Ladies and gentlemen, good afternoon and welcome to Telecom Italia Third Quarter 2019 Financial Results Conference Call. Ms. Carola Bardelli, Head of Investor Relations, will introduce the event. Ms. Bardelli, please.

Ladies and gentlemen, good afternoon. This is Carola Bardelli, Head of Investor Relations. And I'm pleased to welcome all of you to our third quarter 2019 results presentation. I'm here with our CEO, Luigi Gubitosi, and our CFO, Giovanni Ronca. Luigi will provide an update on the plan execution and on the main strategic initiatives and Giovanni will present the third quarter results. A Q&A session will follow. Pointing out our Safe Harbor disclaimer on page 1, let me remind you that our comments are based on IFRS 915 standards comparable to last year's results and that we are also showing an after lease view on which we are basing our guidance in line with most of our peers. Luigi, the floor is yours.

Thank you, Carola. Hello, everybody. And good afternoon. It's a pleasure for me to be here. This is my fourth call results with you. And I'm quite happy that I believe we're really transforming TIM and we are delivering our plan as we said a bit less than a year ago we would. Let's start from page three. Plan execution is accelerating. We are revamping our organization and corporate culture. It's a relentless process. And we are delivering on our objective of transforming TIM in a leaner, lighter organization. Overall, to date, there have been 1,700 exits, 1,000 more will come by year-end. And the cumulative number of exits will approach 5,000 by the end of next year. We're also doing reskilling. We reskilled 430 people, which has led to in-sourcing activities for a value exceeding €20 million this year at the run rate. And we're planning to reskill 1,800 staff by 2021, which basically means we're going to use less outside people. Overall, with this in-sourcing initiative and plan and exit, we already identified almost half of the 2021 planned cost cutting of €400 million. Indeed, we're considering beefing up cost cutting in the next plan. TIM has been ranked number one company in Italy and the first telco in the world, thanks to its approach to diversity and inclusion. This show our attention to ESG teams that I strongly believe in and will further enhance. In fact, while they're not part of a traditional P&L, they are important to build a better company. With regard to our hard work on the domestic business, on the mobile side, we delivered another quarter with ARPU increase Q-on-Q, while, in the fixed, we decided to skip and avoid this year's summer pricing expected increase with positive impacts on customer satisfaction and fixed KPIs. Talking about fixed KPIs that are at times it's difficult to read. I'm sure that Giovanni and Lorenzo will drive you through them and explain more. It's an item, obviously, we are focusing a lot. OpEx and CapEx were down 10% year-on-year. We're doing more spending less. And these are yet to embody the benefit of radio access standard that will allow us to dramatically improve our purchasing conditions. In fact, on the CapEx side, very good news on renegotiating a number of contracts. We're also going beyond what we used to call addressable costs, addressing also the unaddressable cost base. As an example, EBITDA benefit from margin improvement in equipment sales, which was a total of €56 million in nine months. I told you in past calls that I was positive on Brazil and I'm keeping my bullish view on the country. TIM Brasil keep improving its performance and we're seeing sequentially better results on all key metrics in 2019. Most importantly, in revenues, they are reaccelerating growth. I still continue to believe that Brazil will be an important country for us. They will be a very interesting place to watch in the near future. However, the most remarkable achievement is debt reduction, which has reached record levels in these first nine months, going down almost €1 billion, which is entirely organic, something that hadn't happened in the last few years. The equity free cash flow in the first nine months is 6 times higher than the previous year. We have achieved 35% of 2021 guidance in just 10 months, mainly by improving cash conversion. If we move on page four, we're full steam with strategic initiative. Before giving you the big – or rather, commenting the big news of the day, let me update you on already running initiative. On the partnership with Vodafone, we're awaiting for antitrust clearance of the deal to proceed. And as a shareholder, I would expect the shareholders' meeting to be called by year-end. So as I said, we would expect that to happen in December. On the potential partnership for fiber rollout, we've invited the infrastructure funds to participate in a combined acquisition Open Fiber and we're in process selecting our partner. As anticipated, on the consumer credit partnership, yesterday, we announced that we have selected Santander as a partner with the aim of improving credit management as well as to reduce our debt. A joint venture with Santander, we'll also be cross-selling loan and insurance products