside a small community ultimately deliver to us the possibility to further up selling of different services. I’m strongly convinced that the investment we make at the beginning in order to create a loyal and valuable customer base will be extremely important going forward with the addition of further services.

In terms of numbers of customers we assume they could adopt we have been very successful with the first launch of convergent line. The question is do we target 100s of 1000s or millions the first we’re talking about 100s of 1000s in terms of fixed lines which is extremely interesting to see how many mobile lines would be added in terms of not only voice or services but also data services. I mean tablets and other services like this.

So I have not being so quantitative but I think is the right way to approach it. The second I leave to Rossetto to give you some color.

Luca Rossetto

Thank you Marco. Thank you all. It has been since a year and half ago, two years ago that we have tightly linked our commissioning schemes across our channels to the value generated. So the higher the ARPU of a SIM is three months down the acquisition the higher proportionately higher the compensation to our channels. That allowed us and will allow us in the future to maintain the ratio between SAC and ARPU stable and under control. Should the overall ARPU which is an industry and Telecom Italia targets grow, well channel compensation is proportionately higher in monetary terms. So this allowed us in the past during the down turn of the price wars last summer not to burn money, not delivering value because the proportion between SAC and ARPU generated. We expect next year the 2014 volumes to decrease substantially in-line with the figures that we have seen last quarter and the beginning of this year hence to have lower in absolute terms SAC outflows. Thank you.

Rodrigo Abreu

Well just to your question on the LTE auction in Brazil, just we’re trying to highlight the key facts about it and let me start just by saying that it is indeed strategic for us and we have the flexibility to participate and I would like to highlight in this point that this is a successful continuation of our strategy initiated with a previous 4G auction where despite being one of the players who ended paying the least for the first 4G license. We’re today with 31% market share in 4G. So an outstanding performance since the first bid.

As on the second bid, there is a lot of discussion now a days in the press and discussions in the government about whether it will or not occur this year. Obviously the government wants it to occur this year, it's making all of the efforts for it to occur by the middle of the year fortunately by August and there are few definitions that are already in place and some unknowns and let me comment very briefly on those. On the definitions, the sales definitions are positive in the sense there are four spectrum blocks available and with four major players in the market so in the sense it is a balanced approach for the use spectrum. There are four 10 megahertz blocks on the next auction and this is positive. There is also a positive definition about the fact that all of the cleaning costs of the existing occupants of the spectrum, which is broadcast [ph], will predefined in the bid so there will be surprises as far as all of the pricing associated with the bid in terms of what additional obligations are attached to it and then there are few unknowns and the few unknowns lie on the fact that this cleanup of the spectrum which needs to take place before the spectrum can be used. It's still subject to a lot of technical testing.

There are technical tests going on between the broadcast and the broadband spectrum and the interference that occurs between both and those tests needs to be concluded in-time for the auction to take place in August. The government already mentioned that this will likely be one of the first naked [ph] auctions that is carried into the spectrum where no obligations are attached, no coverage obligations are attached. And given this what needs to occur now is those tests needs to be ended successfully. All of the costs associated with the cleanup need to be defined and this is probably the key threats to the auction taking place for not doing this year because it's still very short time for us to understand if it's possible to finish all of those on time for new auction in August. But in our case we’re consistent with our spectrum, our strategy. It is important for us to participate, we will be ready to participate if it occurs but it's still a big unknown out there in terms of a whether or not if it will really take place in August

Alex Bolis

Just a brief procedural comment, there is a lot of you lined up for questions. We would like to ask you kindly if you could keep at the maximum of one. One question for a participant and really focusing on the key question you have, we will be available of course to take them later but like this gives the opportunity to all to run through a question each. Thank you very much.

Operator

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

Giovanni Montalti – UBS

I just wanted to ask Mr. Patuano if it is possible to share with us some thoughts on a possible integration with GBT in Brazil. Thank you.

Marco Patuano

As I publically said there are no negotiation ongoing on any potential combination in Brazil. What is clear is that we’re talking about a very good mobile asset which is TIM and a very good fixed asset which is GBT. So a possibility of a combination that creates synergies is there but we’re not working on it. What is our priority goal today is to invest heavily on our mobile network and Rodrigo is doing a terrific work but we’re still not okay with the quality of our data network. I assume that we will be very well positioned within this year.

I think that we’re extremely interested in the spectrum auction. So the mobile itself has plenty of activities we’re full engaged.

Operator

Next question comes from Mr. Paul Marsch from Berenberg. Mr. Marsch, please.

