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Executives

Alex Bolis – Head, IR

Franco Bernabè – Group Chairman and CEO

Marco Patuano – COO

Luca Luciani – CEO, TIM Brasil

Franco Bertone – CEO, Telecom Argentina

Andrea Mangoni – Director, Administration, Finance and Control

Analysts

JP Davids – Barclays Capital

Nick Delfas – Morgan Stanley

Mathieu Robilliard – Exane BNP Paribas

Stefano Lustig – Equita

Tim Boddy – Goldman Sachs

Stanley Martinez – Legal & General Asset Management

Justin Funnell – Credit Suisse

Micaela Ferruta – Intermonte Sim

Ottavio Adorisio – Société Générale

Telecom Italia S.p.A. (TI) Q4 2011 Earnings Conference Call February 24, 2012 4:00 AM ET

Alex Bolis

Good morning, ladies and gentlemen. This is Alex Bolis, Head of TI Investor Relations. On today’s call, we will review Telecom Italia Group’s full-year preliminary results for 2011 and a brief outline for our 2012-14 plan.

We have with us this morning, Mr. Franco Bernabè, the Group Chairman and CEO; Mr. Marco Patuano, Chief Operating Officer; Mr. Luca Luciani, TIM Brasil Chief Executive Officer; and Mr. Franco Bertone, Telecom Argentina 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 will be completed, we will be pleased to take your questions. You may follow us today with a 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 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 United States Securities and Exchange Commission.

I’ll turn now the conference over to Mr. Franco Bernabè.

Franco Bernabè

Thank you and good morning, ladies and gentlemen. Thanks for attending today’s Telecom Italia conference in which we will summarize the preliminary full-year 2011 results and we will give you an outline of the new 2012-2014 plan for our Group.

The last year has been a very challenging one. Nevertheless, we delivered all our Group targets. While the current economic trends progressively worsened towards the end of the year, turning GDP for the last quarter negative by half a percentage point, Brazil and Argentina posted respectively an annual GDP growth of around 3% and 9%. And this macro framework on our Domestic business, we achieved in 2011 a sequential quarterly progression on the same metrics as Marco Patuano will detail you shortly.

On the Latin American front, Brazil continue to deliver an outstanding performance acting as an engine of growth for the Group, and Luca Luciani will give you more color during his presentation later this morning. In Argentina, strong momentum on Mobile and Fixed Broadband enabled to outperform guidance for 2011, while preparing to phase the introduction of mobile number portability with a successful rebranding of our mobile operator personnel as Franco Bertone will detail in a short while.

Now let’s read together the first slide which summarizes our key accomplishments for 2011. Group revenues grew by EUR29.96 billion, up 2.7% year-on-year in organic terms. And Group EBITDA organic was stable year-on-year at EUR12.34 billion. This result was supported by our Domestic operations, which delivered an organic EBITDA of EUR9.35 billion for the full year in combination with a double-digit growth both in revenues and EBITDA coming from Latin America.

Above all we have exceeded commitments and expectations in terms of the leverage posting a year-end adjusted net financial position of EUR30.4 billion, including the effect of the full Italian spectrum allocation impact worth in excess of EUR1.2 billion, the IS EUR700 million acquisitions in Brazil and a small increase of our economic interest in Telecom Argentina from 16.2% to 22.7% during the course of 2011 for a total cash consideration of about EUR200 million.

From slide number four, I would like you to take away the constant organic progression with boasted and improved level, both in top line and in profitability. In the lower left box, we show how Latin America has contributed to growth.

Let me now comment briefly on key Group results by business units. The weight of our Latin American operations stands on a full-year basis of 35% of Group top line and a 24% of consolidated EBITDA. Year-end 2011 total lines in Brazil and Argentina amounted to 65% of total Group lines of 135 million, clearly showing the success of our internationalization path.

On the cash generation side, 85% is still coming from our Domestic activity as we will further detail in the following slide. As in 2010, also this year in normalized terms, our operating free cash flow grew. 2011’s progress was about EUR400 million, driven by top line growth and continuous cash cost control. Reported operating free cash flow stood at EUR5.8 billion impacted by the Italian outcome of the LTE spectrum auction. Normalizing for this 2011 extraordinary item, operating free cash flow would have been in the region of EUR7 billion.

Deleveraging has been my principal priority since 2007. This has been achieved through consistent improvement in Domestic cash generation profile, a turnaround in the expansion of TIM Brasil and the reshaping of our role in Telecom Argentina. This successful effort will continue during our new 2012-2014 plan and will be based on the work of the experienced management team which is sitting with me this morning.

Let’s now move to the plan out section. Telecom Italia’s strategic priorities remain the same as in the last few years. We will keep the focus in our core markets, strengthening and reinforcing our presence, particularly in Latin America. In Italy, given the tough macroeconomic environment, our key priority is to deliver the cash flow. Our customer centric organization and strong investments to recover competitiveness especially in the Mobile business will allow us to better cope with the difficult times ahead.

In the growing proportion of our business, we strengthened our presence in Latin America by acquiring AES Atimus in Brazil and increasing our economic state in Telecom Argentina, balancing our exposure to the domestic market. We confirm our commitment to grow free cash flow generation in order to complete the deleveraging program delivering what we promised and generate a sustainable shareholders’ remuneration, which I will later address in my presentation.

Let me now turn to the business outlook for the Group in the near future. Our domestic strategy is based on defending our access in voice value, making the most of those areas that are growing both in terms of scope and value. At the same time, we need to carry on with our efforts to maximize efficiencies and to find innovative ways of cutting costs. On the CapEx side, we’re always focused on allocating resources to where they will generate the best returns. And in the next few years, Brazil will keep on contributing substantially to our Group’s growth. CapEx and the AES acquisition of last year lay the foundations for development in the near future. In Argentina we are aiming to further consolidate our business always in a very careful and efficient manner.

To ensure continuity to our performance and enrich the value of our asset base, we need to keep flexibility on our CapEx allocation. We will see a meaningful example of this from our Group-wide gradual and market driven approach to fiber investment as detailed in the following slide. Although the TI Group operates in very different markets, our strategy is homogeneous. It is demand driven. Our aim is to serve our customers in the best way, providing for the advanced services they demand. This allows us to be selective and flexible in the deployment of our networks.

Let’s now focus on Italy. At home, we are facing a challenging environment. In our three-year plan, 2012 is expected to be the most challenging one, both in terms of GDP and consumer spending. In the face of this, we are setting our priorities on continued cash generation for accumulated contribution during the 2012-2014 period over 80% of the Group total figure. Firstly, we work on profitability with a granular approach on OpEx savings. On capital expenditure, we tend to maintain an overall stability, offsetting spending on innovative components with a similar value reduction on maintenance, allocating capital only where there is a proven demand. Financial discipline acts, therefore, as an enabler, allowing us to continue delivering our technological leadership.