to TIM customers. We also announced yesterday that we have a new agreement with Netflix, which adapts to now TiVo and the others that are coming. We're expecting to become the richest platform in the Italian market. In this quarter, we're announcing a new transformational strategic initiative as described in the next slide, 5. I am very proud to announce a strategic alliance with Google Cloud that, for TIM, is a transformational project to create a massive value. And I understood incidentally that, for Google, I think it's the first deal of this kind. We're glad to have selected Google as our partners for many reasons. But definitely, it's because we believe they are the most innovative company in the world. And I believe that working with them will help us beefing up our cultural change and driving it in the right direction and will offer a number of opportunities to add on our offer. What is the rationale for the alliance? Well, cloud services are growing fast in Italy, and not only in Italy. More than 20% a year. And cloud is a big opportunity because it's still unknown in a large part of the SMEs market. And large companies just started in Italy to move to the cloud. TIM is today the largest player, with about 11% of market share in an extremely fragmented market, mainly thanks to Nuvola Italiana. Google Cloud, alongside Nuvola Italiana, will improve and widen our cloud portfolio. As we know, we have presently 22 data centers. Google Cloud will rely only on our leading-edge infrastructure, which will be built in Rome, Milan and Turin. And the alliance would allow the deployment of first European edge computing network using selected TIM switches. What are the benefits for TIM? Well, as you will see in the next slide, in 2020, pro forma sales from the newco will be in the region of €500 million and we expect to grow more than €1 billion by 2024 with EBITDA, which will be around €400 million. Importantly, this is a transformational transaction also for our country. The combination of 5G, fiber and edge computing that only TIM can provide will make Italy a technology frontrunner. And, in fact, it is again our intention to improve the technological component, both of our company and of our country. On slide six, you'll get a bit more detail. We're planning to create a newco that will own our data centers and we will have an infrastructure fund to enter one or more, obviously, acquiring minority stakes with a possible view to eventually IPO-ing the company. And the idea is that this minority partner will finance the planned expansion. We will maintain largely control. We'll continue to consolidate this growing business. And, in essence, we'll do something similar to what was done with INWIT. By the way, I mentioned the word €1 billion in term of sales. This is not particularly aggressive considering the cloud markets are growing 20%. In fact, this is a preliminary – what our preliminary plan shows because, in full year, effectively doubling sales would be a 16% implied rate. So, I think this is definitely achievable. And, in fact, we will work to do more. You know better than myself that cloud companies are trading at significant multiples. So, we are highlighting the fact our business revenue are growing at 20% more and should deserve this type of multiple. The newco will own all data center infrastructure. We'll be providing cloud services to TIM and Google, including professional services and system integration. And we plan to train, with the help of Google, over 800 engineers. On page seven, I will comment on what we call TIM Presto, our consumer credit partnership. And as we anticipated in previous quarter, we have announced a partnership with Santander Consumer Bank. The scope of this partnership is to set up a collaboration and then a joint venture to develop and distribute durable loans and other products to finance our customers when they buy our devices. At the same time, the new entity will have the flexibility and goal to offer financial insurance products with an upselling approach. One of the key benefits of this partnership, as you can see from the slide, is risk reduction, thanks to the experience and sophisticated tool of Santander in this field. Bad debt has been an issue with us for the last couple of years and we're aiming to reducing by at least €50 million that accounts for an additional 12% to the planned cost cutting on top of what we figured was achievable through HR cost reduction. So, in total, as I was saying, we have identified now 60% of the €400 million cost cutting, so we want to do more. And another major benefit of this initiative is that it will support the leveraging by a reduction in working capital about €500 million during the course of 2020. So, the plan is to have a commercial agreement signed by January 2020 and the joint venture deployed by July 2020. The JV will be 51% owned by Santander Consumer Bank that will appoint the CEO; 49% by TIM, which will appoint the Chairman and Head of Sales. Let me now hand the microphone to Giovanni Ronca, our CFO, that will drive you through the quarter results. Giovanni, the floor is yours.