Paul Marsch – Berenberg

One question. You mention in the press release the greater voice ARPU dilution that has been seen in the first quarter so far, and I just wondered if you could elaborate on that a little bit. I think in the fourth quarter, it looks like voice ARPU declined at a faster rate than in the third quarter, but that was offset by an acceleration of the data ARPU growth. So maybe you could just elaborate on the first quarter trend so far. Are you saying that actually there's an acceleration of the decline in voice ARPU? And is that being offset by the data ARPU?

Marco Patuano

I won't say that there is an acceleration. What I say that is we’re keeping a sort of controlled dilution and in order to tell you what I mean with controlled dilution for example, now a days the entry level of the consumer is higher than the average ARPU of our customer base. So it means that the direction in which we’re going is to keep it under control.

What we’re doing is to help some repositioning mainly in the small business. In fact one part of the reduction of the MNP is aimed to keep under control the churn. So let me say that there is nothing out of control right now. There is not an acceleration ARPU dilution, the data ARPU is growing well both in terms of user and in terms of value per user. So I think that we don’t have to overestimate the effect of the ARPU dilution. Then if you refer to what is included in the balance sheet report we have to include what is also alternative]position, because it is requested, especially requested by the authorities, and especially by the U.S. authorities.

So we give the appropriate disclosure, on one hand in order to be compliant but what is the business trend is what I told you.

Operator

Next one comes from Mr. Nick Brown from Goldman Sachs. Mr. Brown, please.

Nick Brown – Goldman Sachs & Co

If I can follow up on one of the last questions, please. Would it be your preference to stay in the Brazilian market, if possible, potentially combining the fixed-line operators if you think there are synergies available? Or would you still consider selling the whole business if you receive an attractive bid?

Marco Patuano

Well I told very clearly that we’re in Brazil to stay, we are investing in 2013 we invested more than in 2012. 2014 CapEx will be in-line slightly higher than the previous year. So our position in the mobile sector is we’re there to stay, we launched some time ago also some fixed operations let me say that we’re investing less in our fixed business right now. We’re concentrating most of the CapEx on the mobile side which does not mean that we’re not willing to explore the possibility of fixed services but we’re not at least in the short term we’re not going on a massive consumer scale, we’re more focusing on the previous Intelig business case which has been redesigned also using the experience we have in Italy with our offer. So that’s what we’re doing.

Of course as I always said in my life, we will be rational. So if a jumbo offer comes we will be here to evaluate it.

Operator

Next question comes from Mr. Luis Prota from Morgan Stanley. Mr. Prota, please.

Luis Prota – Morgan Stanley

It's a follow-up question on the Smart product. I'm sorry if I was missing something, I think that I heard Mr. Patuano said that the initial driver for customers is convenience and that they are getting something that sounds cheaper. I might have missed it, but I don't know whether saying it sounds cheaper means that it's not actually cheaper. So I wanted to understand is whether this product is offered with a discount to some of the parts as Telefonica is doing, and following up on the question from Justin earlier. And also, whether you've seen any kind of reaction from competition, or do you think that this triple-play, quadruple-play bundle could be replicated somehow on a wholesale basis by competition? Thank you.

Marco Patuano

I think it's very, very clear, very well explained. Well I think that yes there is initially a convenience for the customer but the real convenience is much lower than what you saw in Spain for example in which the price repositioning was extremely evident. In our case if you take the basic offer there is some convenience not as important but yes there is some convenience. If you in our model if we evaluate the total revenue per household that we’re going to put together, even if we give some discount the total expenditure is in-line but with a much lower churn.

So the initial reason why is to defend to transfer some benefit to the customer, not to penalize the total revenue per household and to reduce the churn and of course there is a Phase II which is going back on the same family and start to up sell and to increase the value. I hope I’ve been clear.

Operator

Next question comes from Mr. James Britton from Nomura. Mr. Britton, please.

James Britton – Nomura

I've actually also got a question on Smart. If you can perhaps help us evaluate the impact of Smart. Could you just tell us how much you're charging for each incremental mobile line on the Smart bundle? I think you said you can add five mobile lines to the bundle. And how does this price, how does the incremental price compare to the existing mobile-only price points? Thank you.

Alex Bolis

Thank you James. I will repeat the question for Luca Rossetto, our Head of Consumer and the point was on the add-on mobile lines that are part of the Smart offer if you could elaborate a bit more on the pricing points of those.

Luca Rossetto

Yes the extra simcards up to four per each family the additional ones are €10 each. We privilege the transparency and the fact that the price it must be very simple and convenient. So we deliver two kind of extra sims, a SIM that’s only a data only one for 2 gigabytes for a tablet or a PC, €10 each a month or a SIM plus which is more traditionally I would say with 400 minutes, 400 SMSs and 1 gigabyte for your next smartphone a €10 each per month.