In the growing market of Brazil, where telecommunications are still recording a positive trend, TIM Part is set to seize market opportunities in a big way. As you know, TIM Part returned to being the second mobile operator, showing the highest growth rate among Brazilian players. In the future, the contribution of Brazil to the Group’s top line is bound to exceed 24% of 2011. This is going to be achieved through our customer base expansion, the resulting increase in revenues, voice valuation, monetization of data packages, as well as taking ultra broader experience to selected residential and corporate customers in the fixed segment. Luca is going to give you more details in his presentation, but I just wish to point out the good work he did with his team in 2011.

In Argentina, we have consistently taken a very focused, but at the same time prudent attitude to business expansion. Taking into consideration the great potential, but also the complexity of the country, we have monitored very carefully lately, and let me say with a constructive but risk-aware attitude, the economic, fiscal and monetary developments and we’re convinced that the new policies will put the country in a better positioning over time. In the future, the contribution of Telecom Argentina is set to increase and Franco is going to give you more details on 2012 Telecom Argentina’s target.

The combination of the actions I described in previous slides will drive EBITDA generation in our Group. We expect to generate more than EUR22 billion of EBITDA less CapEx in the three-year plan time. Benefiting from our sound operating free cash flow, we can reconfirm our 2012 and 2013 delevers targets, even if we invested more than EUR1.2 billion on domestic spectrum LTE during 2011. The targets are still EUR27.5 billion on 2012 and around EUR25 billion in 2013. In 2014, we expect further reductions.

We move now to explain our dividend policy. The context is the one of the multi-notched downgrade of the Italian Republic and of the progressive lower amount of financial flexibility offered by the current Italian – by the current prices to large Italian corporates. While this situation was evolving, the strategic need to keep flexibility on our CapEx spend joined with the priority to maintain our current BBB credit rating in a slower sovereign credit space, suggested us to reconsider our previous dividend policy.

Updated dividend cash out amount for 2012 is around EUR900 million and we have a strong commitment to consider this as a floor for the coming years. We firmly believe that this move simply avoids value destruction for TI, while ensuring a partial, but important contribution towards our deleveraging targets which are consistent with the expectations of the rating agencies. Let me underline now once we ensure that the debt targets are met that we will return to our progression in shareholder remuneration in a measure and manner which should be appropriate for the times in which it will occur.

Wrapping now on guidance, the Group expects in 2012 on an organic basis to maintain stable revenues, probably stable EBITDA and recent adjusted net financial position of approximately of EUR27.5 billion. In the slide, you have also accumulated EBITDA less CapEx and the accumulated Group CapEx above EUR22 billion and above EUR15 billion respectively for the period 2012-2014. Adjusted net financial position for 2012 is approximately EUR27.5 billion. 2013 is expected a EUR25 billion and net debt-to-EBITDA ratio from 2014 onwards will be below 2 times.

Now, I’d like to invite to speak into a sequence, Marco Patuano, Luca Luciani, and Franco Bertone, the heads of our three core operations in Italy, Brazil and Argentina. They will give you an update on the contribution of their businesses to our new Group plan. I will take word again after them that. I will start with Marco who will also give you an overview of the preliminary year-end 2011 figures for our Domestic operations. Marco, it’s your turn. Thank you very much for listening.

Marco Patuano

Thank you, Franco. Good morning to all of you. 2011 has been a very significant year for Telecom Italia Domestic operations since we scored some relevant successes and we strengthened our vision on business and financial priorities, taking into account competition and new regulatory framework, evolution of demand for data and new services and the outcome of the LTE auction. While briefly reviewing together, the main performance indicator for 2011, we will highlight our 2012-2014 plan outlook. Let me address one important point right away. Our leading business profile and our financial discipline allowed our Domestic business to reach a sound performance even in an unprecedented negative environment, generating the bulk of the cash flow which allows Telecom Italia to meet its debt targets.

Let’s move on and summarize last year’s achievements. Domestic top line mid single-digit erosion improved from minus 7.4% year-on-year in the first quarter to minus 2% in the fourth one. All Domestic operation worked for this result combining marketing segmentation and improved performance of the sales channel and an increased quality of service. We generated a robust organic EBITDA of EUR9.351 billion, confirming our cost control policy. Marginality on a full-year basis increased to 49.1%. As you can see from the bottom left quadrant, also cash generation followed a gradually improving trend. On a full-year basis, it stood at EUR6.4 billion safeguarding related Group targets.

Slide five. On this slide we move to our fixed operation. The overall access market context showed a higher contraction if compared with the previous years, fuelled by the cleanup action put in place by the OLOs, particularly evident in third quarter. Year-on-year TI performance on line losses improved, while infra-OLO churn increased biting into their total performance. While our service revenues on a full-year basis were down only 3.5% with an improving trend showing the last quarter figure of minus 1.9% year-on-year. Thanks to price simplification and the monthly increase we kicked in after July 1st. All this sets the right path for future further valorization, on which I will give you more color in my plans action.

Fixed and broadband full-year market dynamics has slowed down, notwithstanding deep discounts moves from our competitors, attracting low spenders. TI broadband service revenue performance was up in the second half 2011, confirming the success of our value focused strategy, driven by our super Internet offer model. This is evident given the broadband consumer ARPU growth by 2.1% in the last quarter.

Moving out to the Domestic Mobile, we know it first of all that in 2011 team scored well in customer base growth with more than 1.2 million net adds confirming its market share leadership. Gross adds grew at a double-digit base and churn remains stable in the low 20s, proving that it was a healthy growth.

Moving to slide eight, let me point to the factors, which were behind our improving the revenue trend. In the bottom left box, you can see how positive was the progression until the end of November, when government austerity plan was announced, creating a sharp contraction effect on consumer spending and slowing down this positive trend, even with handset sales were up year-on-year by 40.2%. It is worth to note that the fourth quarter peak can be explained with the polarization on high-end products such as iPhone and tablets. Let me remind that the Italian market is not a subsidized one.

Back to service revenues. The main drivers of our performance were, first, the previously mentioned customer base growth; second, prices under control; and third, an outstanding increase on browsing, driven by data bundle approach, coupled with our handset strategy. Looking forward, consumer confidence has shown signs of recovery between January and February, when compared with the negative attitude of December.

Focusing on consumer mobile, I would like to draw your attention on a few highlights. We went on growing our customer base, leading the acquisition market, both for net adds and gross adds. MNP churn is under control with the strong performance on recipient lines and even more important in terms of value. Since we reached at the breakeven in MNP balance, let me offer you my perception. There is an excess of emphasis on MNP in the Italian market, which has been considered perhaps erroneously, a proxy of a valuable acquisition process. It’s probably time to lift off the accelerator from MNP market that is burning value. That’s the reason why we will scale down promotional portion MNP.

Our small screen users, TIM’s simple and clear data offerings supported a robust growth in active user plus 49% year-on-year with a healthy ARPU increase. Closing the focus on consumer segment, I would like to remark that in 2011, we gained customer satisfaction leadership in most of the touch points with the clients. We are now best-in-class in part of sales network, customer care and online channel.

In pages 10 and 11 you can find all the figures of Q4 that resume the financial of our Fixed and Mobile business respectively. In the back half, there is also the full year.

