Alex Pierre Bolis - IR Marco Patuano - CEO Piergiorgio Peluso - CFO

Giovanni Montalti - UBS Georgios Ierodiaconou - Citigroup Global Markets Nick Brown - Goldman Sachs International James Britton - Nomura International Plc James Ratzer - New Street Research Micaela Ferruta - Intermonte Nick Delfas - Redburn Giles Thorne - Jefferies Hannes Wittig - JPMorgan Paul Marsch - Berenberg Stefano Lustig - Equita Fabio Pavan - Mediobanca Fabrizio Marchesi - Pramerica

Good morning, ladies and gentlemen, and welcome to the Telecom Italia Group first half 2014 financial results conference call. This is Alex Bolis speaking, Head of IR. First of all, I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those in the forward-looking statements as a result of various factors. Analysts are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this presentation and are encouraged to consult the Company's periodic filings which are filed with the United States Securities and Exchange Commission. Mr. Marco Patuano, Group Chief Executive Officer, will introduce to you the first half of 2014 figures, as well as the progress on our group operations; Piergiorgio Peluso, Group Chief Financial Officer, will then present to you an update on group financials. Our Q&A session will follow. TIM Part's CEO, Rodrigo Abreu, will be following us by phone and will be available to take your questions. As usual, this event is being recorded and all participants will be placed in a listen-only mode during the Company's presentation. After TI's remarks are completed, we'll be pleased to take your questions. There is a simultaneous webcast that may be accessed through the Company's website, www.telecomitalia.com. The slide presentation may be downloaded from the website as well. And of course, feel free to view the slides throughout the conference call. Marco, over to you now.