Thank you, Luigi. Good afternoon, everyone. I'm on slide nine. Let me start repeating that debt reduction has been very material in the last two quarters. And in the third quarter, has been even accelerated, reaching over €400 million deleverage and almost €1 billion reduction from the end of 2018. This is entirely coming from organic cash generation, with an equity free cash flow of €1.2 billion, 6 times last year's result, and €444 million generated in Q3. We have achieved 35% of our cumulative equity free cash flow target by 2021 after only nine months. Service revenues were down 4% year-on-year, excluding the Sparkle discontinuity, and EBITDA down 4.5%. CapEx was down 9% year-on-year, in line with guidance of €200 million reduction on the full-year basis, leading to an EBITDA minus CapEx 1.4% lower year-on-year. Let me explain these results starting from mobile on page 10. In mobile, we are confirming an ARPU rebound with a significant increase quarter-on-quarter to €12.9. As you know, this is related to the more rational approach on pricing as well as some smart upselling and very segmented repricing actions. The market overall continues to improve in terms of rationality and we're seeing the washing machine effect cooling down further in Q2, with mobile number portability 42% lower than in 2018 and churn sequentially increasing from seasonality, but with a steady reduction on previous year. Mobile service revenues are down 7.2%, with an improvement versus Q2, thanks to ARPU with line losses still impacted by competitiveness in the low end of the market as well as cleaning of silent lines, which explains approximately half of the fall. I remind you that overall revenues are impacted by lower sales of handsets. That reflects the policy of improving marginality and reducing subsidies and sales of low-margin devices benefiting EBITDA. Next slide on fixed, number 11. This is an important slide. You should focus on one number in red, minus 1.4% year-on-year, which is the decline of total fixed revenues excluding Sparkle and including equipment. Why do we include equipment? Because the margin on equipment in fixed is very good, not different from the margin on services; and the structure of our offer, both in consumer, in business and wholesale, has evolved towards a higher weight of equipment which you see grew 76% year-on-year. Fixed service revenues trend has turned negative this quarter to minus 5% excluding Sparkle for the combined effect of tougher comps, the gradual shift of the mix from service to equipment that explain, mainly relating to the new consumer offering structure and to the growth of ICT and wholesale-related sales that include hardware. Another cause is the reduced so-called washing machine effect that translates in lower activation revenues on the one side and in strongly reduced dealer commissioning and provisioning costs on the other. Differently from the past, we are now running the business for cash. And our cash conversion is boosted, hence the reason of our equity free cash flow beat. I remind that comparability is impacted by the fact that, last year, we had increased prices on the customer base in July, while this year we decided to avoid any price increase. We are just focusing on upselling. Domestic wholesale keeps growing despite a slowdown to the impact of booking of regulated pricing reduction related to previous years. Sparkle revenues are down for the steered reduction of voice business contracts with zero margin, hence not impacting EBITDA, as said in previous quarter. Let's see the KPIs on next page. The result of the decision not to increase prices translate in significant improvement of our KPIs. Broadband lines keep growing, thanks to a number of actions, including our new soccer offering, FWA in rural areas and promotional activities to migrate voice-only customer to ADSL. Overall, retail lines losses decreased quarter-on-quarter to 225,000 versus 346,000 lines in Q2. Churn has decreased to 4.4%. Last, but not least, the fiber lines continued to grow and we've now reached 6.6 million lines with an increase of 4% over the previous quarter and 36% year-on-year. Further growth may come from increasing broadband penetration in Italy. And to this regards, I would like to build some clarity on this matter and elaborate on another important initiative. Let's flip to slide 13. We often read that Italy lags behind other countries in Europe for its broadband infrastructure, and that development of new technologies network is required and urgent. To the contrary, Italy is among the best in class for coverage of ultra-broadband network that now reaches 90% of the population. And I can tell you that only with our infrastructure, FTTx network coverage is 80% and that, out of our potential customer base, including retail and wholesale, more than 40% enjoy effective speeds above 100 megabits and over 80% enjoy 50 megabits per second. It is on adoption of broadband fixed connectivity where Italy does lag. Drivers of this situation are to be found in digital culture, adoption of Internet services as well as the lack of a traditional cable TV which, in the other European countries, has been one of the drivers of fast ultra-broadband adoption. On this point, we're taking a leadership stance, giving ourselves the objective in overcoming culture and behavioral constraints. We have just launched a countrywide initiative, very well received by national and local authority and the press, called Operation Digital Renaissance on digital education and coaching that will be carried out directly by our staff in 107 cities, targeting over 1 million citizens. On the other hand, as already mentioned, we are enriching our TIMVISION content, being aware that TV will be playing a major role in building the need for ultra-broadband for all. Let's now see how we're doing on OpEx on slide 14. Actually, we are satisfied with our OpEx reduction, minus 9% year-on-year on a P&L view and minus 12% on a cash view, excluding the effect of cost deferral for past years. Our cash costs better show the results of management action. So, let's see what has changed over last year. First, sale-driven costs are down significantly, with interconnection down 25% further to Sparkle repositioning on higher-margin contracts. Equipment costs are down 26%, which compares to a much lower reduction in equipment revenues, thanks to the continued improvement of device margins, which gave us €56 million help to EBITDA in nine months. Moving to the addressable costs, commercial costs are significantly down, minus 9%, thanks to the improved commercial process in addition to avoiding the so-called washing machine effect, as mentioned earlier. Industrial costs are also down 5% despite a 12-month drag from electricity bill. G&A are down, thanks to the optimization in different areas, mainly related to real estate. On labor, this quarter was affected by the impact on the year-on-year comparison related to €40 million discontinuity due to the fact that no bonus was booked in Q3 2018 and provision made in H1 2018 were released. On top, in 2019, we had less solidarity days for the renewal of agreement with the unions. Net of all these discontinuities, domestic EBITDA would be minus 3.9% year-over-year. Let's move to slide 15. TIM Brasil posted another quarter with sequential improvement on KPIs. Service revenues are up 3% year-on-year and accelerating further to the – accelerating even further to the good results in prepaid and double-digit growth of fixed businesses and TIM Live offering. EBITDA as well is accelerating at plus 6.8% with improving marginality, thanks to the actions that are being taken for cost reduction. FTTH network is growing 150% plus and now reaching 1.9 million households. TIM Brasil is also improving on customers' trust and broadband awareness metrics, with the net promoter score improved by 4 percentage points, TOPMIND [ph] conferred ranked number 1 for prepaid and back to number two in the Brazilian overall mobile market. Let's move to slide 16. Net debt at the end of September fell by more than €400 million to €24.3 billion, down almost €1 billion versus December 2018, a remarkable result that comes from improved free cash flow, mainly attributable to a lower absorption from CapEx and working capital as well as lower financial expenses and cash taxes. Let's see more in detail CapEx and working capital on the next slide. CapEx, thanks to the improved efficiency, is down year-on-year 9% or €76 million, with domestic CapEx in line as in previous quarters, with announced target of €200 million CapEx fall on a full-year basis. And also working capital has improved. Net working capital improvement from last year in the first nine months is related to lower inventories, VATs prepayment and change from billing in advance to billing in arrears and improved cash management that led to lower trade receivables. As I said last quarter, I will stress the point that cash cost savings realized in Q3 will again translate in lower cash outflows in coming quarters. Let's move to slide 18. Slide 18 shows that, in Q3, the cost of debt was further reduced after the already significant fall recorded in Q2. The average cost is now 3.6%, which is down 10 bps quarter-on-quarter and 40 bps year-to-date. The 2019 funding plan is completed and we have a sound liquidity margin and an improved coverage ratio of the next 24-month debt maturities. Slide 19, looking at the results with the after-lease view on which we provided our guidance, we see that the EBITDA shows better performance year-on-year versus the IFRS 915, both at group level and domestic. Let me now hand back to Luigi for the closing remarks.