James Britton – Nomura

Okay. That's very clear. And I guess that is a decent discount to existing price points in the market for mobile only.

Alex Bolis

Question was on possible slight discount to price points that are in the market now?

Luca Rossetto

Well this gives us the opportunity to up sell a number of individuals which is wider because once a household subscribes such an offer with two additional SIMs we have a community that is well targeted profiled and identified, and we cannot sell that later with new services or additional SIMs.

Operator

Next question comes from Mr. Wilton Fry from Merrill Lynch. Mr. Fry, please.

Wilton Fry – Bank of America Merrill Lynch

I just wondered if you can clarify your domestic CapEx plans for 2014. Should we assume a continuation of the €3 billion you are currently spending? And I guess within that, is there any flexibility you could use this year given obviously you've only done 20% of the population and Vodafone's stepping up investment? Thanks.

Marco Patuano

CapEx are almost in-line with are expected to be almost in-line with 2013 so once again in the 3 billion area. There is a progressively more and more what we call innovative technologies so we keep going on working on fiber. Let me say that 2014 there is still an important LTE component which is on 2014. I think that what we’re going to do is not only to increase the coverage but also to improve the quality especially indoor.

In 2014 we will start the projects that are financed, partially financed with European funds in the South of Italy. So all in all what we’re going to do is we’re increasing the level of investment in new technologies. We’re reducing with the transformation project CapEx in traditional technologies. The reduction will be more or less in 100 million for the network and something less for the IT. And important reduction in commercial CapEx namely product that have to be treated as CapEx because are linked to multi-year commercial plans that will be decreased quite significantly. This is something that has been chosen internally.

Operator

Next question comes from Mr. James Ratzer from New Street Research. Mr. Ratzer, please.

James Ratzer – New Street Research

I had one question regarding your fixed-line base who don't take broadband. You mentioned earlier on the call the price premium between fixed and mobile, and it seems like you've got about 6.3 million lines still take voice but no broadband what's in that's about half your total base. So I was just wondering what would be your strategy going forward to try to defend that part of the base. Do you think you need to offer price discounts in that area to compete with mobiles? Thank you.

Alex Bolis

The question was on the voice only lines and what are we doing to protect them, right?

James Ratzer – New Street Research

Yes.

Marco Patuano

Well of course voice only lines are under pressure and going back to rationality on the mobile will help in order to avoid an excess of cannibalization. What are we doing? Well first of all we’re including or working extremely, extremely hard on bundling voice and the launch of unlimited plans for fixed mobile calls have been very well received by our customers. So first of all keep going with bundle offers. Second is one portion of our customers that are not using broadband is because are aged or senior. So we’re going to develop services that are based of course broadband but delivered as services and the TV services are definitely one area on which we’re going to work in order to deliver value to those customers that today do not consider broadband itself useful.

Then to some extent also the convergent offers are intended to reduce the churn also of those customers. Now it has been questioned if a convergent customer is necessarily a broadband customer or if it could be also a non-broadband customer. It's an open discussion we have internally, we’re not underestimating this possibility and we’re going to work also to a convergent offer voice only in order to keep value for those customer.

So I think this is definitely an area of work. We’re tapping it with all the possible forces we have.

Operator

Next question comes from Mr. Nuno Matias from Espirito Santo Investment Bank. Mr. Matias, please.

Nuno Matias – Espirito Santo Investment Bank

Just a clarification. On your group guidance for the period of 2014 to 2016, are you included any additional costs that might come from tower sales and the renting costs of the towers that you'll be selling? Thank you.

Alex Bolis

So the question was on the inclusion or not of possible tower sales in our plan. Question for Piergiorgio Peluso.

Piergiorgio Peluso

Thank you. No, there are, the cost of revenues or anyway, and there are no benefits of the tower both in Italy and Brazil included in our plan.

Nuno Matias – Espirito Santo Investment Bank

And in terms of the OpEx? Are you including anything?

Piergiorgio Peluso

We have not considered these two transaction in our plan. So these two transaction, the plan is consistent with our current parameter and so there is no, we do not assume in our plan the execution of these transactions. As I said in the presentation these are additional liquidity measures in order to give flexibility but in our plan are not considered. The only measure which is considered in our target net debt EBITDA level is the conversion of the mandatory convertible, of course.

Alex Bolis

Thank you Nuno. It's the last question now.

Operator

Last question comes from Mr. Hannes Wittig from JPMorgan. Mr. Wittig, please. Mr. Wittig?

Alex Bolis

If the line unfortunately dropped I think we can close the conference call now and we will be happy to take Hannes question later on offline. Thank you everybody.

Operator

Ladies and gentlemen the conference is over. Thank you for calling Telecom Italia.

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