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Edited Transcript of TLIT.MI earnings conference call or presentation 11-Nov-20 1:00pm GMT

·67 min read

Q3 2020 Telecom Italia SpA Earnings Call Rome Nov 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Telecom Italia SpA earnings conference call or presentation Wednesday, November 11, 2020 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Carola Bardelli Telecom Italia S.p.A. - Head of IR * Giovanni Ronca Telecom Italia S.p.A. - CFO * Luigi Gubitosi Telecom Italia S.p.A. - CEO, MD, GM & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Andrew J. Lee Goldman Sachs Group, Inc., Research Division - Equity Analyst * Charlotte Perfect Arete Research Services LLP - Senior Analyst * Domenico Ghilotti Equita SIM S.p.A., Research Division - Co-Head of Research * Fabio Pavan Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst * Jeremy A. Dellis Jefferies LLC, Research Division - MD & Senior Telecommunications Analyst * Luigi Minerva HSBC, Research Division - Senior Analyst * Mandeep Singh Redburn (Europe) Limited, Research Division - TMT Specialist Sales * Mathieu Robilliard Barclays Bank PLC, Research Division - Research Analyst * Roman Arbuzov JPMorgan Chase & Co, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, good afternoon, and welcome to Telecom Italia Third Quarter 2020 Results Conference Call. Mrs. Carola Bardelli, Head of Investor Relations, will introduce the event. -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [2] -------------------------------------------------------------------------------- Ladies and gentlemen, good afternoon. This is Carola Bardelli, Head of Investor Relations. A very warm welcome to our third quarter 2020 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 our third quarter results. A Q&A session will follow. Pointing out to you our safe harbor disclaimer on Page 1. Let me remind you that our comments are based on IFRS 16 standards and that we are showing an after lease view, on which we are basing our guidance, in line with most of our peers. So Luigi, the floor is yours. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Carola, and good afternoon, everyone. Good morning for those of you connected from the U.S. It is an important day today for us because I can start announcing that we topped EUR 2.5 billion of equity free cash flow generation in 7 quarters. We're fully on track to deliver our guidance of EUR 4.5 billion to EUR 5 billion accumulated equity free cash flow in 3 years. Indeed, we are reiterating today our guidance. We feel we have done the right things, and we are on track to achieve our goal to stabilize revenues and EBITDA starting from next year. So let me begin with a quick summary of what happened in Q3 from Slide 4. Starting from ESG goals, we achieved a lot this quarter. Firstly, customer satisfaction. Net Promoter Score improved again in mobile, bringing us to a 12% improvement in 9 months, 2% in fixed and 6% with our top clients. Customer satisfaction is indeed extremely important for us. It's not obviously a financial indicator. But if customers are happy, then it means that things are working out, then we'll stay with you. We're #1 in mobile in terms of CSI, and we are increasing our position in -- we're improving our position in fixed. Our goal is to achieve both first position next year in fixed and mobile. Recent engagement survey got a very high response, an outstanding improvement, 6 percentage points better than last year. It basically means people do believe it. And as a matter of fact, yesterday, we got the news that our employees bought 127 million shares, 0.8% of the capital. That was the maximum allocated to them. And in fact, the demand was much higher. So people inside basically believe in our company. And that's, again, a very important things. We need our customers and our people to be fully engaged with us. Transformation to a leaner and younger company continues. We reached 3,400 exits by the end of the year while adding new talents. And that coupled with the people that exited last year, that's a significant amount, which is obviously helping us change the corporate culture, get more motivated people and have a better mix, also generation. On the domestic front, TIM was, once again, the best performer among the large operators, so mobile number portability with the lowest balance in the last 2 years. So since Iliad entrance, it was our best quarter. It still is a negative number, which we don't like, but we're on the right track. Our Fix the fixed strategy is paying off and translating in improvement in KPIs and revenue trends. We are on track to expect our target landline losses in 2020 versus 2019, as we told you at the beginning of the year. Actually, I should say, we reached it because the last 12 months, decline was actually halved from the previous year, and we'll do better going forward. Migration to fiber is accelerating. Fiber net adds were plus 72% year-on-year. In Brazil, Net Promoter Score was at highest ever since 2017, and TIM regained the position of Mobile Top of the Mind after 13 years. And as it is important in Italy, it's also important in Brazil. We're following the same strategy. So the future looks bright, even before considering benefit from expected consolidation. Revenues and EBITDA are growing as well as operating free cash flow, notwithstanding COVID which, as you know, in Brazil had a negative dynamic. We reduced debt by another EUR 400 million this quarter, entirely coming from equity free cash flow, growing 22% year-over-year. As I said, our guidance is confirmed. If we move to the next page, Page 5, I wanted the first lines to be on fixed. This is where we had a problem. I'm happy to say that our Fix the fixed strategy is indeed fixing it, if you allow me to -- through them all. As you know, fixed is the bulk of our business. First, we push convergence with new offerings in content and adjacent services. We reached the offering on TIMVISION in Q3, launched the first worldwide Netflix plus Disney+ bundle. We're making customer happier, and they repay us with a lower churn. So are we happy with it? Not yet, but we are making good progress. Convergent client churn is 66% lower than nonconvergent customers. Convergence, of course, helping mobile as well, both on market share and churn. Secondly, we increased FTTx coverage with a clear focus on white areas. 