2011 highlights contribute to set the pace for 2012-2014 plan. Before moving on, it’s worthwhile considering the general economic framework in which we will operate. The medium-term outlook shows us a 2012 GDP contraction and a 2013 with a proxy of zero growth. It’s reasonable to expect that it will impact consumer and corporate spending, only partially offset by investments in innovation promoted by the government.

2012-2014 TLC service market evolution is expected to show a CAGR of minus 2.1%. In fact the negative trend in traditional services, voice, SMS and access, will be not fully compensated by the growth of innovative services, Mobile and Fixed Broadband innovative VAS. In particular, the balance for 2012 is expected to be in the range of minus 3%, minus 4%, still influenced by the recession. ICT will be an area of growth.

On the regulatory side, MTR and new glide path was setup coupling the faster degrees and the anticipated symmetry. These has broadly neutral effect on EBITDA for Telecom Italia. The Italian authority is also defining the NGN regulatory framework and it allows us to deploy our market-driven strategy for ultra broadband network development.

Let’s move to our strategic framework for 2012-2014. As already mentioned by Franco, in the Domestic business, we will take into maximum consideration the need to preserve cash flow generation. We developed a specific approach for each market segment, aiming at maximizing results in our top line by protecting traditional services and exploiting new business opportunities, targeting an increase from 23% to 32% of the weight of innovative services, revenues on total. In terms of costs, we will continue the efficiency processes, delivering further improvement in commercial and in personnel cost as we will see later on.

Finally, cash generation results suggest us an accurate capital allocation that guarantees the full valorization of existing assets and on the other hand a forward-looking view for investments in new technology. That’s why our approach to CapEx will ensure a balanced mix between maintenance and innovation.

Slide 17, we mentioned that in 2011, we paved to the way for access valorization that is one of the strategic pillars on the fixed business together with broadband enhancement and premium position in consolidation. An increase in flat and bundle penetration, a widened bolt-on offer proposition, and a quality-driven portfolio addressed to the market according to customer value are just some examples of how we intend to reach our objectives. Our goal is to outperform on all the pillars of the fixed business. Customer base, erosion control, defense of our best-in-class mark-to-market share, increase of broadband penetration, acceleration of the growth in broadband revenues, all of these will be further supported by some reasonable price adjustments as we did in 2011.

Mobile, our Domestic Mobile plan is based on several value streams. Customer base growth is driven by maintaining our leadership in acquisition, focusing on the sales channel, both for quality and value and a limited views of the price level. We will give a further boost to bundle penetration still playing the elasticity gain. Price per minute will increasingly become a less significant metric in a bundle-driven revenue scenario. Mobile will be driven by the data wave. We have set ourselves challenging targets on enhancing mobile broadband penetration in our customer base with an increase by about 10 percentage points in the next three years. In terms of data offerings, we will target a premium proposition as better shown in the next chart.

Mobile technology evolution will protect profitability. We have already made a step toward ultra broadband, launching 42 megabits in 25 cities in 2011 and we are now testing LTE in Turin and soon in other cities. We intend to monetize it through premium offerings that will combine, quality and nature of priority in order to deliver a superior customer experience ensuring an ARPU increase. LTE will be premium priced.

Moving on to the ICT arena, the high number of player led Telecom Italia to revise its positioning in order to increasingly value its distinctive assets. Telecom Italia is at the fair front in terms of making the most of the cloud computing development integrating TLC and ICT into a unique integrated offer that only cloud with a networking site is not only our claim, but it's our distinctive positioning. This allows Telecom Italia to implement a fully managed approach, which is distinctive versus the over-the-tops best effort model. Therefore, Telecom Italia by managing access infrastructure, network platforms, service delivery processes and customer care will offer a high quality end-to-end service. TI will also enable some over-the-top offerings and services through its API platform, providing also all the related services. These can be a new season in order to avoid wild competition, a move on to corpetition, a mix of corporation and competition efficiency.

The efficiency improvement process continues, delivering another EUR1 billion savings in the next three years. As you can see a good part of the cost cuts come from MTR, but on top of that we will continue to deliver important savings in commercial costs through a further improvement of our sales force and carrying model, in industrial costs where we’ll keep total expenditures stable, even if we will significantly increase the number of equipments in our infrastructure. It means that our overall efficiency will increase. Finally, personnel costs will continue to be optimized and rationalized. Please note that we are increasing the efficiency challenge versus the old plan.

CapEx, now we enter another core area of balancing an appropriate prepared capital allocation between traditional network where we will combine high-quality with efficiency program and investments in innovative technology, in ultra broadband, both Fixed and Mobile, and the cloud services, mostly financed by the aforementioned savings. Furthermore, move into the access networks towards an all IP infrastructure, we can get progressive savings versus a network with multiple technologies, ATM and others generating the OpEx efficiencies. Strengthening the network is a must to maintain our technological leadership in any case both LTE and NGN challenges and coverage will be market driven.

So we can now move to our takeaways. To wrap up the plan and targets we have set in this context of challenging macroeconomic trends, the way to secure Telecom Italia’s cash generation, we will safeguard our traditional business and at the same time we will maximize the opportunities provided by broadband. In 2012, we expect to keep the negative year-on-year delta in total revenues in a middle single-digit range. All the while, rationalization in operating expenses will continue to deliver a broadly stable EBITDA margin for 2012. On top of our structural efficiency actions, CapEx spending will be stable in 2012 through a process of balanced allocation between investment in maintenance and innovation.

Before leaving the floor to Alexis Bolis, let me do something that is a little bit unusual. I would like to publicly thank all my team, who did a monster job in 2011. Thank you guys. Alex, the floor is yours.

Alex Bolis

Thank you very much, Marco, and thanks everybody for your attention. I’d like to pass it over now to Mr. Luca Luciani, TIM Brasil Chief Executive Officer. Please Luca.

Luca Luciani

Thank you, Alex. Good morning, everybody. My presentation is divided in three sections, 2011 results as already approved and reported last week in Rio, the second part about the prospective and TIM Brasil three year’s plan, and finally the guidance and takeaways of today’s section.

Now, I go to slide three just to summarize what we did in the last three years. I think it’s important for us to summarize our recent story remembering the difficulties that we lived during this period trying to invert the trend of TIM Brasil. Well, if we compare 2011 with 2009 results, we’re proud to say that our recovery and then acceleration processes a reality. If one looks at the customer base that we over passed 64 million lines, i.e. more than 56% two years ago, in terms of net adds we’re three time faster than that time.

On the revenue side it’s more relevant, we jumped from a zero ground reported in 2009 in terms of growth up to 18% in 2011, i.e. three times faster than last year ago with a solid double digit. Well, with this figure, we confirm TIM as the fastest growing company in Brazil, not only in terms of customer base, but even in revenues. Lastly, but relevantly in the bottom, if one looks at the profitability of the company, both in terms of EBITDA and EBIT, where the impact of zeros handset subsidy strategy is more visible, we grew by 4 times up to over 2 billion reais versus 0.8 billion reais in 2009, the overall EBIT. Well, the ability to combine growth and profitability remain our distinctiveness and accretion of shareholders is related to this equilibrium.