Thank you, Alex. Good morning ladies and gentlemen. Our Group results for the second quarter 2014 are showing the overall progression we expected, in line with the operating and financial improvements we're seeking through the execution of our 2014-2016 plan. This plan is all about the step-by-step transformation of Telecom Italia into an integrated, fast-speed telecommunication and ICT Company, developing convergent, seamless and multi content services and offering high quality for all usage patterns. As you know, this goal is based on a solid ultra-broadband investment plan which is progressing well across our main markets. Our second quarter 2014 Group results showcase this business transformation. By the end of July, in Italy, we had brought fiber to 83 cities and LTE to 60.5% of the population; while Brazil, 66 cities had been covered with our mobile broadband project. This acceleration of innovative investment is starting to deliver domestic positive KPIs in fiber, better performance in mobile, while it is enabling a strong data uplift for TIM Participacoes. Let's take a look at the highlights. Slide four gives us a comprehensive view of our main results for the quarter. Group service revenue stood at (4) [ph] down 7.1% year-on-year in organic terms as of June 30. This reflects different speeds in our businesses. For the mobile, MTR drag is impacting for its final quarter on domestic while it is fully accruing in Brazil. Nevertheless, underlying operating performance was positive in both countries, with Italy showing a visible improvement, supported by the positive performance in our calling customer base and by LTE upselling gaining traction. For fixed, as we will see shortly in more details, in Italy, we enjoyed positive KPIs in broadband and fiber take-up, something that is not yet mirrored in our revenues as we're now fully deploying our strategy to expand broadband penetration on our customer base, leveraging on commercially-appealing ADSL offers. Consolidated EBITDA was €2.1 billion for the quarter, minus 4.8% year-on-year organically, is showing a 1 percentage point improvement quarter-on-quarter. Both domestic and Brazil contributed to this better result while we over performed in OpEx efficiencies as Piergiorgio will tell you in a few slides. To our Group, innovative CapEx represents a key area to which we're assigning full priority also in terms of technical solutions, passive network-sharing and procurement management. Our ultra-broadband coverage has materially increased this quarter as I already briefly mentioned and as this slide summarizes. Operating free cash flow reached to €1.1 billion, plus 11% year-on-year. This is a very important result for us as it proves our ongoing commitment at combined investment and innovation with financial discipline. Net financial position as of June 30th stands at €27.36 billion with a debt reduction of about €200 million quarter-on-quarter and €1.5 billion year-on-year. Slide 5, this provides you in a single chart, the most relevant details about our domestic service revenue performance which remains stable in this quarter at minus 8.9% year-on-year. Debt improvement versus last full year performance reflects a different mix between fixed and mobile. Let's start with the mobile. As we expected, mobile is taken up reaping the benefits of the overall market stabilization that started in September 2013, which translated into lower MNP, return to rationality on bundles and room to fully leverage on our leadership in LTE. ARPU started to recovery now standing at the €11.9 per month versus previous quarter result of €11.5. Mobile service revenues stand at minus 13.3% year-on-year with a 1.6 percentage point improvement quarter-on-quarter. We're outpacing our competitors. This confirms the strategy we deployed to exit for the last two difficult years was the right one. Let me take this opportunity to thank Luca Rossetto for the very important work he did by leading effectively our domestic consumer division over this period, by helping to set the basis for the recovery we are already witnessing in mobile. Fixed revenues were somewhat weaker standing at minus 8.6% year-on-year, since they're no longer supported by the positive comparison with last year monthly rental fee increased introduced on April 1st, 2013. Our retail fix line losses remains stable at about 140,000 per quarter while carrier selection and carrier pre-selection disconnections increased, driving total loss of fixed lines to 200,000 in the second quarter. Voice usage did not help us. We're reacting to this trend with a massive introduction of flat billing on fixed voice, since a good part of our customer base are still on a pay-per-use basis. It's a trade-off between ARPU dilution and churn prevention. Fixed broadband figures and faster than expected fiber take-up show some performance. This is a winning part of our domestic business which we're fully enabling with our domestic ultra-broadband network deployment plan. Let's take a closer look at it on Slide number 6. In this slide, we'll let you appreciate how we're switching CapEx from traditional to innovative. Indeed, the €30 million net euro network CapEx increase of the first half in Italy resulted from a plus €80 million in its innovative portion, showing a 47% increase year-on-year and at the same time, a minus €50 million in traditional network CapEx coming from progressive network delayering in other savings. We reached further efficiencies in IT investment. Lower commercial CapEx and a sharp reduction in handset subsidy are signs of a different sales approach. So, all in all, thanks to our efficiency plan, we more than compensated the increase in the innovative CapEx, reducing total first half 2014 domestic CapEx by 12.6% year-on-year. Accelerating on our innovative network CapEx is the key element of our strategy. In Italy, they account in the first half 2014 for 34% of the total network CapEx and 26% of the total CapEx. Our NGN expansion has now covered 83 cities, three times more than our main competitor on fiber. And our LTE rollout has reached more than 60% of the population and we're ahead of our main mobile competitor. TIM has been recognized by AGCOM as the best network in Italy for speed and stability. We're moving rapidly towards our 2016 ultra-broadband targets of more than 50% in fixed and more than 80% in mobile. On the next slide, we can see how all this translating into a positive set of KPIs. In mobile, as you can see, the constant growth of our broadband customer base that exceeds 9 million plus -- clients, plus 30% year-on-year. This is driving an expansion of our innovative share of service revenues, which grew 7 percentage point in one year. When after our May dealer convention, we opened LTE across all our 3G bundles from €15 per month up, we created favorable condition for the upsizing in of their data content. Broadband entry-level packs are now starting from half a gig, as the average data user per month of 3G in our customer base has now grown to about 700 mega an LTE cost for more than 1 gig, it is evident that user need to scale up their plans, leading to higher ARPU. About 30% of our growing LTE customers are now upgrading their bundles. In fixed, we are experiencing a stronger than expected commercial success of fiber. At the end of June, we already had more than 100 connected customers -- or 100,000 connected customers that are increasing at a pace well above 1,000 per day. Fast broadband adoption is supporting the increased performance of innovative fixed service revenues, 32% of the total and contributing to progressively offset the revenue erosion coming for lower demand of traditional services. It's interesting not only big cities like Rome, Palermo, Naples and others have all been good fiber performance, but also the medium-sized ones. On slides 8 and 9, we move to a closer analysis of our two main domestic businesses introducing also a second half outlook for both. First, mobile. Our strategy which increased bundle adoption to above 65% of our customers helped us to deliver a solid broadband performance which confirms a double-digit growth at plus 11.5% as you can see under point two, backed by a summer handset campaign centered on LTE-enabled smartphones. Improved in certain traditional segment such as SMS, where year-on-year revenue erosion has slowed down this quarter from 23% to 17%, ongoing voice -- outgoing voice, which is curbing its negative performance from minus 25% to minus 24% year-on-year helped by growing users and by price stabilization. Adding the stabilization of outgoing ARPU and our calling customer base and the constant increase of the smartphone penetration and of LTE adoption, you see why we can look at the second half of 2014 with a good degree of optimism, while we expect mobile service revenue to head up towards parity by the last quarter of the year. So slide 9 breaks down fixed revenues into its components, focusing on innovative service. It shows how they trended up from flat in second quarter '13 to plus 1.8% in second quarter '14, driven by positive broadband performance, hitting its third consecutive quarter of net adds and benefiting from an ARPU increase from the first quarter, €19.2 per month to €19.6, and growth in ICT servicing stepping up at plus 3.7% year-on-year performance in the second quarter from plus 1.1% in the previous one. As I already mentioned, for traditional services, the drag coming from further line losses and from outgoing voices still goes on. All-in-all, we expect better trend for the second half supported by lower erosion of fixed mobile traffic, 50% of which is now build on a flat basis as a bundle component. Fixed access valuation through retail fee rebalancing which we're planning to introduce in Q4. Broadband adoption by voice-only customers is increasing and continued positive performance for fast broadband and fiber adoption. Hence, in the second half of the year, we expect fixed service revenues to improve to negative mid-single-digit. We expect progressively further improvement in 2015 with our Sky agreement kicking in. Now, I would like to move to Brazil and take a look at the progress we've been making on mobile data this quarter. Slide 10 analyzes total service revenues, breaking them down progressively into traditional and innovative components of mobile generated. In this cluster, our well-established leadership in the handset strategy delivered a current 62% smartphone plus webphone penetration in to our customer base. This enabled a very high double-digit growth plus 44% year-on-year in innovative value added services, further improving from the already outstanding figure of the first quarter on the back of the strong data adoption and the successful launch of new offers. In order to understand the bigger picture of the mobile service revenue, we need to exclude the effect of this year's MTR cut, who's the full impact was registered this quarter. Our operating performance, net of MTR, has been plus 3% year-on-year. Our growth in mobile data, which is expected to increase its contribution to TIM Part service revenues from current 21% to 40% by the end of 2016, is built on a solid operating path. We're working on further upgrades in our network and we will participate to the auction for the 700 megahertz frequencies. Let me now quickly update you on non-core asset disposal plan which plays an important role in underwriting further other ultra-broadband investments. On slide 11, we recapped current M&A in Italy and Latin America. Italy, the process of a possible tower sale is well advanced. However, keep in mind our very competitive cost of funding in order to push the go button we need to ensure a strong industrial driver which calls for relevant savings and synergies. We're working in order to create the right conditions. TI Media, the deal with the L'Espresso Group was completed; relevant corporate restructuring is in progress, market sounding in search of bidder has started. We expect non-binding offers by end of September. LatAm, in Brazil, the tower sale is very close to completion. Offers are in and final assessments are being made. Moving on to frequencies, the auction structure has already been outlined by Anatel and we're waiting for the bidding process to start. The key element here is to expedite the elimination of the interferences coming from the analog TV. We intent to strongly favor a quick switch off solution in order to start working with a new quality spectrum as soon as possible in the best interest of the whole Brazilian market. Let me comment on the recent M&A activity in the Brazilian market. It further confirms the value of the TLC companies operating in that country and of course also the one-off TIM part. While we're fully focused on the delivery of our plan, which calls for further organic investment in mobile frequencies and networks, we had always been open to considering value maximizing option for all our shareholders. Telecom Italia will evaluate such options for our Brazilian operations also in the future. So let me add one word and our IR will have an heart attack. You know me very well. I never ever did crazy actions in my life. And I'm not willing to do any crazy offer for the time in the future even if the interest is, as we always said, the interest of one of the possibilities in our portfolio. As to the completion of the sale of our stake in Telecom Argentina, the current deadline calls for completion before August 12. Let me stress that both us and the buyer are fully determined to proceed as proven by the full payment of the initial $109 million tranche. All we're waiting for, the second approval. As far as we understand, all the pre-requirement are on their way to be met. Before my final remarks, I will hand it over to Piergiorgio he will -- who will highlight the quarterly financial performance of the Group.