So, we are on Slide 21, just a quick recap of what we discussed today. You've seen that we've been consistent with concrete action and announcement and guidance. This is important for this company and we are doing our best to stick to promises despite all complexity and difficulties that we are here to manage to the best of our capabilities and even more. As I always told you, my first priority is to deleverage. And we delivered organically €1 billion debt reduction in only nine months. We'll deliver another couple of billion through the JV with Santander and the INWIT transaction. We remain very committed to the debt reduction that we announced at the outset of our – at the beginning of our plan and we're very confident that this can be achieved. Now, we'll be improving operation further. We keep looking at the future at the same time and aiming at growth. In this context, you can frame the transformational strategic alliance with Google Cloud. Guidance is confirmed. And I leave you with the last two slides with no further comment. One is on TIM net debt in the last few years and the other one is announcing our Capital Markets Day in March 2020, returning in this way to an old tradition of having this event on a recurring basis where I hope to see all of you next year. And now, let me hand it back to Carola for the Q&A time.

Thank you, Luigi. Thank you, Giovanni. Operator, we are now ready for the questions. Thank you.

[Operator Instructions]. First question comes from Mr. Roman Arbuzov from JPMorgan. Mr. Arbuzov, please.

Good afternoon. And thank you very much for taking my questions. The first one is just on the service revenue outlook. And I was wondering, if we look out to 2020, is it still correct for us to target – is it still realistic for you to target flat service revenue for the domestic operation given the switch from service revenue to equipment that you've described? And perhaps, should we be thinking more about stabilizing overall revenue rather than the service part? That's the first one. And the second one is just around the timeline for the potential monetization of the data center business that you've mentioned. Could you perhaps just give us some color on the potential timeline of this event? And perhaps, you could comment on whether you already began looking for the third-party investors that you've mentioned. And then, the third question, just a quick one on the conversion of the savings shares, please. And given where the savings share price is versus the ordinary and given how the discount has shrunk to such a low amount now, do you think it's even reasonable to expect that the savings share conversion can happen in theory within a foreseeable future or it's absolutely out of the question? And would you say that the company would ever consider converting the savings shares at a premium to the ordinary or that is completely impossible in your view? Thank you so much.

Okay. Let me take your questions. First, you were asking about revenues. I think Giovanni explained you that there has been some switch from one to the other. So, yes, of course, you would have to take into account both items because, obviously, there has been some move from one to the other. With regards to 2020, we haven't completed our revision of the plan yet. I think, in 2020, we see it almost stable. So, implying a slight decline will be more precise, obviously, when we will announce the plan on the Capital Market Day. There is some headwinds on the revenues and we've tried not to buy any revenues or EBITDA. We've been very careful to cash conversion. Sometimes, as you know, there is a trade-off. So, we'll be more precise next year and when we unveil the total of the plan. So, please to look at above items. And as I said, we maintain a certain discipline in not creating things that would reduce our cash conversion ability. On the second point, you were asking on timeline. But you say the word that I'm not very keen on data center monetization. This is not a monetization. So, we basically – or rather, let me explain better the rationale. We think there is a genuine significant need for cloud offering here. So, we reach out and looked for where the best providers. And we thought that we found an ideal partner in Google Cloud. Then we're going to create a company which will host Google Cloud and will host Nuvola Italiana and will allow our customers to get state-of-the-art private, public and hybrid cloud. The next question from yourself is going to be how are you guys going to finance it. Is this going to impact your deleveraging plan? And the answer is no because there is an enormous amount of infrastructural funds ready to be deployed. And this is the kind of investment they all are looking for. So, we might do some round of financing by selling certain stakes because, I say to you at the beginning of the plan, no matter what, we're going to deleverage. And so, we want to avoid having to do certain investment because we are going to build certain hyperscale data centers. We want to get it financed by selling some of the equity. Then, eventually, when the company will have matured, we can consider listing monetization. So, I think you could assume that, at some point relatively early, we might sell small stakes as a capital increase, entering as a capital increase. The deleveraging will occur without getting money from this part. This is not considered at this stage. This is a growth opportunity and this very transformation of our business offering. We have already had the one with the widest range of product offering. Now this becomes an extremely wide and there's probably a unique capability in our country. So, we see that as this type of opportunity rather than a monetization opportunity. With regard to the savings conversion, I'd like to give you a slightly legalistic answer and stick with that, which is the issue relating to conversion of savings share into ordinary share has now been placed on the agenda of today's board and consequently has not been discussed – yesterday board, rather, consequently has not been discussed. And, of course, then no decision on the matter was made by the directors. I'd like to refrain from any other comments on that matter, if I may.

Thank you, Roman.

Thank you so much. Thank you.

Thank you, Roman. We're ready for our next question please.

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

Yes. Thank you very much. Good afternoon. I had two questions, please. The first one was just regarding your broadband strategy. Very encouraging to see the volume growth pick up this quarter. Be interested to hear your thoughts on how you see that strategy evolving over the next kind of 3, 6, 12 months. How much more aggressive do you think you would like to become on pricing? Do you think that rate of volume you're getting on broadband adds can continue? If you had a trade-off, usually you have to get between price and volume on that.

Could you speak a bit louder, please?

Sorry, yes.

That's good.

Did you catch that question? Yes, thank you. And the second question, just regarding the INWIT-Vodafone transaction, it seems like the EC has delayed that process by a month. So, it would be interesting getting your comments on why you believe that has happened. Is there something you feel you might need to put forward remedies on in order to make progress there with the EC? Thank you.

Okay. Luigi speaking. I will take your second question and then I will pass on Lorenzo Forina, our Chief Revenue Officer, to comment on broadband strategy. But with regards to INWIT, no, nothing has changed as long as we are concerned. As you know, European Union has been busy on various items, including creating a new commission. So, I think that might have played a role, but we don't see any change. And as a shareholder, I expect to have a board meeting in December to approve the transaction, as I was saying before. So, yeah. Did I say shareholder meeting? Yes.