Well, turning to slide four, what is relevant for us is the concept to “Ride the Simplicity.” I think simplicity is crucial acting emerging markets in order to better focusing in terms of capital allocation. Well, we just have two concept, “Voice is Good” and the “Internet for All” and only two tariff plans, Infinity on prepaid and Liberty on postpaid, we succeeded.

On the voice segment, total traffic volume doubled in two years, reaching 87 billion minutes at the end of 2011. On the Internet market, TIM mobile unique users per month exceeded 15 million last year, over 17 million in December. If we just zoom as reported in this slide with one offer Infinity Web under prepaid concept, daily unique users grew almost 10 times in 18 months, and the overall smartphone penetration jumped from 10% up to 27% in one year across the customer base. Well, as a result, we reported a double-digit growth on both voice revenues and data revenues with approximately plus 50% than last quarter.

Now, if we jump to slide five, we have an example of the efficiency in the go-to-market, and let me say the better capital allocation with it. If we zoom the postpaid arena, we grew by 25% during last year, combining with a sharper reduction in terms of position cost. Overall SAC reviews down to 1.3, overall bad debt is limited below 1% of gross revenues, i.e. one of the best ratio in the market. Handset sales jumped with no capitalized policy. So that all-in-all I think the ability to increase the speed of our sales with the better ratios in terms of efficiency prove the sustainability of our business model.

Well, if we look at the future and the prospective, I think – and I’m on slide six – seven – seven, I think that Brazil continues to show very large opportunities, especially for pure mobile. Why? Because Brazilian telecommunication market is in a faster reshaping process with Mobile business exceeds the fixed one in any segment. The combination of high price from fixed incumbents vis-à-vis the mobile tariff and the lack of broadband capabilities from the incumbents create the condition for a sharper mix of market to revenues. TIM as a pure mobile is the best position to catch this general trend. And if we continue to allocate CapEx in 2G capacity and 3G rollout we can accelerate this dynamic.

Now if we turn to slide eight, it is more visible that big opportunity of a pure mobile in Brazil, resulting from the lack of broadband capability or the local incumbency in the wireline market. Well here, we summed the total accesses of the two concessionaries and we've split them among voice-only access, low broadband speed and fast broadband speed. Well, when we zoom, we can realize that most of the lines, 70% are concentrated in pure voice services not supporting a broadband capability, because of the lack of historical investment, and more and more they will leave, let me say, a switch-off versus the mobile voice, as a fixed-line call is more expensive than a mobile one.

Well, since these lines are very exposed to Fixed Mobile substitution, when we say that voice is good and this continued to be first opportunity that we have is because of the magnitude of this market to transformation. The disconnection of wireline traditional accesses are accelerating among the incumbents on a quarterly basis, and as shown in recent numbers. Even if we look at the remaining 30% of fixed all lines that support a broadband experience, most of them have a very low speed, and it can be exposed to a Fixed Mobile substitution or even on data. This is our number two opportunity. Finally, starting from next June, we will selectively attack the broadband market through TIM Fiber proposition, banked by our locals to serve an high-quality Naked VDSL to a broadband in São Paulo and Rio.

If we zoom to the Internet market at slide nine, we can realize how Internet is booming in Brazil and mobile data will be the fastest growing segment lending to approximately 28 billion reais, a total market level in 2016. Key reasons behind it are, number one, Brazil is still a very big and tough market. Only 54 million people are possessing an Internet access, while further 24 million people used to have an Internet presence on a regular basis and not possessing in excess, mobile data are sharply accelerating on them.

Second, when it comes to the willingness to buy or the probation to buy telecommunication services, broadband is the most the desirable one, especially among the middle-class or Class C, and Infinity Web on prepaid is a solid platform to serve them.

Third, leveraging on current wireline frustration in terms of speed, TIM Fiber can be an alternative for the residential and corporate ultra broadband demand starting from Rio and Sampa. Notably across the three business segment, the acquisition of AES Atimus is powering this “Internet for All” strategy in any of these three companies.

If we zoom to slide 10, I’ve tried to crystallize this concept of new integrated network approach and the importance of AES Atimus acquisition and integration. Well, with AES Atimus announced that with 100% fiber backhaul infrastructure, it is visible our high ROIC accretive solution across Mobile or Fixed business.

First, this fiber strengthens our 3G network with a Fiber To The Site solution, increasing the actual throughput of the mobile data network, and this evolution is LTE-like. Second, we can power a deep Wi-Fi offload solution, a SIM authenticated has already started in La Rocinha, and offering the Internet to Class C, via cellular phone, as a good alternative to the Internet café experience. Third, given the capillarity of fiber we can address fixed ultra broadband services up to 8.5 million households with a very competitive price of approximately 500 reais per customer, less than one-fourth of the incumbent.

If we zoom to slide 11, we have a good example of what we can do with this AES Atimus for example in order to offload the 3G network. Well, within Wi-Fi offload we are increasing the average connection speed by seven times versus the traditional 3G approach, i.e. compared to the possibility to add an additional base station. On the contrary, we installed the 25 Wi-Fi access points that give us CapEx saving of approximately 54% combined to a new base station 3G powered, so that’s cheaper and faster, able to support Internet café substitution of Infinity Web as it’s already happening in La Rocinha.

Now takeaways and look at guidance. In the next three year’s period, we believe that TIM Brasil can continue to grow and success following our business model of rely on simplicity, having the “Voice is Good” and the “Internet for All” proposition as our main guidance. Revenues is the fundamental KPI that we have in mind and we do expect a double-digit growth in revenues still absorbing the MTR cutting back and conscious of the Brazilian competitive environment. Rely on the three main sources of growth that are catching now, customer base increase, higher MOU and the voice market and more “Internet for All.”

In that sense we forecast that customer base will continue to grow fast, reaching more than 90 million lines in 2014. On the voice side, minutes of usage should continue to accelerate and reach 200 minutes of MOU by the end of 2014. As for data, unique daily and monthly user will continue to grow fast based on the supported infrastructure i.e. Wi-Fi offload and Fiber To The Site and increases smartphone penetration. All-in-all data over total revenue should exceed 25% by 2014. Well, it is clear that in order to support all these business expansion we need to continue to invest in network infrastructure, crucial for our future.

If we’ll look at slide 14, you can see which are the mainstream of our network building. We will invest 3 billion reais flat in the next three years, i.e. 9 billion reais cumulative, and this means that our CapEx guidance is at the same level what we report in 2011. Why we invest a 9 billion reais cumulative in next years?

Number one, to continue to increase the 2G capacity to support the customer base and the voice expansion; number two, to rollout the 3G coverage in order to serve more than 80% of the urban population, and create the deep Wi-Fi hotspot system to offload the data access. We forecast more than 10,000 hotspot by the end of the year. Three, build a deep Fiber To The site architecture already in place in Sampa and Rio, and we will extend in top 40 cities of Brazil. Four, top 40 cities represent approximately 50% of our current voice traffic. We will continue to increase to double the backbone extension lending near 50,000 kilometers of fiber. And finally we will reach 1 million potential customers in residential ultra broadband by the end of 2015.