Thank you, Marco. [Audio Gap]. Consolidated EBITDA stood more than €2.1 billion for the quarter and was down 4.8% organically. The underlying performance is minus 2%, net of the changes we introduced in 2014 in the accounting treatment of SAC policy, which now calls for the full expansion as OpEx of all the handset-related subsidies. In reported terms, Group EBITDA performance in the second quarter of 2014 was minus 6.7% year-on-year. Brazil accounts for 20% of the Group EBITDA generation for the quarter. Group CapEx was more than €1 billion down about 4% year-on-year in organic terms and net of the changes in the SAC accounting policy. Domestic CapEx amounted for about €700 million corresponding to a 2.8% year-on-year decrease always net of the new approach on SAC. Brazil represent about one-third of the total figure. EBITDA less CapEx stood at €1.12 billion a stable year-on-year comparison, showing a considerable improvement versus the first quarter with the support of a sound operating free cash flow generation that I will further detail shortly. Brazil's contribution was about 10%. Moving on to the domestic performance, Slide 14, total revenues amounted to €3.8 billion minus 8.2% year-on-year and in line with previous quarters. EBITDA stood at €1.7 billion with a margin of 44.9% or 0.3 percentage points above second quarter 2013. EBITDA performance was at minus 7.5% year-on-year. Net off the changes in the accounting treatment of the SAC policy, it was actually minus 4.2% year-on-year. EBITDA minus CapEx stood at over €1 billion in the second quarter with a reduction of €54 million year-on-year. I am going to provide you further details on the domestic operating free cash flow in the next slide. Slide 15 shows you how our ongoing domestic OpEx efficiency plan is progressing very well. In the first half of 2014, we posted a total OpEx year-on-year reduction of €377 million. As a part of these overall achievement, I would like to highlight the decrease in external OpEx net of cost of goods sold for €324 million year-on-year which falls into perimeter, outlined the blue in this slide, consistent with the €1 billion OpEx reduction we identified for 2014, 2016 plan. In only six months, savings exceeded the €200 million target that we had scheduled for the full year of 2014. This positive performance also benefits from certain exceptionals. The point that I would like to make is that provision and reversal are recurring theme in our business, in that the broadly net each other off over time. As you can see, many solid operating cost reductions contributed to the positive results shown here. Moving to Brazil now the total gross revenue in the quarter are close to €1.6 billion, down 3.4% year-on-year. The related dynamics have already been well-explained by Marco. Moving to EBITDA, its performance in second quarter 2014 reached €434 million, sustaining a solid growth of 8% over second quarter 2013. This quarter improvement was supported by a better contribution margin, as well as value added services continue to play a key role together with a better off net traffic cost for both voice and SMS and savings on leased line. In the quarter, EBITDA margin stood at 27.8%, up from 24.9% in the second quarter 2013. CapEx totaled €337 million, down 7% compared to second quarter 2013. This performance doesn't entail the decline of our investment, but rather a different phasing in the allocation amount the first two quarter of this year. This is shown by the fact that in the first half of 2014, figure is plus 4%. It is worth highlighting that more than 94% of total CapEx in first quarter 2014 was invested in infrastructure, confirming our commitment to improving availability and quality of service. EBITDA less CapEx scored a good performance in the quarter. It more than doubled, reaching an amount just below €100 million. Let's now take a closer look at the first half of 2014 Group operating free cash flow generation which stands above €1 billion, an increase of €27 million from the second half of 2013. For the second half of this year, we're forecasting an equally positive trend, which will be in line with our robust performance which we typically deliver in the second part of the year. This will benefit from networking capital optimization and other efficiencies. On the right side of the chart, we show the different quarterly performance for Italy and Brazil, which contributed to this overall positive results in different ways. First, a domestic operating free cash flow generation -- absorption of €122 million versus the second quarter of 2013, mainly due to the payment of the antitrust fine amounting to €105 million. Normalized for the abovementioned cash effect, the quarterly domestic free cash flow generation is substantially in line with the one of last year. Second, a €223 million operating free cash flow increase for the same period in Brazil which where we paid out €146 million for the frequencies last year. The 2014 performance was also positively impact by the agreement signed by TIM Brasil and Vivo on LT Amazonas worth around €60 million. Slide 18 updates you on the latest achievements of the Group treasury. We have very recently completed the renegotiation of our €7 billion bank facilities maturing in 2017 and 2018. These has become effective from August 1, 2014 and thanks to a new agreement with the landing institutions, commitment fees have been lowered by approximately 35%, leading to a very significant saving. As you well know, in the last few months, we issued several debt instruments at a very competitive cost. And this has contributed to a significant reduction of the Group financial expenses from €874 million in the first half 2013 to €827 million in the first half of 2014. Let met point out how the positive reception we enjoyed for the last three bond issuances totaled more than €3 billion and the recent abovementioned bank line negotiation confirmed the positive appreciation that Telecom Italia has on the credit markets, also proven by our investment grade status language in bond and bank facilities documentation. As usual, I would also like to update you on the level of our important liquidity margin which stood at €12.8 billion, giving us considerable headroom to refinance forthcoming maturities until 2017. The very healthy cash position consisting of €6.3 billion cash and cash equivalent at the end of June is well diversified and protected by the street guidelines for liquidity and credit position adopted by Telecom Italia, is better detailed in the box at the bottom right side of the slide. Thank you very much for listening and back to Marco now for his takeaways.