No.

Sorry. I didn't say – we expect to have a shareholders' meeting in December that should approve the transaction. With regards to when the EU will – we expect to hear fairly soon about what their opinions are. But at the moment, we have not received any information about the delay or so. So, as long as we're concerned, and I read some comments from the Vodafone CEOs, we're moving forward with the integration and the transaction. Obviously, we're waiting for antitrust clearance in that respect and any comments. But there's been no talks about remedies or anything like that whatsoever. Not at this stage.

Great. Thank you.

Then I would pass the line to Lorenzo, please.

Yes. Regarding broadband strategy, no change is expected in our approach in the next six or nine months. What we're currently undertaking is we're trying to grow the broadband market in Italy, with some success. That implies transforming voice-only clients to broadband clients or talking clients in wide areas with FWA. So, adopting an approach that is grow the market rather than a battle for market share. Our pricing approach is extremely rational. We're maintaining a clear price premium that we do think is sustainable vis-à-vis competitors. And by doing that, we expect to transform our customer base and more and more future-proof customer base using broadband service rather than voice only. And what we're experiencing, of course, is that the majority of our line loss is getting to voice-only customers that, of course, are as well dying over time or…

Let me make a comment on that, in the sense that – Lorenzo made a comment to say no change in strategy. I think he was referring mostly on pricing. But what I would like to say that our strategy is indeed to reduce churn, to improve quality of service. And as a matter of fact, it's not part of this presentation, but I take the opportunity to say that the KPI on quality and time to fix issues and so on have improved and we're now having the best performance the last few years in terms of operation performance. So, that will reflect in customer satisfaction. We intend to reduce churn as well as we're going to look for additional markets to upsell, to improve our offering. So, don't perceive it as a sort of static strategy. Indeed, one positive aspect is already the fact that there is less movement of customers in the market. Surprising. That was one of the first surprises. From an accounting point of view, if you have – let's say, if you lose 500 lines, but it's because you acquire 500 customers and you lose 1,000 or you seem to lose 500, in the first case, when you lose 1,000 and you acquire 500, you get better EBITDA and worse cash. The other case is exactly opposite because, when there is new customers, you get EBITDA – you get fees or you set some equipment and so on. And the cost is spread over the life of the contract. So, because of accounting reasons, it seems like – this is one of the cases in which revenues and EBITDA and cash goes opposite direction. So, for us, the trend in the markets from that point of view is positive. Of course, we're not happy with the number of lines that still got lost. And so, we'll do – we are seeing some improvement. We need to improve further and get further reduction on line losses. Thank you.

Thank you.

Thank you, James. Next question, please.

Next question comes from Mr. Domenico Ghilotti from Equita. Mr. Ghilotti, please.

Good afternoon. First question is on the cash generation. A contribution to cash generation, as you mentioned, is coming from lower cash taxes. I wanted to understand if this is something that will reverse in Q4. So, if you can guide us on what to expect to pay to cash out for the full year. Any specific item here? Second question is, well, a follow-up on the fixed ARPU. So, I'm trying to understand how much was the impact coming from the fact that you are, let me say, activating less customers, as you were mentioning, focusing more on the retention and the cash generation. So, if you can give a sense of what has been the impact from this topic. Third, on the Open Fiber negotiation, I'm trying to understand if you – are you still committed to get an MOU by year-end? Do you see this feasible given the current situation and negotiation? Thanks.

Giovanni Ronca speaking. On cash taxes, the answer is that the effect won't be reversed going forward. We'll be stable. So, you do not factor in any cash outflow related to that coming back. On the ARPU side, I pass the floor to Lorenzo.

Well, on an organic or cash point of view, as the CEO said, we do not experience any further dilution of ARPU as well. It's a lower ARPU dilution on a cash perspective rather than the second quarter. On an accounting level, of course, reducing the number of activation, and the activation revenue in the short term goes down as expressed before. So, it's mostly of an accounting.

So, cash-wise, basically, you haven't seen any deterioration?

Yeah, lower than before because of lower washing machine. Yeah.

And on Open Fiber?

On Open Fiber, I'll take the microphone. Your question was whether we're going to be able to reach an agreement by year-end.

Yes. Well, the MOU. So, if I remember well…

I'm trying to think how to phrase it in a way that I'm not – I don't sound evasive in a sense that, obviously, it takes – as usual, it takes two to tango. And we have an NDA. So, I cannot announce things or discuss things on my own. But, basically, what I can tell you is that we are discussing with certain infrastructure funds. The number, it's quite significant. So, I think we'll definitely select the funds we're going to work with at year-end. If we are able to find an agreement with Enel, not having yet performed the discussion with the funds about their offer structure and – it's going to be tight. So, I'm not sure at this stage. And we'll see how it evolves maybe more specifically thereon.

Okay, thank you.

Thank you, Domenico. Next question, please.

Next question comes from Mr. Georgios Ierodiaconou from Citi. Mr. Ierodiaconou, please.