Final slide on guidance, we want to share with you our constructive vision of next three years with the specific guidance related to 2012. Number one, we expect to see revenues grow above 10% versus the 17.1 billion reais reported in 2011, i.e. offsetting the less 20% real-term MTR reduction that started this week in Brazil.

In terms of business growth, we are all-in-all one year ahead of the previous target plan. For EBITDA, we do see above 10% yearly growth in 2011 versus the 4.6 billion reais for 2011. Thanks to the network synergies from AES Atimus integration and the continuous efficient approach in go-to-market. MTR impact will be approximately 300 basis points at EBITDA level. CapEx expenditure should remain flat at 3 billion reais organic, i.e. dropping in terms of percentage over sales contributing to the free cash flow increases expected in next three years, compared to the old guidance of cumulative 6.6 billion reais in three years we are projecting more than 9 billion reais in the period 2012-2014.

Summarizing, TIM Brasil is one year ahead of its previous target in terms of revenues and is in the condition to significantly increase the expected free cash flow, hence continue to generate value for Telecom Italia and all the shareholders.

I conclude my presentation, thank you. I’ll return over to Alex.

Alex Bolis

Thank you very much, Luca. I’ll turn the floor over now to Mr. Franco Bertone, Telecom Argentina Chief Executive Officer. Over to you, Franco.

Franco Bertone

Well, good morning to everyone. I will start with the 2011 main results from third slide. In 2011, the company delivered a strong operating performance, delivering growth in revenue margin and market share. Economics and KPIs met or exceeded guidance that was provided for the 2011-2013 periods. Over the last four quarters, we made it to number two place in Mobile market share and number one place in revenue share from previous third place in the Argentinean competitive and almost equally share market.

The Paraguayan mobile operation is back to growth and made it to number one – number two place in its own market. The wireline unit also delivered solid consistent results across the year compensating frozen regulated tariff with flat pricing, including supplementary services and successfully bundling voice with Fixed and Mobile Broadband for the residential customer.

In the fourth quarter of 2011, revenues and margin growth rate fell below previous quarters, reflecting successful effort to further improve Mobile revenue share and post to prepaid customer ratio, as well as no recurring cost associated with brand restyling.

The fourth quarter EBITDA margin contracted about 3 percentage point. Out of these, 2 percentage point were due to the launch of a combined of a video streaming and intensify Mobile marketing and sales that raised the acquisition and retention charges 4 percentage point to 20% of service revenue.

Capital expenditure went to increase core network capacity in routing diversity, and sell-side backhauling improve mobile data user experience. In 2011, a major substitution plan of earlier version of 2G, 3G access node was executed and a three years FTTC program started up. Strong operating free cash flow offset incremental CapEx and the net financial position substantially increased.

Moving to Mobile business line please, where in 2011, revenues were 13.2 billion pesos, a 31% increase equivalent to 3.1 billion pesos additional compared to 2010 with 1.9 million net adds posting a 11% growth to 18.2 million mobile line in Argentina. We retained well over 50% of 2011 incremental market. We estimate our market share at 33.6% increasing over 4 percentage points in the last three years. We estimate our revenue share to exceed 34% by 2011 year-end. The local mobile market remain healthy and competitive. The spread among the three main player’s service revenue dropped from 7 percentage points to less than 2 percentage points since 2008.

Our postpaid subscriber grew 18% year-on-year to 32% of the base. Postpaid growth was even stronger in fourth quarter, accounting for about two-thirds of the 0.4 million net adds in that quarter. We maintained leadership of smartphone sales growing 3G devices to 17% of base and posted a 55% year-on-year growth of value-added revenues that hits the 50% mark of total service revenue in the fourth quarter of 2011.

With MNP scheduled for mid March 2012, we timed the Mobile business brand restyling in the fourth quarter with a strong focus into shaping a closer relationship with our customer base, and this delivered unprecedented postpaid net addition in the quarter. The Paraguayan operation posted 29% revenue growth in local currency, expanding margin and reducing CapEx in a healthy macroeconomic environment with strong appreciation of the local currency.

The 15% ARPU increase was driven by our premium network quality and mobile Internet leadership. Revised regulation boosted competition in SMS and voice traffic with lower interconnection rate. And nuclear [ph] holds now a sound balance sheet with an improved debt structure, refinanced local currency with longer tenures and competitive interest rate.

Please move to the Wireline business section. Third part is revenue, we’re 5.3 billion pesos, posting a 15% year-on-year growth, as telephone service was up 9%, data and broadband 23% and 28% respectively. Voice landline increased 1% with an average monthly biz (ph) 7% higher than 2010. Flat pricing along with supplementary service delivered the growth despite of pros and regulated tariffs that now represents 41% of Wireline revenues, 3 percentage point down from 2010. ADSL broadband base expanded 12% reaching 37% of our Wirelines. ARPU grew 15% and churn rate hit a new record low at 1.2% a month mainly delivered by strong up selling, improved caring and bundled products packaging, they combine voice and broadband access with video streaming and net play, bandwidth booster our net turbo, and 3G dongle our net module.

About business environment, 2011 GDP growth rate was high single digits. Private consumption drove business up, high through declining commodity prices, sustain (inaudible). Public spending benefited household incomes, although affecting fiscal surplus. GDP growth pace is expected to slowdown 2012, as a result of a tighter fiscal and monetary policy that are already in place and over time are expected to shape a better economic scenario in the country.

The industry regulation agenda calls for MNP implementation and 850 megahertz and 1.900 megahertz spectrum auction be executed by the first quarter 2012, and 1.700 megahertz to 2.100 megahertz auctions to be announced late at this year. Existing asymmetrical licenses of telco and cable operators is likely to stay in place for the time being, though video streaming can already be delivered as a value-added service under existing telco licenses. The competitive landscape will stay almost equally shared by the main players in mobile and wireline broadband and voice, service penetration over a population in households is amongst the highest in the region and shall further increase competition and this marketplace.

Move to our goals for the Mobile business, they are a consolidated leadership in revenue share, promote mobile data and social networking extending our reach to the prepaid segment that retains strong potential for non-voice, non-SMS application, improved customer experience and usability, service and care, and consolidate leadership in the youth segment. In order to meet these goals we shall upgrade 3G network capacity for quality and coverage both in terms of radio signal and backhauling, extend mobile data to prepaid with simple, transparent and attractive pricing, further develop personal black premium brand for the high-end market and progressively shift customer care to self caring and adopt net promoter scoring across our organization to gauge customer preferences. The 2011-2014 outlook is mobile line growth rate of approximately 4% with ARPU growing more than 10% a year.