Let me wrap up as usual with some takeaways. Domestic is on track with our plan. Our mobile environment is improving and TIM is performing better than its peers. Second half improvement would be much more visible. Fixed services are following a slower path to recovery turning around our fixed business is a midterm task based on our fiber strategy. Our efficiency plan is over performing as by our well established track record, the overall target for domestic remains to stabilize EBITDA by the end of 2016. Innovative CapEx has enabled a good take-up of related services. We're more and more convinced to keep this pace. Mobile in Brazil started to significantly add data driven services to the additional -- to the traditional ones. The excellent growth of data revenues is almost compensating the sharp MTR drag. As I told you before, Brazil remains a core asset for TI. On the other hand, our non-core asset disposal plan is ongoing. Free cash flow generation is well on track. Our debt is duly managed and its progressive reduction remains a key objective. Thank you very much for your kind attention. And back to you, Alex.

Thank you, Marco and thank you, Piergorgio. I would like to inform you that our President, Mr. Giuseppe Recchi, has joined us and will be participating to our Q&A session. In order to ensure maximum participation, may I kindly ask everybody who is going to participate to pose only one question per person please. We may start now.

Ladies and gentlemen the Q&A session is now open. (Operator Instructions). : : Giovanni Montalti - UBS: Just on the strategic review, is the range of options that you are considering including a potential counter bid on GVT and eventually also the disposal of TIM Brazil? Thank you.

As we always said, we're keeping all the options open for Brazil. In this moment, with the M&A activity going on in Brazil, there is a lot of speculation all around. We want to keep all the options open. And as I told you before, we are -- we will be as rational as we have always been, but we keep all the option open. Giovanni Montalti - UBS: Sorry, just to better understand the process. It looks like this is something -- I mean, if I understand well, that has started yesterday, this strategic review or maybe this process has already started, let's say earlier and what you are communicating today is just on the back of the news flow that we have had. Because there are some indications in the market that you have already hired some primary financial institutions both in Brazil and in Italy to advise you in this process. So, is something well-advanced? Can you confirm that you have already hired advisors? When can we expect some update from you? Is that a matter of weeks or could it take longer? Thank you.