Yes, hi. And thank you for taking the questions. I wanted to perhaps understand a bit more about the free cash flow drivers. And, obviously, the nine months has been a very impressive performance and a significant improvement in working capital. And looking at page 17, I think you gave us a good picture as to what have been the drivers. But I was wondering if you can go maybe a bit further because a lot of the numbers we see is compared to last year and we don't know what the drivers were the year before. But perhaps you can guide us a bit as to how we should think about the next couple of years, any other initiatives or drivers that could improve perhaps the working capital outflow further. And then, a bit linked to that, obviously, there is this €500 million benefit on net debt coming from the JV. Anything beyond that or any other any initiatives you may have in mind? Basically, I was just trying to understand whether €3.5 billion plus €500 million should be the basis with which we are working on the three-year period in terms of net debt reduction beyond INWIT. Thank you.

Giovanni speaking. The first question was related to working capital. So, if you look at page 17 and you make reference to the €700 million – €953 million change in domestic working capital, that is basically the key number there. That is part of the development that already occurred in the first half of the year. And you have two type of components. The first one is related to what happened last year that accounts for, say, two-thirds of the change that is related to the VAT impact, to the change in split payment on VAT in Italy. And the billing in arrears that moves into advance happened last year. So these are two one-offs that occurred last year and didn't occur anymore in 2019. Having said this, this change, this positive change in terms of reduction in working capital is there to stay because it won't be reversed in any shape or form. The rest of the change is related to higher cost conversion of the business. That is reflecting to working capital, both on the payables and on the receivables side. So, it is extremely organic. It's a way to manage working capital that is more efficient. And we think there is still room for improvement. Yes, there is a progressive adjustment. It's a matter of discipline. So, looking forward, I think that we will try to continue with this level of discipline in the very same way. The second question was about the effect of the joint venture on the financial services. Or did I get it wrong? Okay. So, the €500 million in debt reduction. You cannot multiply that for each year, by definition. This is the runoff of the portfolio of installment loans that we currently have on book for financing the devices that won't be originated anymore on our books, but will start being originated on the JV book. So, in substance, we will stop financing this kind of business on book, lower credit risk, no credit risk actually, lower bad debt and progressively runoff of the portfolio that will be moved on Santander. So, can multiply it by 3, it will be a progressive one-off effect of something that won't be originated anymore.

Yeah. Let me add a comment to your first question. You were discussing about how much is structural and so on. And this is where our discussion we always have about corporate culture. The TIM corporate culture is very much focused on revenues, particularly service revenues, and EBITDA. There was very little attention to cash. And we're basically changing that in a sense that, obviously, margins are very important. Revenues are, obviously, very important. But at the end of the day, in a mature business like ours, we still need significant investment. It's extremely important that you have attention to cash. And so, also compensation as well as management focus is going to be also targeted, directed partly at least to cash flow. And this is something that is going to stay.

Okay, thank you.

Thank you, Georgios. Next question please.

Next question comes from Mr. Keval Khiroya from Deutsche Bank. Mr. Khiroya, please.

Thank you. Two questions, both related to fixed. So, firstly, when we look at the wholesale lines, they have started to decline over the past two quarters. In the absence of a deal with Open Fiber, how would you be thinking about how your wholesale lines would evolve in 2020? And then, second is also, obviously, been quite a bit of press comments around Sky and the broadband market in Italy. How should we think about the potential impact of Sky? Thank you.

I'm sorry. Could you repeat your first question? Do you mind?

Sure, of course. So, if we look at the wholesale lines in fixed, they have declined over the past two quarters. Leaving aside, obviously, the Open Fiber potential at the moment, how should we think about the wholesale line evolution over the next year or so?

Let me answer. I'm Stefan Siragusa and I drive the wholesale business. First of all, the Italian market overall has declined by 4%. So, the decrease of 29,000 lines is something that is really limited. Going forward, we don't see any further acceleration because we are managing fully the lines. This is the part of the business which is on Telecom Italia network and is not on the retailer. The entrance of our other competitors on the wholesale part of the business is somehow – is not a negative impact on the wholesale business because still the user is going to buy FTTx. And this, for us, is going to further accelerate the migration to FTTx. So, we don't see any going impact on the wholesale part of the business going forward from the interest, for example, of Sky or other players.

Did Stefan answer your question?

Yes, that's clear.

Thank you.

Thank you.

On Sky – it's Lorenzo speaking – well, rumors exist that they are entering the fixed business market by the first quarter next year. We don't know, of course, their commercial posture that they will undertake as we hope and we think that they will adopt a rational approach as most of the players in the fixed market as of now. At the same time, we are preparing and scaling up our account and offering. So, to be prepared in any case to a less rational approach. But on the cost side, yes, they, of course, rely on Open Fiber, but as well on Fastweb network that is quite of a rational player in the market.

Yeah. Let me add that Sky was – to a certain extent, either was already present on the market because they bundle for a long time their offer with Fastweb. And, in fact, a significant number of Fastweb clients basically joined with Sky. Okay, if that answer your question…

It does. Thank you very much.

Thank you.

We're ready for the next question, operator. Thank you.

Next question comes from Mr. Nick Delfas from Redburn. Mr. Delfas, please.

Yeah. Thanks very much. I just wanted an update on your fiber rollouts. I think Open Fiber said they had 4.6 million premises on their definition passed in the A and B clusters at the end of September. What's the equivalent figure for you in total? And does that include Milan or is that excluding Milan? Thanks very much.

Thanks a lot for your question. We are almost finalizing the FTTC rollout. We think that, by end of this year, we're going to have fully finalized the FTTC coverage. We are up to speed. Actually, we are a little bit tied with the FTTH coverage. We're going to reach 4 million household passed by the end of the year.

And does that include Milan or is that excluding Milan?

The connected parts are going to be 4 million and we're going to try – we're going to have the sellable part of 4 million by January this year.