About Wireline goals, plans and outlook, we want to improve value of the household customer, leveraging on the established relation with our customer base and on the reach and potential of our existing access network. Want to develop the ICT market and reduce substantially service provisioning time through a systematic pre-wiring of real estate new development. And finally, upgrade bandwidth delivery capability to fully exploit potential of our existing network infrastructure. To do this, we shall stay focused on bundle services, fixed and broadband, mobile and wireline, Internet and video streaming, integrate connectivity with hosting and cloud computing as the prime value proposition of our datacenter services, promote migration to flat pricing, to reduce dependency and regulated tariff, and optimize interconnection with third parties to control OpEx. The 2011-2014 outlook is a growth rate in excess of 5% and ends up with ARPU growing more than 12% a year.

About CapEx spend, as a percentage of revenue was 17% in 2011, it was 3.2 billion pesos, and is expected to be 18% in 2012 at 4.0 billion pesos in that year. The key capital expenditure drivers are the management of end-to-end service delivery and quality standards across access core network service platform and third parties interconnection. Improvements of network capacity and full tolerance to enhance the user experience, deployments of FTTC to upgrade access bandwidth, we’ve taken advantage of existing infrastructure and minimizing infrastructure work, a consequent disruption to the public. Deployment of low visual impact value based site to facilitate extension of mobile access coverage and capacity, the extension of own network reach to reduce cost of domestic roaming in deployment of content delivery capabilities in the core network to distribute own or third-party streaming services.

Well, I will conclude with the takeaway, about revenues definitely up selling to existing customer base is a major growth factor of our plan, customer base growth rate shall contract to single digit, mobile data and social networking for key drivers of growth. In reference to EBITDA and EBITDA margin, we shall focus on the cost efficiency to mitigate cost inflation effect, we shall strive to reduce interconnection and domestic and roaming cost with both old T&T and infrastructure based operators, we will work to keep improve and generate even further to control acquisition and retention cost. And about CapEx, our main focus is end-to-end quality of service. We shall adopt and deploy FTTC and content delivery network to upgrade access in core network bandwidth performance. And finally, acquisition and retention CapEx will be impacted by coming MNP.

These were my remarks, I’ll be available to answer your question you may have later and thank you very much. Alex, back to you.

Franco Bernabè

Thank you very much, Franco and really want to thank all the team, Franco, Marco, Luca, Andrea, and everybody for making such an excellent job in 2011, which was a very challenging year, very tough macroeconomic environment, very tough competitive environment. I think that this result prove that we have a very, very good team on board.

Now, you have the evidence that Telecom Italia represents a very good mix of integrated businesses in Italy and Argentina, excellent business, Mobile business in Brazil, all posting very robust results. And all these companies, I want to underline, are managed with a strong financial discipline. They all generate ample cash, which will be more than sufficient to cover all of our investment needs to meet all our targets and to offer a sustainable and progressive shareholder remuneration. I hope that all the presentation have been very convincing and we’ve given a lot of evidence of what we’re doing and how we’re doing it.

Now, we’re ready to questions. We will close this session at 11:30 Central European Time. We will then, if you have further question, call our Investor Relations Department will be available for answering to all the questions you have, and I’ll be available on the road show in the next few days. And some of you or many of you will have the opportunity to meet with myself and with the members of the team. Thank you.

We’re ready to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions). The first question from Mr. JP Davids from Barclays Capital. Mr. Davids, please.

JP Davids – Barclays Capital

Thank you and good morning. The first question is just a big picture question on how you’re going to get net debt from EUR30.4 billion to EUR27.5 billion. What are the big moving parts there? And given that the equity free cash flows about EUR3 billion and you’re paying up EUR900 million of dividends.

The second question is one on your balance sheet. You’ve done a great job reducing net debt over the year, but gross debt has gone up – has gone up EUR1 billion and that’s offset by assets going up EUR2 billion. As you look into 2012, is there going to be a program of trying to reduce gross debts or will you look to try and issue as much as you can, what’s the game plan for your gross debt position in 2011? Thank you.

Franco Bernabè

Thank you for your question. Well, now let’s address firstly the first question, how we will reach the EUR27.5 billion net financial position target. Of course, I understand that it seems like a very, very complicated target to reach. But I just want to remind you just at the outset that in 2008, I promised to reach approximately EUR30 billion of net debt and in fact we did it. The difference was, of course, that instead of operating in an growth environment as we were focusing at the time, we operated in a very complex and recessionary macroeconomic environment, in a midst of a dramatic financial crisis. And I think that this tells us a lot about how we can deliver our results.

Now, back to the point, operating free cash flow is EUR7 billion which is stable and slightly higher versus the 2011 net of LTE. Then you have financial and fiscal cash flow of approximately EUR3 billion which are in line more or less with 2011. Then you have free cash flow before dividends of approximately EUR4 billion, which include of course minor disposals, Cuba and other disposals, I mean minor disposals of course. We have dividends in the order of EUR1.5 billion – EUR1.1 billion sorry. EUR1.1 billion for the Group as a whole, including minority shareholders, which means for TI’s class we said in our statement EUR900 million, that leaves a net cash flow of EUR2.9 billion, which brings debt down from EUR30.4 billion to EUR27.5 billion. So I think that this satisfies your question.

Now, on the gross to net debt, of course there is a – the policy that we are following is that the minimization of carry costs of net debt. So I’ll move now to Andrea Mangoni to answer to this. Andrea.

Andrea Mangoni

Yes, our aim is reduce our gross debt safeguarding our current liquidity stuff. So we will – devoted our cash flow generation increase to the reduction of our gross debt maintaining our liquidity stable over the three-year period of the plan.

Franco Bernabè

Thank you very much. Next question, please.

Operator

Next question from Mr. Nick Delfas from Morgan Stanley. Mr. Delfas, please.

Nick Delfas – Morgan Stanley

Yes, thanks very much. Can I just follow-up on JP’s question on the net debt? I think most years you have had a working capital outflow. Are you expecting a working capital inflow in 2012 and also achieve that target, and what is that driving that working capital inflow?

And then secondly, I just wanted to understand a bit more about the regulatory change on wholesale prices for broadband and the geographic de-averaging that’s going to take place. Maybe you can talk a little bit more about what financial impact is going to be in 2012 and 2013 of that regulatory change?

Franco Bernabè

Now, let’s – I’d like to turn to Andrea Mangoni the first question and then I’ll answer the second. Andrea.

Andrea Mangoni

Talking about working capital, the cash flow absorption by the working capital of the company will be more or less stable over the period of the plan. We strongly believe the working capital – we can – we’re doing better in terms of working capital, sorry. So our performance in terms of working capital could be an upside in our financial projection. But in our current plan, the working capital is more or less stable over the period of the plan.

Franco Bernabè

On the second question you were asking about the regulatory impact of the recent decisions by the – by AGCOM. As you may now AGCOM has recently indicated that they will differentiate the approach between developed areas and undeveloped areas, competitive areas and noncompetitive areas. So we will be in competitive areas, so where the competition exists, we’ll be allowed to set bit stream prices in a much more – in a much more open way. And, of course, it will be regulated as usual in known competitive areas. Thanks. Next question, please.

Operator

Next question from Mathieu Robilliard from Exane BNP Paribas. Mr. Robilliard, please.