It's exactly what I was saying when I said there is a lot of speculation all around. We did not kick in any M&A. Somebody else did it. We had our path. We had our processes. We had -- we are working on all the options as we were doing before. The fact that some M&A has started does not change our plan and our time table. And if you allow me, from now on, on this topic, I have very little to add to what I already said.

Next question comes from Mr. Georgios Ierodiaconou from Citigroup Global Markets. Mr. Ierodiaconou, please. Georgios Ierodiaconou - Citigroup Global Markets: I was just wondering if you can give us an update on the cost saving targets that you've said. I mean, already, it looks like you're going to beat the target for 2014 quite comprehensively. And I was wondering whether the additional savings could come at the expense of some of next year's targets because you may have started some of these processes earlier or whether you have identified additional cost saving potential in the last nine months and you are executing on that. And I know we're restricted to one question, but if I could perhaps get you to give us some indications of what you are seeing in the business market in Italy, given that's it's less visible for us on the SME and corporate, if pricing is as benign as it is in consumer? Thank you.

Just a reminder on our focus on our domestic OpEx savings, you will remind that we have announced to the market €1 billion domestics OpEx savings and these were related to the market driven cost and process driven cost. Market driven cost for us is commissioning, advertising, customer care, debt and other commercial cost; while process-driven are industrial cost, G&A, and in general, other OpEx. And these €1 billion was split; $0.2 billion in 2014, $0.4 billion in 2015 and $0.4 billion in 2016. Out of this number, the result already achieved in the first half are more than 55% for both numbers. And the reduction is greater than the expectation by €150 million and we're confident that we will obtain the results and even better the result in 2014. As I told you in the first part of the presentation, in this number, we have also the release of a provision for Sparkle for €72 million. But I tend to say that over time, we have many provisions and many release of provisions. So, at the end, the overall effect is compensated overall in the medium-term. For instance, we have also some provision that are not highlighted in the presentation, so you should not consider just the positive effect of €72 million on Sparkle, but you should consider the overall number which is almost compensated year-over-year.

Well, the corporate segment is -- has really showed two very different moves. The mobile is going towards rationality. We re-priced it almost six months ago. So, the process of stabilization has one quarter/two quarter delays versus the consumer. But mostly, the dynamics are the same. Much less volumes in terms of gross acquisition, in terms of churn, in terms of M&P. A lot of bundles, everybody goes for bundles and increased interest for LTE. I think that enterprises have been the ones who will discover that the first and they are very much interested in it. So, all in all, quite interesting. Also, in the corporate segment, the competition is back to rationality despite some occasional -- some bids, some specific bids, but it's not a problem really. Interesting the fix; the fix there is a growing appetite for ICT. And what is interesting is that we're sailing up the pile of the value chain in ICT. I mean, we moved from selling mostly infrastructure-as-a-service and now we're selling more and more solutions like platform-as-a-service or even software-as-a-service. So, this is interesting because of course the marginality grows the more you add services on top of the pure infrastructure. What is important is to highlight that what hits the result is not a line losses effect, but it is the transition from a traditional technology to VoIP technologies and this is something that happens. More and more mid-sized companies now are adopting solutions that before we're only made by big customers. So, this is something that we are facing. And, of course, this is something that is not -- it's not short term, it's a mid-term transition that we have to perform. But I think that all-in-all the business is doing a recovery in line with one of the consumer.

Next question comes from Mr. Nick Brown from Goldman Sachs. Mr. Brown, please. Nick Brown - Goldman Sachs International: In Brazil, can you clarify your statement on not getting involved in a crazy auction? Would you ever consider counter-bidding for GVT at all or is that not an option? Thanks.

Sorry. I think I already answered to what I had to say. We keep all the optionality open and we're not interested in anything that could be irrational. Thank you. Nick Brown - Goldman Sachs International: Let me just follow up on that. You previously stated that although Brazil is a core operation, there's a price to everything and you would consider selling if you received the jumbo offer. Does that still stand?

Yes, we are -- look it's more than one year that I'm saying always the same, Brazil is a core asset. We're investing. We are -- I fly over to Brazil not less than once every two months. I spend a lot of time together with Rodrigo. We're improving our management team. We're making a hard work. It doesn’t mean that we're deeply engaged in the organic performance. We keep the eye open for everything. We keep the eye open for in-market consolidation. We keep the eye open for consolidation -- fixed mobile consolidation. We keep the eyes open. Every day there is a different news on Brazil. One day, there is news coming from one player. And one day there is news coming from another player. So, its one year that we're working on keeping the eye open and I confirm you that we keep the eye open on all the optionalities.

Next question comes from Mr. James Britton from Nomura. Mr. Britton, please. James Britton - Nomura International Plc: On Brazil, can you just talk about how relevant you see the bundling of broadband and TV with the mobile service in that market both now and also in the future? Thanks.