90% of Italian with a fixed line will be reached by year-end, including 75% of white areas. This is obviously done for business, but it also feels very good to do something for your country. It's very gratifying, and we're very happy that in this situation, as compared to March, 3/4 of the people in the white areas will be able to connect. And in fact, many of them are already asked for connection either through TIM or through other operators. We recently launched a rechargeable FWA offering. It's a product [that's in eye for second homes to write them version] of the fixed mobile substitution trend. We're improving the quality of our sales channels. We keep on pushing on digitalization. Web sales in fixed more than doubled this year. Direct payments improved as well, translating to lower churn and lower bad debt. It's 32% lower in 9 months. We go beyond connectivity. Our push partnership with Google and our push on cloud services is bringing new customers a revenue stream. ICT revenues grew over 18% this quarter, with our cloud business growing 20%. So this action, along with many others, allow us to out the fixed service revenue decline in 2 quarters, as you can see from the graph at the top right of the page. And we expect Q4 to be better than Q3 and 2021 better than Q4. Moving now on Page 6. I say that Fix the fixed is the key to stabilize revenues and EBITDA. Slide 6 is a very dense slide and it's somewhat difficult. It tells that, in order to fix our businesses, we needed to make tough decisions. We need to sacrifice some short-term profits in order to regain our customer trust and to make our revenues more sustainable. We stopped increasing pricing on existing customer base for almost 2 years now. As a matter of fact, our operators reached our pricing levels. So the market has now on the fixed stabilized upward than what it was 2 years ago. We stopped unwanted services from content providers. We adopted a much stricter commercial product, sacrificing some sales channels in order to improve our clients' wallet. We stopped the so-called washing machine affecting fixed or at least reduced by a lot. It was the right decision to take because CSI already benefited as well as equity free cash flow. Revenues and EBITDA has suffered in 2020, but the pain has now been taken. Revenues and EBITDA are now stabilized sequentially. In conclusion, if you look at the domestic revenue decline in 2020 versus 2019, approximately 50% is explained by the stricter discipline in fixed and by a number of one-offs in mobile, including COVID impact on roaming and visitors. The content services provided cleaning, renegotiation of contract with PA at lower prices. The rest of the decline is explained by the customer base trend, mostly occurred in 2019 and already on a strongly improving path. In other words, stabilization is in sight. Now moving on Page 7 to tell you that stabilization is our goal, growth is our goal. And looking at Slide 7, it is an important piece of news for the Italian market. Fixed line went back to growth in Q2. During the lockdown, people understood the importance of a reliable, stable ultra-broadband line. And finally, we experienced an inversion in fixed mobile substitution trend that's been going on since ages. We want to deploy this opportunity as much as we can. Hence, FiberCop will expand FTTH coverage to 76% of the so-called black and gray areas by 2025. We expect all our lines to be UBB by 2025. Importantly, 85% is already covered with speed of 50 to 100 megabytes today. So UBB is already taking off. Fiber will be, of course, complemented by 5G rollout that we will expect to reach full national coverage around 2025. We have in mind a clear monetization path through premium pricing, B2B verticals and a boost of IoT and edge computing solution. We invest in cloud, we invest in data centers. We are capturing a strong growth trend that is already materializing this year in new contracts and a growing pipeline opportunities. The data center business has been carved out in a NewCo with a pro forma 2020 revenues in the region of EUR 500 million, growing 20% year-on-year and projected to grow at a compounded 20% CAGR in the next 4 years to reach out our target of EUR 1 billion revenues by 2024 and EUR 400 million EBITDA. In summary, if we move to Page 8, as I said, we are reiterating our guidance. So let me remind you, in addition to revenues and EBITDA stabilization and growth, we target a debt below EUR 18 billion by 2021. Importantly, this is before considering proceeds from KKR, which will bring debt closer to EUR 16 billion. It is entirely based on accumulated equity free cash flow of EUR 4.5 billion to EUR 5 billion by 2022. With that, let me hand it to Giovanni, who will take you through our quarterly results. -------------------------------------------------------------------------------- Giovanni Ronca, Telecom Italia S.p.A. - CFO [4] -------------------------------------------------------------------------------- Thanks, Luigi. Good afternoon, everyone. Let's start from the highlights of this quarter. I'm on Page 10. Q3 was another quarter of strong cash generation. Equity free cash flow after