Mathieu Robilliard – Exane BNP Paribas

Thank you, good morning. The question about your investment in your network in the fixed business. I’ve seen one of the slides that you indicate your plan to cover 25% of households in the next few years with high-speed broadband, and I have two questions related to that.

First, should we essentially, should not VDSL, because since your CapEx budget seems to relatively flat, it would suggest the cost of the average is very limited? And then following-up on the previous question on the regulation, how is regulation structure – how do you expect it to be structured around the obligation or not to resell that upgraded product?

And then the second question for Brazil maybe, has done a very good job at different – trading products on voice over the last few years, gaining market share. Now obviously a number of competitors are replicating what you have done. How do you believe you can continue to outperform on the pure mobile business in Brazil with obviously your competitors moving? Thank you.

Franco Bernabè

On the first question, I’ll ask Marco to answer. But I mean it’s a very simple answer. I think we have enough flexibility in deploying VDSL. As we said, we as clearly stated, it will be a market driven deployment and therefore it will not a massive employment or beyond what we declared. And we have enough efficiency gains to be made in the technology sector, in our infrastructure sector to accommodate this expansion, despite the fact that in pure nominal terms the investment will be around flattish.

On the regulatory environment that will cover the VDSL deployment, of course there is still a – there is still an indication by the – by AGCOM, the regulatory agency in Italy to be defined. We have had an overall framework that was given to us for the deployment of next-generation networks that has already given us enough space to move on. But there are certain areas that are still not covered on which they will decide later on. One of these areas, of course, is how to treat vectoring and how to treat the whole regulatory environment of this specific area

On Brazil, unless Marco wants to add something on this, we’ll move to Brazil and ask Luca to answer.

Luca Luciani

Thank you, Franco. Well, I think that during two years, the market users have some concern of possible competition reverting or a possible increase of competition pressure. I mean it’s something that we lived during 2009, something that we lived in early 2011, something that accelerated on the last part of second half of 2011. Well, I think that the numbers are quite clear. Along the last two years we were leading in terms of incremental market share in terms of more relevant acceleration of service revenue. How reacted our competitors, simply copying us. I mean the Mexican brutally copied our concept offering with 25% discount i.e. toe-to-toe approach, nevertheless and nothing changed.

So I think – and back to your question why we are confident on this, I think for three clear facts. Number one, consistency. I mean Mobile is not offering or pricing. If one think that Mobile business is limited to pricing is let me say a big mistake, as the consistency we have in the go-to-market no one adopted a zero subsidy strategy, no one has alternative channels in the distribution phase as we have, no one is investing in full fitting data or voice need as we do.

Number two, capital allocation. All our competitors have stuck in the middle. If they want to – if they need to invest in the fixed-line or even a wireline. We had, let me say, major stake at risk because the Fixed and Mobile substitution of voice and poor data capability, both Vivo or Telefonica and Oi, they need to follow one pattern or the other. And if they follow us in the acceleration of Fixed and Mobile substitution, they will cannibalize the fixed-line legacy even more. And this is the clear advantage of being a pure mobile infrastructure. So that’s I would say consistency is simplicity of the approach and finally clear capital allocation.

Franco Bernabè

Thank you very much. Next question, please.

Operator

Next question from Stefano Lustig from Equita. Mr. Lustig, please.

Stefano Lustig – Equita

Good morning. And I have a question on the tough environment condition you were mentioning before. I wonder if you can give us an indication for Domestic business if December has been significantly different from the average kind of Q4. And then if you can give us an indication the first trend of the beginning of 2012 and the Domestic level for wireline and the mobile.

And the second question is, if you can give us a rough indication of what kind of price erosion you have in mind for Mobile operation in 2012? Thank you.

Franco Bernabè

Marco Patuano will answer both questions.

Marco Patuano

Yes. The answer is yes, December has been significantly different from October and November. At the end of November, the metric was definitely much better than the total quarter. I’m referring to Mobile. In the business – in the fixed business I would say that the impact has been limited or nil on the consumer. Material on large customers – large customers did not – generally speaking the end of the year is the moment in which all the remaining budget is spent, and so many times both private and public customers makes some last minute investments.

And this, of course, it was exactly the contrary. Every time we were approaching customers, were asked for discounts. Mobile, more interesting, December, yes it has been – I would say there was some shocking in the consumer attitude, because of the uncertainty coming from which kind of maneuver the government could take. And so this is the reason why January sounds better and February sounds better than January. So January better than December, February better than January, this is fair to say.

Second part of your question, price erosion. As I said, we are now in, let me say, what we are seeing is that more and more customers are pleased with the bundle offers and with offers that are not directly linked to a price per minute scheme. These allows the customers to have extra minutes of voice and that the – let me say the metric of the game become once again the total ARPU more than the price per minute. So I suggest you to focus more on the total ARPU and less on the price per minute, otherwise you need to a ton of information that are not publicly disclosed, how many customer have a bundle, which kind of bundle. So the price per minute starts to be a little bit tricky. Thank you.

Stefano Lustig – Equita

Thank you.

Franco Bernabè

Thank you very much. Next question, please.

Operator

Next question from Mr. Tim Boddy from Goldman Sachs. Mr. Boddy, please.

Tim Boddy – Goldman Sachs

Yes, thanks for taking my question. Had a couple of questions. First of all, in Italy, it sounds like – if I’ve understood the slides correctly, you expect EBITDA to stabilize in 2013, it will be really good to understand what do you see changing from – obviously the trend over the last few years.

And secondly your net debt goals, can you just clarify what these include and don’t include. So for example do they include the benefits of some disposals, do they include any license costs, for example particularly in Brazil in some of the spectrum auctions, et cetera?

Franco Bernabè

Okay. On the first question, Marco, and I will answer the second.

Marco Patuano

Yes, you’re right. In 2013, EBITDA tends to stabilize. Of course, you have to read total revenues, excluding the impact of MTR decline. And if you exclude the MTR decline – since we have explained with all the details that MTR cut have a proxy of zero impact on our EBITDA. So 2013, the substitution of traditional services with innovative services will apply more significantly will compensate more the difference. And so this is – this is the main driver of the 2013 stable EBITDA. I’ll leave to Mr. Bernabè for the second part of the question.

Franco Bernabè

Yes. I thought I had answered already to your colleague at the beginning, when I said that the free cash flows before dividends was in the range of EUR4 billion and this included minor disposals. One point that we said clearly in the statement is that they don’t include license fees in – for spectrum auctions, but we think that they will not materially deviate from our path. Thank you. Next question, please.

Tim Boddy – Goldman Sachs

Thanks very much.

Operator

Next question from Stanley Martinez Legal & General Asset Management. Mr. Martinez, please.

Stanley Martinez – Legal & General Asset Management

Good morning, gentlemen, and thank you for taking my question. First, just in terms of the planned focus on gross debt reduction, I wondered whether you’d have any guidance you can share in terms of total financial expense for 2012. Are you looking for a net financial expense of EUR1.75 billion to EUR1.8 billion, because that’s implied in the free cash flow objectives?