But does that include Milan or not Milan?

Milan is part of our network. It is not accounted fully in these numbers. With Milan, we're going to be a little bit ahead. We're going to be more than 4 million by the end of the year connected with Milan.

Okay.

Well, this is an important figure. Sometime we talk about passed houses, sometime our connected houses. Make sure that you compare connected or connectable with passed because one – for us, a connected house is something that can be sold today. And, clearly, if the house is passed, but it takes longer – or further investment or maybe some time or permission or agreements, anyway, it's not sellable. This is not exactly comparable to ours.

Okay. So, if I were to compare with Open Fiber, they also have a slightly different definition of premises as well. You're probably even or a little bit behind where Open Fiber is on fiber to the home?

You want to ask that to Open Fiber. What is sellable and what is not sellable, I don't know. I cannot represent for Open Fiber. But sometime, I see that, on the press or in discussion, there is a concept of passed houses which doesn't mean much as long as the market is concerned.

Okay, thanks very much.

Thank you, Nick. Next question please.

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

Hello, good afternoon. On Open Fiber, if I may, you were discussing about Enel agreement. On the political side, on the antitrust side, do you see, let's say, positive signs? Do you think that, let's say, potential obstacles have been overcome so far? And on cash taxes for 2020, can you give us any visibility, please? Thank you.

We are not in a – as you know now, as our protocol, we never comment on regulatory issue in public because, typically, it's not appreciated by regulators. So, I'd like to pass on your comments or request or comments on if we see any antitrust issue. We, obviously, cannot comment on antitrust, be that Italian or European or any other – it would be very wrong on our side. So I'm afraid I have to pass. Your question was on taxes in 2020.

Yes. So, taxes in 2020, if I may. And then I'll try another one maybe on the conversion of the savings shares, if I may, since the first one is a no go. What about, let's say, waiting to reestablish a dividend on the ordinaries at the end of your plan? There seemed to be good progress on deleverage. Don't you think that would be, let's say, fair in considering the interest of ordinary shareholders to wait for first reestablishing the dividend on the ordinaries if there is the deleverage that you are targeting and then considering, at that point, a potential conversion?

I'm sorry, your question was on – it's now on the savings because you started with the first – another question. Cash taxes. Which one we...

Yeah, yeah, yeah. No, no, no. The cash taxes remains, sorry. Since the Open Fiber one wasn't possible and we have a limit of two questions, I was just trying to ask a second one.

No, no. We're happy to give you even the fourth one if it's quick. Giovanni, please answer on the taxes and then I'll move on…

Cash taxes, we paid this year lower cash taxes. We will have the benefit of Brazil going forward. So, I expect to have a positive trend in terms of lower cash taxes going forward.

So, even less than this year, lower compared to 2019?

I think that if you are referring to 2019, it could be in line with 2019.

In line with 2019. Okay, thank you.

And then you were asking about – your last question was about savings shares. I'm going to read you exactly the same statement I read to your colleague. So, with regards to the dividend, of course, I think in one of the very first interview I did with The Financial Times, I said that I'd like TIM to become a normal company, and normal companies pay dividend to their shareholders. That's all I think is fair to say at this stage.

Thank you, Giovanni.

Thank you.

Next question please.

Next question comes from Mr. Giorgio Tavolini from Intermonte. Mr. Tavolini, please.

Hi. Good afternoon. And thanks for taking my question. Just two questions, please, on my side. First, on deleverage in Q4, are you still expecting the Persidera sale closing by year-end? And if so, is it fair to assume a further €400 million, €500 million deleverage by year-end, including the proceeds from Persidera sale? And the second one is on TIM Brasil. What are your latest thoughts on the consolidation opportunity that may come from the Oi breakup? Thank you.

Okay. Don't get spoiled. You want €500 million a quarter, that makes €6 billion organic, not €3.5 billion. So, I think, yes, we do expect Persidera to be cleared by year-end. Of course, we cannot – again, it's antitrust. So, it depends on them, not on us. But we do expect it to be cleared. This is to the best to our knowledge. What should you expect for year-end? Of course, we'll do more than €1 billion as we said before. €1.2 billion, something like that. We have vastly exceeded our budget in that arena. So, I wouldn't want to create wild expectation at this point. Remember that we said a number of times that our objective – actually, we started with €3.5 billion in organic – organic deleverage. Then we say it's going to be €6 billion with extraordinary transaction. My gut feeling is that, overall, it's going to be more in the three years. When we complete the new plan, we'll tell you how much. In the meantime, for this year, I think a safe bet is €1.2 billion or so, €1.2 billion including Persidera. In regards with Brazil, Oi is a listed company. TIM Brasil is a listed company. So, I'd like not to comment on specific transaction. But we think every time there is a situation like that, I think we said a number of times, we love it. I noticed an answer by Pietro Labriola, the CEO of Brasil, in a press interview. He was saying that, of course, if Oi mobile business would become for sale, we would look at it. I think, as the majority shareholders, I couldn't agree more. But on that – at this moment, I'm not aware of any sale process in Brazil. So, anytime the market move from 4 to 3, I think it helps stabilize the market. And so, if that happens in Brazil, we'll look at it. I don't think anyone in Brazil, including ourself, can buy the entire company. So, it's going to be a somewhat complicated transaction, but time will tell. Thank you.

Thank you.

Thank you very much, Giorgio. Next question please.

Next question comes from Mr. Luigi Minerva from HSBC. Mr. Minerva, please.

