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Board of Directors At December 31, 2011, the board of directors of Telecom Italia is composed of the following 15 directors: Executive Chairman Deputy Chairman Managing Director and Chief Operating Officer Directors Secretary to the Board Franco Bernabè Aldo Minucci Marco Patuano César Alierta Izuel Tarak Ben Ammar Lucia Calvosa (independent) Elio Cosimo Catania (independent) Massimo Egidi (independent) Jean Paul Fitoussi (independent) Gabriele Galateri di Genola Julio Linares López Gaetano Micciché Renato Pagliaro Mauro Sentinelli (independent) Luigi Zingales (independent) Antonino Cusimano Board of Statutory Auditors The board of statutory auditors of Telecom Italia was elected by the shareholders’ meeting held on April 8, 2009 and will remain in office until the approval of the 2011 annual financial statements. The board of statutory auditors is composed as follows: Chairman Acting Auditors Alternate Auditors Enrico Maria Bignami Gianluca Ponzellini Lorenzo Pozza Salvatore Spiniello Ferdinando Superti Furga Silvano Corbella Maurizio Lauri Vittorio Giacomo Mariani Ugo Rock Annual Report 2011 Board of Directors and Board of Statutory Auditors of Telecom Italia 4
Letter to the Shareholders To the Shareholders, 2011 was a difficult year for the global economy and, to an even greater extent, for the Italian economy, which became entangled in the sovereign debt crisis. The increase in the cost of capital, resulting from the rise in interest rates, led to a downward revision of the present value of future cash flows used to determine the value of goodwill, which also had repercussions on Telecom Italia. Consequently, it proved necessary to write down a part of the goodwill which arose following the Olivetti/Telecom Italia operations of 1999 and 2003 and the acquisition of TIM’s minority shares in 2005. However, the writedowns did not affect business and operational results which, on the contrary, improved yet again. In 2011, Telecom Italia’s market share in mobile telephone lines once more began to grow, gaining in the last two quarters of the year almost half a percentage point. At the same time, there was less erosion of Telecom Italia’s market share in the sphere of fixed telephone services. In Brazil, the results exceeded all expectations, with an increase in revenues of 18% favoring a significant rise in operating profit, with a market share which, in terms of lines, reached 26.5% and which, during the last 12 months, registered an increase of almost 1.5 percentage points. Moreover, in 2011, we brought to a close the acquisition of Aes Atimus. Thanks to the Aes Atimus fiber optic network, re-christened TIM Fiber, it will be now possible to develop further the mobile network and, at the same time, offer fixed network services, Including ultra-broadband services, in the two most important areas of the country, which generate almost one quarter of Brazilian GDP. In Argentina, too, the relaunch and consolidation of the Telecom Argentina Group continues and a very positive year closes with 26% higher revenues and a significant increase in operating profit. The number of lines rose by more than two million, growing the market share by more than one percentage point. At the Group level, the deleverage process continued. This has made it possible to reduce consolidated debt year-over-year by 1 billion euros and over three years by more than 4 billion euros, amply fulfilling the objectives laid down in the 2008 business plan. It is particularly significant that the reduction in the level of debt has been achieved, despite the investments of almost 2 billion euros made for the acquisition of the frequencies for the LTE mobile networks and for the acquisition of Aes Atimus. These investments are of strategic importance for the future, since they allow a further strengthening of our position in Brazil and, at the same time, make it possible to expand the range of services offered in Italy. Despite these investments and future commitments to develop ultra-broadband networks, the Group’s deleverage process is sustainable in terms of the Group’s capacity to generate cash flow. Considering the sovereign debt crisis and the considerable increase of the spreads in the Italian debt, the Board of Directors has thus decided to reduce the amount of resources available for dividends in the three-year period, with the aim of safeguarding the Group’s rating, that is, the rating issued by the agencies with regard to the sustainability of a company’s level of debt. Notwithstanding this, we believe that the dividends established for the current year will reflect a level of remuneration in line with that offered by other large international telecommunications groups. Reducing the level of debt is a fundamental step for our Group. We must continue to reduce the burden which is weighing heavily on the future prospects of the Group and is suffocating its ambitions with regard to future growth. The results achieved in this area over the last three years, in an extremely Annual Report 2011 Letter to the Shareholders 5
Page 1 and 2: Annual Report 2011 Relazione interm
Page 3: Statements of Comprehensive Income
Page 7 and 8: Key Operating and Financial Data -
Page 9 and 10: The trend of the key operating and
Page 11 and 12: Liquidity margin: at December 31, 2
Page 13 and 14: Consolidated Operating and Financia
Page 15 and 16: Review of Operating and Financial P
Page 17 and 18: The fixed-line area, with a contrac
Page 19 and 20: - lower expenses of 246 million eur
Page 21 and 22: Business Unit (-329 million euros)
Page 23 and 24: Income tax expense Income tax expen
Page 25 and 26: eflect the definitive fair value of
Page 27 and 28: Capital expenditures on an accrual
Page 29 and 30: Finance expenses, income taxes and
Page 31 and 32: The financial risk management polic
Page 33 and 34: On August 3, 2011, a bilateral stan
Page 35 and 36: Research and Development As for “
Page 37 and 38: Consolidated Financial Statements -
Page 39 and 40: Consolidated Statements of Financia
Page 41 and 42: Consolidated Statements of Cash Flo
Page 43 and 44: Highlights - The Business Units of
Page 45 and 46: The Business Units of the Telecom I
Page 47 and 48: International Wholesale (millions o
Page 49 and 50: compared to the same period of 2010
Page 51 and 52: In detail: (millions of euros) 2011
Page 53 and 54: Cubomusica GRATIS per 1 anno. Durin
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In particular, for the unbundling c
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International roaming On July 6, 20
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For the telecommunications operator
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Brazil The Telecom Italia Group ope
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EBIT EBIT is 2,294 million reais, i
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Argentina The Telecom Italia Group
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Mobile telephony service: Telecom P
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Again with regard to value-added se
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Revenues Revenues amount to 238 mil
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Principal changes in the regulatory
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• it erroneously attributed the m
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European sales recorded a good tren
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Review of Operating and Financial P
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The reduction of 483 million euros
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(162 million euros, on the basis of
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Equity Equity amounts to 20,537 mil
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Dividends flow Dividends paid amoun
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Bonds Bonds at December 31, 2011 to
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Financial Statements - Telecom Ital
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Statements of Financial Position (m