So, obviously, when you look at a small portion of the market, in particular this super high end of the market, bundled offers are starting to be considered. They are becoming relevant. But if you compare that to the overall number of subscribers in your country, especially when you look at the mobile scene, you can see that we have close to 270 million mobile subscribers. And when you look at just the pay TV subscribers, this number goes down to approximately 50 million. If you consider the bundled offers, obviously, it goes down to yet another fraction of this. Meaning that even though it does have an effect and bundling is something that we will definitely go forward as being critical to the fixed operator, the integrated operators, the effect on the overall number of subscribers in the country is relatively limited in a sense that most people will consider a bundle, especially on a triple-play approach and not necessarily on a quadruple-play approach. And this is even more so because when you compare the purchase power and the consumption power of the average Brazilian subscriber, most of them, the absolute majority of them do not have any condition of consuming bundled services and just individual services, in particular, on the mobile scene. So, as we have been discussing, we do have a small broadband operation and now are looking at all the possibilities of offering additional services, including over-the-top contents and over-the-top video and TV. But that for now is not a major concern given our quasi pure mobile strategy here.

Next question comes from Mr. James Ratzer from New Street Research. Mr. Ratzer, please. James Ratzer - New Street Research: Continuing on with the bundling question but this time actually in Italy, I was interested in the progress of TI SMART, you're saying for about 150,000 customers now and the product's only 2% of the base. I was wondering why you think it might not have actually accelerated faster. The price discounts on it look attractive. Is this something you expect the rate of adds to accelerate going forward? Thank you.

Thank you for the question because it's something we discuss -- we deeply discussed in our last internal business review. I think that TIM SMART has been designed in order to be very carefully managed in order to avoid massive cannibalization effect on our customer base. No, I don't think that the way to boost it is to cut price. I think the offer is duly priced. Progressively, we will add further services that we will consider interesting for the customer. And we will engage more and more our sales channels in order to have them with a per-positive situation. We're working also on BI, on business intelligence. In order to understand that how many customers could be interested and use the customer care more proactively in order to push customers that are close to parity, to adopt this possibility. It's interesting. The satisfaction index of the ones who adopted TIM SMART is very good. Then the portfolio will be enlarged. We will launch TIM SMART and Vision. So we will add services, video services. We will launch a sort of ultra-TIM SMART which is fiber plus LTE. And we will add a TIM SMART Voice, which is targeted to, for example, senior people who don't attribute very much value to the broadband, but they still consider interested in having a good combo situation for the voice. So, I don't think it's very much about the price or the price point of this offer. But you are right, we can do bigger numbers. Thank you. James Ratzer - New Street Research: It sounds like you'd actively like to actually accelerate that net adds trend on SMART going forward.

Yes. In second half, it is an open point how to accelerate it. The answer is yes, but not using the price.

Next question comes from Ms. Micaela Ferruta from Intermonte. Ms. Ferruta, please. Micaela Ferruta - Intermonte: I would like to ask, given that you've given us an indication on the domestic topline for the second half of the year, can you share an indication also on the domestic EBITDA evolution also referring to the comment that you did on efficiency? Thanks.

Micaela, as you know, we don't give any specific indications on EBITDA for 2014. But I will pass it over to Piergiorgio because he will describe you the overall context.

As Alex said, we have not given to the market guidance on our 2014 results. What I wanted to underline again is that on a free cash flow generation, we're envisaging a free cash flow generation in line with last year and we are confident to obtain similar results. In terms of objective, we are considering something better than the second quarter 2014. If you look at the EBTIDA, considering the adjustment for subsidy, we now have a minus 4.2% and minus 7.5% excluding these subsidies and we are considering something similar with a negative mid-single digit objective for 2014.

: Nick Delfas - Redburn: Just a question on your cost cuts again. I mean, you've said that you don't envisage any reductions in labor cost in addition to the excellent reductions you've had in market and process-driven. Is that still the case or is there any scope over the next three years to look again at the labor costs as well? Thanks.

This year, we did, as we do every year, an exercise on -- sorry, I used your question to expand a little bit. On the cost structure, so we make a benchmarking with most of the European telecommunication companies. And of course, an important area is cost of labor. Cost of labor depends very much what you do in terms of in-house and outsourcing. So, let me tell you what we did over the last four years. Over the last four years, we had to make a big reconversion process. We had more than 5,000 people that were dedicated to jobs with the little value creation or with the big mismatch between the internal cost and the external cost. So, around 5,000 people, over four years, have been reconverted mostly from carrying activities to field activities in order to use much better, not necessarily to reduce the cost there, of course we did it, but mainly to use much better and to drive a reduction of external costs given the certain level of rigidity we have on internal cost. And a very important element was the so called Solidarity law which is a specific welfare solution that allows us to reduce the number of working hours of specific units and with a less than proportional effect on wages for the employees because the state pays for most of the difference that is created. Now, what comes from now on? Well we are negotiating with unions, one thing. And another thing, we are discussing with the government. What we're negotiating with the unions? We needed to become a much more precise in designing solutions in order to increase productivity. So, the way we should increase productivity cannot be on Group of people. I cannot increase the productivity of a group of people. I need to increase the productivity on an individual basis, which is not something that has to be interpreted as I want to punish this or I want to award that. But we wanted to upgrade the level of productivity of each single worker and to use the better we can each single worker, not group of workers. The second is, what are we discussing with the government is that we have another group of people that is difficult to be used in different areas. We are talking about gentlemen, ladies that are aged and reconversion into new professionalities is very difficult. So we will -- we're discussing a new version of the Solidarity Law that should allow us to reduce a certain percentage. Imagine, on average I will use 7%, 8% of the working hours. So, I have 50,000 employees, is like reducing 4,000 people on average. And we other -- we hire new fresh guys. They will cost less, they will be more productive and they will add certain professionalities that cannot be converted, imagine in the IP world. So, it's not only about what we spend, it's much more how we spend and which kind of a mix of competencies we will have at the end of the process. Sorry, if I have been a little bit long, but I think it was worth.