Yes, good afternoon. Thanks for taking my two questions. The first is on the network. And I was wondering what – how has your view developed over the last year, whether you think that TI should retain control of the network or maybe could be ready to give up control of the network for a few years? And then, if you think about the fiber part of the network and the copper part, whether you see them under one entity or whether you could separate the fiber part of the network into a separate entity where maybe you give up control temporarily. And the second question is, again, a high-level one on 5G and the market structure. So, we're seeing around Europe, operators are clearly willing to take the 5G opportunity to introduce a pricing premium and, hopefully, be able to maintain it. But certain markets which are more fragmented, think about the UK, the 5G premium has faded away very quickly. In other less fragmented market, the operators are maybe being a bit more successful. So, what's your view about the Italian market, given the market structure? Will 5G be a good opportunity to introduce a premium and keep it?

Okay. With regards of your first question, well, I guess the fact that we have expressed an interest in combining with Open Fiber show that we have an interest in growing in a network and having a combined one. So, obviously, our interest in that area has already been made public. So, I don't need to confirm it. It's already evident. With regards to the fact whether we would put our own fiber, well, I guess, any fund that would invest would ask you do a fiber together in order to avoid potential conflict of interest because if you that a certain fiber in which you own 100%, another in which you own 50%, that would be also complicated to manage. You mentioned that – whether we could not have control for a few years, depends on terms, condition and the end game. We're talking theoretically here because, obviously, I wouldn't discuss that if we do rather than others. But I think I said publicly that, I think, Altice made a smart move with their transaction in France. It was well played. So, if there were other items and conditions, we could consider it with a view anyway to have eventually control, just to make sure. And you were asking about 5G premium, I think I would ask Lorenzo to answer this question.

We are fully committed to maintain our market discipline on 5G premium as it is now. It's early sign, but early sign are very positive on maintaining a premium in the market. So, I don't perceive any concern.

Thank you very much, Lorenzo. And thank you to both Luigi. So, we're now ready for our last question. Operator, please.

The next and the last question is from Mr. Fabio Pavan from Mediobanca. Mr. Pavan, please.

Yes, hi. So, very quickly and maybe more than one, the first one is on the cost of debt evolution in the light of the stronger-than-expected deleverage and also market condition. What are your expectations for 2020, maybe 2021? Second question refers to the market dynamics on the mobile approaching the Christmas season. Last year, competition in Q4 was pretty high. So, could you update us on your expectation for last quarter this year? And finally, on the data centers deal, which I find extremely interesting, what is going to be the role Google will play? And eventually, if I understood properly, other actors could join as a client in your platform. Thank you very much.

Okay. Let me answer your two questions and I will ask Lorenzo Forina to comment on the market. On 2020 and 2021 question, please, if you don't mind, you'll have an entire day to grill us in March. And so, as we are completing – we have not completed our budget and plan, I would like not to give specific anticipation. But, clearly, the cost of debt going down is benefiting us in two major ways. One is, of course, as liability get repriced, we get a significant cut in our cost of funds. As you might have noticed, it went down 40 basis points this year which, considering our debt, it's significant. And the second one is that, I believe, over half of the world government bonds are with negative yield. Basically, what happen is that a lot of money is going to alternative investment and infrastructure funds. So, there is a lot of money which is available at reasonable condition or at least – or better condition there was some time ago for deployment in infrastructures. And as we have INWIT, as we have the fiber, and thus we have now the data center, this is a whole area in which we can take advantage of this available pool of capital. So, we'll be more specific, but, obviously, this low interest rate environment is beneficial to us. Your second question is what's the role of Google in alliance. Well, Google is – as I was saying before, it's one of the most innovative company in the world. Among its technology, there is a state-of-the-art cloud technology, public cloud. And, therefore, Google and us will go to market and will offer to our customers, which become joint customers in this area. We will host Google. And could there be others? Well, I think what we will do, and Google will help us, in this respect, we want to develop an entire ecosystem to funnel innovation, to make sure that what we're trying to achieve – and we're very proud that we brought Italy to become tech frontrunner. We very much believe in it. So, for doing that, yes, we are important. We like to believe we are important. We believe Google is going to be very important. But we need to create an entire ecosystem. We'll need – we'll involve in other parts other important partners. I think I said in various meetings that we are a large company by Italian standard. We are a small company by the world standard. Italy is a small country by world standards. But we have the ability to connect, to create alliances, to speak with others, to bring ideas to create and build bridges, connection, a web basically through which we want to bring the best technology to our country and to help our partners and be helped. So, in this respect, yes, this is one very, very, very important alliance transformation and, hopefully, we'll see others. And with that, I think there is one more question that you had on the market in – mobile market in Q4, and I leave it to Lorenzo Forina.

We're not observing any heat up on – neither on mobile nor on fixed. Fixed, of course, is getting to a lower seasonality in Christmas time. Mobile is getting to an higher seasonality. But we don't observe any heat up of the market. We don't plan to heat up on the market while actually maintaining our rational approach. Of course, there is still a separate market between the high end, which is very, very, very calm, and the low end, which is a bit more competitive.

Thank you very much, Fabio. Thank you to all of you for your warm participation in this conference call. Please do save the date for the 11th of March for our Capital Market Day. And meanwhile, we'll see most of you in the forthcoming road show. And Luigi is also highlighting that the Capital Market Day will be in Milan. So save the date and flights for the 11th of March in Milan. Thank you. Bye.

Ladies and gentlemen, the conference is over. Thank you for calling TIM.