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Additional Cash Flow Information (m
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Corporate Boards at December 31, 20
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Macro-Organization Group at Decembe
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other sources of information, the p
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Relative performance by Tim Partici
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Related Party Transactions In accor
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the Dow Jones Sustainability World
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Economic value generated and distri
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Type of customer care customer Over
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Involvement initiatives For the fif
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Vehicles Telecom Italia S.p.A. 2011
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• cogeneration/trigeneration: 5 l
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• an increase in emissions attrib
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channels have been registered as "D
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• Network and service platform in
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• E-learning and evolved teaching
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Tim Brasil Group (units) 12.31.2011
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Development The 2010 Group performa
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Internal communication The main act
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introduced on this subject. The agr
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On August 2, 2011 the second phase
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The Risk Management department mana
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Net financial debt is calculated as
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Bundle. Commercial offer including
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HFC (Hydrofluorocarbons). Hydrofluo
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Shared Access. Methods of shared ac
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Consolidated Financial Statements a
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Note 34 - Other income (expenses) f
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Equity and Liabilities (millions of
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Consolidated Statements of Comprehe
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Consolidated Statements of Cash Flo
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Note 1 - Form, content and other ge
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• Argentina: includes fixed (Tele
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Note 2 - Accounting policies Going
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case of loss of control of a subsid
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Impairment of intangible and tangib
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• held to maturity (originally mo
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Inventories Inventories are measure
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Revenues are recognized to the exte
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Use of estimates The preparation of
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Note 3 - Business combinations Acqu
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Acquisition of control of Sofora Te
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Note 4 - Goodwill Goodwill shows th
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Core Domestic International Wholesa
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Changes in key variables needed to
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Concessions, licenses, trademarks a
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Note 6 - Tangible assets (owned and
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Gross carrying amount, accumulated
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Gross carrying amount, accumulated
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Aggregate data for 2011 and 2010, p
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Note 9 - Financial assets (non-curr
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Note 10 - Miscellaneous receivables
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The temporary differences which mak
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In addition to this effect, the inc
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Note 13 - Trade and miscellaneous r
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Note 14 - Equity Equity includes: (
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• the reduction of share capital
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• to mandate the board of directo
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Gross financial debt according to t
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The following table lists the bonds
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Nortel Inversora S.A. Preferred Ser
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Such obligation, required by nation
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Revolving Credit Facility The follo
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Note 17 - Financial risk management
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of market parameters, even though t
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In order to limit the risk of the n
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Note 18 -Derivatives Derivative fin
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Note 19 - Supplementary disclosures
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Comparison between carrying amount
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Carrying amount for each class of f
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Fair value hierarchy level for each
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Note 20 - Employee benefits Employe
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The effect on the income statement,
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Note 22 - Miscellaneous payables an
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Note 24 - Contingent liabilities, o
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On December 16, 2011 Telecom Italia
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In a judgement on November 2, 2011,
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Greece -DELAN During 2009, the comp
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c) Commitments and guarantees Guara
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Note 27 - Acquisition of goods and
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Note 29 - Other operating expenses
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Note 32 - Gains (losses) on disposa
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Note 34 - Other income (expenses) f
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Finance expenses Finance expenses d
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Note 36 - Profit (loss) for the yea
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Future potential changes in share c
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Note 38 - Segment reporting a) Repo
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Headcount by Operating Segment (num
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The effects on the individual line
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Transactions with associates and jo
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Transactions with companies control
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Transactions with other related par
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(millions of euros) 12/31/2011 12/3