Next question come from Mr. Giles Thorne from Jefferies. Mr. Thorne, please. Giles Thorne - Jefferies: Thank you for taking my question. It was around competition in domestic fixed. Just picking up on comments Vodafone made on their results call on their increased confidence that they have got around their competitive position fixed, especially around the momentum they've now got on rolling out their own fiber. They've obviously been very pleased on the mobile side of things, but should we expect their increased confidence on the fixed infrastructure to come through as a more aggressive move on converged offerings, where as far as I am aware, they aren't particularly active at the moment. Should be interested to get your perspective on how that plays out.

So, if I can recap, the question was on the domestic competition and also more specifically on the investment side, how we are seeing our competitors roll out, possible fiber plans of ours.

Well, it's very much different in fixed and mobile. So, let me start from the mobile because it's easier. In the mobile, there are two players which are heavily investing and I think that the market response is very interesting. At the beginning of the year, we were all pricing with the speed premium. The market didn't like very much. Now we are working on the way we design the data bundles, but it's very much important the quality of the broadband -- of the mobile broadband. I think that Vodafone is catching up. They are working very well, they are very good. So I have zero doubt that sooner or later they will recover the advantage we have today in the mobile. It's quite different the situation, with the other two competitors. They seem to be in a sort of a more prudent attitude and they are probably investing a bit less and this is something that starts to be a competitive factor more than the pure price. What do I expect? Well, I do expect that sooner or later they will start, but it's not easy to recover such a big difference as we have created now. I think that there will be a sort of polarization with the two operators on one side and two operators on the other side. Fixed; well, fixed, what we see is there is a sort of increased competition on the basic services. And the intra-OLO churn, so that the quantity of customers that go from one operator to another is growing. But it's very much on the traditional services. Once the customer gets the ultra-broadband, gets the fiber, what we see is that the customer satisfaction is extremely high, the net promoter score becomes very positive. So the customer who has fiber become very much loyal and also he becomes an advocate of us. What is the situation? Well, we are investing in almost all the mid-sized cities, the big ones is obvious. We're catching all the opportunities coming from funds, European funds or even regional funds in order to build more fiber, and the average cost is lower than at the beginning of the year. It's a learning curve in place, a better procurement. So, we're doing fairly well. What we see about our competitors. We heard a lot of announcements, but a fairly prudent attitude in started digging the road. So, we're -- of course, I have no reason to doubt that what they say is what they will do. But for the time being, the correct verb is on the future. Giles Thorne - Jefferies: Assuming they do deliver on what they say they're going to deliver, how do you see -- do you see competitive intensity increasing from here or do you expect them to be more rational? I'd just be interested to hear your comments on that.

The question was competitive intensity around fiber. Is that the correct question? Giles Thorne - Jefferies: Yes. Why not?

Well, I think that today, more or less like in the mobile, there are operators that are betting more on fiber, which are Telecom Italia and FASTWEB on one side, Vodafone is starting now and honestly, Infostrada and the other the smaller ones are creating less competitive tension. So, I think that the market is very big. I don't think -- the market opportunity is big. I don't think that we will face very soon a price competition on fiber. But for sure, today what we see is that we sell more fiber on existing customers, so it's more an upgrade of existing customer than a way to create churn. So, this is something that is fairly interesting.

Next question comes from Mr. Hannes Wittig from JPMorgan. Mr. Wittig, please. Hannes Wittig - JPMorgan: I have a question related to the capital efficiencies -- CapEx efficiencies that you have demonstrated. So, I just wondered if you are still intending to spend the same amount of CapEx this year or as anticipated in the medium term plan or whether you will translate the capital efficiencies into operating cash flow gains or whether you will conversely maybe expand the ambition then to cover greater parts of Italy with high speed infrastructure?

I am pushing my guys to reinvest in innovation, I'm an innovation fan. So, I'm pushing the guys to continue to be more efficient and to put every buck we save on innovation. So, innovation is the driver because we need to create, as fast as we can a different infrastructure in order to deliver different services. I think that we are doing very well on free cash flow generation. Piergiorgio is every single day working on working capital, working on every single efficiency we can. But if we save money on CapEx, we will dedicate on innovation.