And then second, to preserve your EUR14 billion liquidity margin, as you call it, are there perhaps some supplementary options you have? For example, accessing the domestic retail debt market as Enel and perhaps some other Italian corporates have done or perhaps accessing additional facilities under super national versus, like, the EIB to fund the EUR3 billion CapEx program.

Franco Bernabè

Andrea Mangoni will answer to this.

Andrea Mangoni

Yes, in terms of financial cost, for this year we foresee financial cost slightly below 2012. Our financial cost in 2012 were – sorry 2011 were more or less EUR1.8 billion and we will foresee a slightly reduction in 2012 with a stable cost – average cost in our debt.

Franco Bernabè

Thank you. Next question, please.

Operator

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

Justin Funnell – Credit Suisse

Yes, thank you. Three questions, please. First, just on the Group level, obviously you’re deleveraging faster, I would presume that you’ve put this plan together with some sort of discussion with the credit rating agencies. If we presume the Italian sovereign rating stays where it is, how confident are you that you can maintain your BBB rating, do you – can you give us some sort of prediction there, please?

And then secondly on Brazil, am I right in understanding that lot of your data growth is on your Edge network, do you have any figures, how much of your data traffic is on Edge? And as a result, are we seeing any further issues about network congestion? Obviously you’ve built lot of 2G trends this year. Are you staying ahead of the traffic growth you’re getting?

And then finally on Brazil again, is the guidance some more conservative? It seemed to have ended the year with 20% growth and 10% to 2012, which seems to be at the low end is what’s likely to happen?

Franco Bernabè

On the first question, I – my answer is that we are pretty confident that we will be maintaining our rating. And I’ll turn it now to Luca for the second and third.

Luca Luciani

First, Edge and voice traffic – I mean what happened – and if we go back to the Fixed Mobile substitution, in the market, on average, prices dropped down to 0.18 cents in the Mobile versus 0.27 cents to Fixed, so that negative price premium. This means acceleration on net adds from TIM. This means doubling at the voice transported during last two years and this is the main driver or the customer base expansion. Does all this dynamic impact our 2G network? Obviously yes. And this is key reason why we invested a lot in the GSM network. Remember, in 2009, when I said that we are going to invest all our money in the 2G, steering at the most any subsidy, any 3G exercise exactly to support this voice growth. And as a result of it, if you look at (inaudible), i.e. 2G capacity, we landed to 88,000 (inaudible) at the end of 2009 versus 43 at the end of 2008.

Well, if you look – compare to the 88,000 of 2009 and the December 2011, we were at 153,000 of (inaudible), so we doubled the 2G capacity during the last three years. Well, what does it mean? It means that we doubled the traffic on one side and we doubled the 2G capacity on the other side, and this is the key reason why consistently over 18 months, 20 months according to Anatel’s score, we are reporting the most confident network quality in Brazil among players. While it does not mean that we cannot have some specific problem in the region, between it does not material. If we look at the general picture, we are very confident on it.

Similar on, let me say, data. Since out of our 27% smartphone penetration, a big part of its still on the Edge and we chose to steer the voice on the 2G. It means that even if you have a 3G handset during a call, you are put in the 2G, it means that we have an empty 2.1 gigahertz space that leave us confident for the future.

About your last consideration, if we are conservative or not, this is something that it was exactly the same comment and one year ago when we reported a growth of top line in excess of 7/8% and definitely we reported very high than. I think that we have NTR cut. We are generally prudent in the guidance, so that I think we are consistent over the time.

Franco Bernabè

Two more questions and then we will close. Thank you very much. Next question.

Operator

Next question from Mrs. Micaela Ferruta from Intermonte Sim. Mrs. Ferruta, please.

Micaela Ferruta – Intermonte Sim

Yes, good morning. I would just like to have more details on few things. First, I think you said that 80% of the cash flow generated over the three-year plan is Italy. So out of the EUR22 billion, EUR17.6 billion in Italy. Can you break down the remaining between Brazil and Argentina, and can you quantify the minor disposals that you indicated when talking about that reduction?

And then I have a question for Marco. Actually some competitors say that you’re quite aggressive in Domestic Mobile, be it on a price per minute basis or on bundles. I think you said that your focus on MNP is going to be – goes down. So should we assume mobile competition to be softer in the market in 2012? Thank you.

Franco Bernabè

Well, on the disposals, I would say that it’s not our policy to give color on disposals, and therefore when they will be announced you will have evidence of what we are doing. In terms of the difference, we have – the difference between the cash flow generated in Italy and the cash flow generated in Brazil, we have – in Brazil and Latin America, we have EUR4 billion approximately generated in Brazil. Marco for the next question.

Marco Patuano

Thank you. Well, of course, when you judge your competitor, you always say that your competitor is ultra aggressive. I would say that during the Christmas campaign, we have not been very much aggressive. This is demonstrated by the performance we had on EBITDA. EBITDA, we performed quite well, and means that we have been a quite conscious that we have not destroy too much value.

MNP, you’re absolutely right. There is – before giving to the market a credible signal that it’s time to review, it’s not a matter of finding any agreement, it’s to review the market strategy. You can get value also without playing the game of the MNP. But in order to be credible you needed to reach the break-even, because otherwise it seems that you’re claiming for something that you are not able to reach with your legs. So now we demonstrated to the market that we can reach with our legs any target and it’s time to reconsider as a market that there are games that destroy value overall and there are other games that create value. So why don’t we play the creative one.

Franco Bernabè

Thank you, Marco. Last question, please.

Operator

Last question from Mr. Ottavio Adorisio from Société Générale. Mr. Adorisio, please.

Ottavio Adorisio – Société Générale

Hi, good morning, gentlemen. A couple of questions, but first is on the Consip contract. Basically, I was wondering is it possible to an update on how your business with the public administration is progressing. I understand that that particular contract is still disputed with Fastweb. And, therefore, I was wondering if this has slowed down the impact you’re expecting on financial for full-year ’11 and what you would expect would be the impact for 2012 financials?

And the second one is pretty straightforward, LTE. What’s the total investment you earmarked for LTE during the guidance period? Thanks.

Franco Bernabè

Marco.

Marco Patuano

Well, Consip, you know there is a Fixed portion and a Mobile portion. The Mobile portion is going well. So we are getting more and more lines, and we have no problems apart from some credits that with the public sector are a little bit difficult to collect in this last, I would say, quarters. And on the fixed, you know that we are challenging some attitudes of our competitors that are trying to find shortcuts in order to not to respect the results of the bid. In any case, we don’t consider these as a major driver of changes in – on 2012, so we will be able to manage any difference coming from this story. LTE investments, just one second, I don’t want to miss the number. It’s around EUR400 million in the three years in terms of LTE that are included in the three years. Okay, thank you.

Franco Bernabè

Okay, thank you very much. Thanks for attending the call. Thanks to all of you. Thanks to the Investor Relations team for the excellent job done. See you, soon. Thank you.

Operator

Ladies and gentlemen, the conference call is over.

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