to download Telecom Italia Annual Report 2011 - Company Reporting

ways lower but more balanced. In this context, inflation will continue to represent a pivotal element.
Finally, the international landscape will represent a determining factor for economic growth, where the
prices of raw materials and the evolution of the global financial markets exemplify the main critical
elements.
Telecommunications market trend
The telecommunications sector is generally regarded as being less cyclical than other sectors, since, in
the business segment, telecommunications services are perceived as an effective tool through which
companies can improve productivity. In the residential segment, on the other hand, they are becoming a
factor of increasing importance in the budgets of family expenditures. However, the recession has had a
major impact on the growth prospects of our domestic market, and may continue to do so. In particular,
the weakness of the economy may lead companies to adopt a more cautious approach when it comes to
acquiring telecommunication services due to the overall reduction in expenditures (operating costs and
investments) of industrial sectors, whereas, in the residential segment, the fall in consumption may
implicate a further lowering of the prices of telecommunications services and a fall in the demand for
our products and services.
The market of telecommunications in Brazil is primed for further growth, sustained by the development
of the mobile area (both phone and data services) and broadband for fixed phone lines. In particular, the
trend of replacing fixed services with mobile services, seen in recent years, is expected to continue.
On the Argentine market, growth is expected, driven by the evolution of both fixed and mobile
broadband. However, the evolution of the Argentine telecommunications market may be influenced by
the unfurling of the effects of number portability on mobile phones, and may lead to a rise in the level of
competition.
As for the domestic market, the development of the Brazilian and Argentine telecommunications
markets is influenced by the evolution of the macroeconomic context. As a result, if the macroeconomic
figures were to be worse than anticipated, this could reflect negatively on the demand for
telecommunications services.
Furthermore, on a global scale, the telecommunications sector is being subjected to growing pressure
from lateral competition by operators in the IT, Media and Devices/Consumer Electronics sectors, and by
OTT operators which offer content and services via the internet to people who do not have their own TLC
network. Because of this, the evolution of the telecommunications markets in the main countries in
which we operate (Italy, Brazil and Argentina) may be influenced by the development of the competitive
scenario with regard to these players.
Financial risks
The Telecom Italia Group pursues a policy of managing financial risks (market risk, credit risk and
liquidity risk) by the definition, at a central level, of guidelines for directing operations, the identification
of the most suitable financial instruments to reach prefixed objectives, the monitoring of the results
achieved and the exclusion of the use of financial instruments for speculative purposes.
Furthermore, the Group pursues the objective of achieving an “adequate level of financial flexibility”
which is expressed by maintaining a treasury margin to cover refinancing requirements at least for the
next 12-18 months with liquidity and committed syndicated credit lines.
The particular climate of the financial markets has persuaded the Telecom Italia Group to adopt a more
conservative approach than the aforementioned policy and – at the end of 2011 – the Group has a
liquidity margin able to amply meet debt repayment obligations for the next 24 months. Consequently,
the Telecom Italia Group can wait for the most appropriate time to access the financial markets. Further
details are provided in the Note “Financial risk management” to the consolidated financial statements at
December 31, 2011 of the Telecom Italia Group.
Report on Operations Business Outlook for the Year 2012 36