Next question comes from Mr. Paul Marsch from Berenberg. Mr. Marsch, please. Paul Marsch - Berenberg: I have one question for Mr. Patuano, if possible. It's really about back on the question of Brazil convergence again. I wonder if you consider Telefonica's $9 billion offer for GVT to look sensible or crazy or well-pitched. And if it's successful, then Brazil will make another step towards fixed and mobile convergence. And then we have to consider what AT&T will aim to do with DirecTV if that deal gains approval from the US regulators, clearly, they have a position in Brazil. Maybe they will exploit their long-term friendship with AMX. Now, TIM clearly has its LIVE TIM super-fast broadband service which is being rolled out. But when you see those developments on the horizon in Brazil, how important does that challenge become for TIM Brazil from a strategic point of view? And is TIM Brazil's current strategy enough or are there more radical inorganic moves required at some point?

When I was living in Brazil 2002-2004, the difference between developed countries and Brazil was more or less four years delay. So, what happened in Europe, it was a proxy for Brazil four years later. Today, I would say that this delay is shorter. There is still a delay, but it's shorter. It's not anymore four years, I would say two to three years, which means that today convergence is not a game changer in the game. And it's really targeting the very top of the socio-demo pyramid, which is a big socio-demo pyramid because we are talking about 200 million people, but fairly concentrated in -- and so numbers are -- so, if you want to make big numbers, you need to hit, as usual, the mid class. And today, the mid class is not asking for convergence. So the real question is not today. The real question is if and when tomorrow. You have to consider that broadband -- that the population in Brazil is young and broadband is something they like very much. But today, there is a huge demand for low cost broadband. That the demand is for a broadband that should stay in the $15, $20 range, okay? Which is difficult to be delivered using a fixed infrastructure and if you want a good quality or in case you have a poor quality, the mobile tends to be at least comparable. So, the question is what about tomorrow? Well, I think that soon or later some convergence will be also important in South America. I think that if we look to the potential synergies that whoever wants to combine fix and mobile today are much more cost-driven than revenue driven, which could change in the future, but this is what it is today. It's difficult to make speculation what will do AT&T in some years from now. Sorry, I broke my crystal ball. It's difficult to make such a long-term prediction. But it's true that the television and the pay television is gaining traction. Then you ask me, what about the investment we are doing? Well, the investment we're doing, we're focusing in Brazil, we're applying to Brazil the same lesson we learnt in Italy. So you need to focus very much on innovative service, you need to be very much rationale on traditional services. One year ago or even a bit more than one year ago, we had big, big quality problem on traditional services. Rodrigo and his team they did an incredible work in order to fix all the bugs today, we have no more problems on traditional services. And now the full team, the whole team is fully dedicated to increase our mobile broadband network. What we do need? We need more frequencies because the demand is an important one, we need good frequencies, we need to use more efficiently the frequencies we have, we need to build more sites and we need to continue working on backhauling and back-boning. The CapEx we have in the plan can be modestly reviewed upwards. Of course, we have to keep in mind that the frequencies were not in the figures we disclosed one year ago. I hope I gave you a full answer.

: Stefano Lustig - Equita: My question is on the domestic market and I would like to know if you want to share with us what are the first messages from the summer season for the mobile sector in terms of competitive arena, promotions, pricing, acquisition of clients, churn rate and so on. If there is -- if you see from the beginning of the summer some encouraging indication toward the market we pay.

Well, it sounds quite a quiet summer. The most -- just to give you one single number, we're spending in advertising 30% less than one year ago, which makes the controller fairly happy. The number of gross adds in July has been 40% less than one year ago. But the number of churned lines has been 40% less than one year ago. So, I do confirm you that the so-called washing machine effect, people come in and out, in and out, is much, much less than one year ago. The rational attitude is characterizing the three major players, some early signals of movement towards a less irrational attitude also from Hutchison, but still too much discount. They are given such a high discount. Mobile number portability, we are close to zero, so we lose a really almost irrelevant number of customers, and being close to zero with almost all the operators is a clear signal that the situation is fairly call. What else? I think this is the situation right now.

: Fabio Pavan - Mediobanca: Once again on domestic mobile. I was wondering if you do believe that the good LTE take up, that as you were saying before, could relate in a risk of polarization for the market. Could those eventually speed up the possible consolidation process in our domestic mobile arena? Thank you.

It's a question or a wish? I honestly -- it is not difficult to say that I wish a consolidation of the market. But I think that, yes, what you say is totally correct. I think that mid-term, we have not to wait long term but mid-term, we need not to have -- so the market cannot accept such a polarization in technology. And so, one of the two or the two players today are investing less will start to invest, which an obvious effect on the free cash flow generation or they needed to find a way to become a more efficient, that there can eventually be some network sharing or something like this or eventually, even a more radical solution. But what I think is that mid-term, the polarization we're viewing today is not sustainable from a competitive standpoint. Thank you.

: Fabrizio Marchesi - Pramerica: Hi, just one quick question. And so domestic mobile, the decline was 10% year-over-year. What was that number adjusted for MTRs?

In the minus 10% is reported with the MTR effect included. And as I told, second quarter 2014 is the very last quarter with the MTR effect. If you wanted to neutralize the effect of the MTR is between 1% and 2%. It's less than 2% more than 1%.

Okay. That wraps up our call. Maybe Marco wants to say a few words.

Enjoy your summer vacation guys.

So, thank you very much everybody and have a great afternoon. Bye bye.

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