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In the 2011, the contributions paid
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Description of other Telecom Italia
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Calculation of fair value measureme
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Note 41 - Significant non-recurring
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Note 42 - Positions or transactions
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c) Operating leases Revenue related
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Note 44 - Events subsequent to Dece
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Name Head office Currency Share cap
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Name Head office Currency Share cap
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Certification of the Consolidated F
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Consolidated Financial Statements T
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Contents Telecom Italia S.p.A. Sepa
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Statements of Financial Position As
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Separate Income Statements (euros)
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Statements of Changes in Equity Sta
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Additional Cash Flow Information (t
Page 313 and 314:
Profit (loss) before tax from conti
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• the capitalized costs can be me
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Intangible and tangible assets with
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Financial liabilities hedged by der
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Starting from January 1, 2007, Ital
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Finance income and expenses Finance
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• IFRIC 19 (Extinguishing Financi
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The cost of capital used for the es
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Type of license The net carrying am
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Note 5 - Tangible assets (owned and
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12/31/2010 Accumulated impairment l
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Note 6 - Investments Investments de
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(thousands of euros) Carrying amoun
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5,620 thousand euros for receivable
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Note 8 - Miscellaneous receivables
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The temporary differences which mak
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Note 10 - Inventories Inventories a
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Trade receivables amount to 4,162,0
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Note 12 - Equity Equity is composed
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Share capital carries a restriction
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The following statement provides ad
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With regard to additional capital i
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Note 13 - Financial liabilities (no
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The main components of financial li
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elating to items classified as curr
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• the loan contract signed by Tel
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Note 14 - Net financial debt As req
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Total Financial liabilities (at the
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Financial liabilities - Maturities
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Currency of denomination Notional a
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Carrying amount for each class of f
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Fair value hierarchy level for each
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Comparison between carrying amount
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Gains and losses by IAS 39 category
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Under IAS 19, employee severance in
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Note 19 - Provisions Provisions dec
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Note 21 - Trade and miscellaneous p
Page 387 and 388:
Note 22 - Contingent liabilities, o
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outcome is considered probable. As
Page 391 and 392:
Federazione Anti Pirateria Audiovis
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offers, contractual profile changes
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Note 23 - Revenues Revenues decreas
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Note 26 - Employee benefits expense
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Note 30 - Depreciation and amortiza
Page 401 and 402:
Note 34 - Finance income and Financ
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Note 35 - Related party transaction
Page 405 and 406:
STATEMENT OF FINANCIAL POSITION LIN
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Transactions with subsidiaries The
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Total income (expenses) from invest
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(thousands of euros) 12/31/2011 12/
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STATEMENT OF CASH FLOWS LINE ITEMS
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Remuneration to key managers In 201
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The beneficiaries were identified i
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Parameters used to determine fair v
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Note 37 - Significant non-recurring
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Expense related Telecom Italia has
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Note 41 - List of investments in su
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Certification of the Separate Finan
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Telecom Italia S.p.A. Separate Fina
Page 437 and 438:
Report of the Board of Statutory Au
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The Board of Auditors has overseen
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amendments Agreed procedures and de
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PricewaterhouseCoopers S.p.A. commu
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On 7 July 2011, after the alignment
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met the Chairman of the Conselho Fi
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Regarding the provisions of article
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18. No significant facts that shoul
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non-compliances imputable to the ex
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corporate bodies, and in particular
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amount equal to 2% of the par value
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curricula vitae are attached) as Di
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at least twenty-five days before th
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Authorization to increase share cap
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and this is confirmed in a report p
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5.6 - For five years starting from
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Proposed Resolution The Shareholder
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9.8 - In appointing directors who f
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only one slate. 17.10 - The Board o
Page 475 and 476:
17.17 - At the first renewal of the
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