lease grew 22% in the quarter, nearing EUR 1 billion in 9 months or EUR 1.026 billion, excluding the impact of Q1 one-offs and exchange rate fluctuations. Debt after lease improved EUR 354 million in the quarter and almost EUR 1.2 billion in the year. Importantly, Q3 debt reduction was similar to the last year, though affected by EUR 110 million spent on spectrum versus the just EUR 18 million we spent last year. Service revenue trend improved both in Italy and Brazil. EBITDA after lease year-on-year performance in Q3 is better than Q2 if you exclude the discontinuities, namely, Q3 did not benefit from solidarity while Q3 2019 did. This is a 1.4 points drag year-on-year. In addition, a positive regulatory ruling on mobile termination rates in Q3 '19 explains another 1.8 point track year-on-year. Net of these 2 discontinuities, EBITDA would have fallen about 6%. Moving to Page 11. You see group net debt after lease improved EUR 4.2 billion in less than 2 years, EUR 2.4 billion organic, EUR 2.3 billion in the monetization of INWIT. Additional EUR 1.8 billion will come from KKR, which is not shown in the chart. Importantly, debt EBITDA fell from 3.2x on an after lease view to 3x. And again, this is before considering the proceeds from KKR that will come in 2021. Fixed is the key of our turnaround. It is the bulk of our business. I'm on Slide 12. Fixed KPIs performed well in Q3, and we are so far exceeding our target to halve line losses in 2020 versus previous year. We did half line losses year-on-year in the first 9 months. In October, we performed well. And in the first days of November, we saw further improvement even before considering the vouchers introduced on Monday. The most important chart of this slide is the one at the center bottom. Fixed to mobile substitution has inverted the trend and Fixed has gone back to growth for the first time since ages. Remember that 40% of Italians do voice with mobile only and a good portion of them do also internet with mobile only. We are very confident we'll be able to win them back to fixed, and vouchers will help in this respect. Lower fixed mobile substitution, along with lower delinquencies, is translating in lower disconnections and better churn, which improved despite suspended cancellations in Q2 for the lockdown. Our fiber net adds have grown 72% year-on-year. And if we add wholesale, fiber lines have increased by 320,000 to 8,200,000, a 23% growth year-over-year. This is also thanks to the increased coverage in rural areas, with over 10,000 new fiber cabinets open today, actually in white areas. Importantly, in the wholesale business, ultra-broadband activation continue to exceed the copper disconnections. This is why our wholesale revenues are growing. Slide 13, this is a slide I like. It shows we took the right decisions. We needed to sacrifice short-term revenues, but it was the right choice. Q3 year-on-year growth was 3.1 points better than Q2, and Q4 is expected to be better than Q3. As Luigi said, we do see stabilization in fixed in 2021. In Q3, we have sequential improvement in all business segments. National wholesale was up 1.7% year-on-year from 1.3% in Q2, thanks to the better mix between copper and fiber. International wholesale trend improved 2 points for revenues cleaning fading off. Retail revenues are showing sequential improvement for a progressively better trend on customer base, which is continuing in coming quarters as we intend to go to 0 losses in 2021, a lower year-on-year ARPU drag. As you see from the chart bottom right, broadband ARPU has stabilized quarter-on-quarter, and we see it better in Q4 versus Q3, meaning that the year-on-year performance will improve. And lastly, ICT revenues increased mainly for higher demand of cloud services. Moving to Page 14. Although Q3 was a difficult quarter for mobile, underlying KPIs are showing encouraging trends. MNP balance is the best of the last 2 years and remains the best among large MNOs. Customer base stabilization brought to a 2 point mobile service revenue improvement in Q3 versus Q2 and will continue to do so in coming quarters. The key thing is the calling human lines, the lines that generate our revenues. They have been stable since Q1. As you can see from the chart top right, there is an operator that is gaining at the expense of another one, but we are mostly out of the game. What is even more important is customer satisfaction, improved in Q2 and again in Q3. Net Promoter Score is performing well, too, remaining well above other large operators. In Slide 15, we break down the trends and dynamics in mobile. COVID -- content service provider and concept weighted at 6% -- sorry, a 6 points year-on-year decline in Q3, and overall impact is expected to go down to 4 points in Q4 and to fade off below 1 point in 2021. The customer base trend had 4 points impact on MSR in Q3, down from more than 6 points in Q2 and is expected to improve similarly in the coming quarters. Price-related dynamics had a 2 point impact which, again, are very difficult to -- sorry, very specific to Q3 and will gradually fade off starting from Q4. We expect it to reverse in 2021 for many reasons. As an example, we have renegotiated the contract with the public administration at a better price, which will start to help from 2021.And MTR price reduction explained a further 70 basis points drag. This analysis explains why we are confident that next quarters will be better and things will improve also in mobile. Mobile handset sales went back to growth after the lockdown. Costs, very important slide. This quarter, we managed to further reduce our addressable cost by 11% year-on-year. On labor, the 8% reduction primarily reflects the positive impact of personnel reduction, 2,600 FTEs from 2019. And on the other hand, it is affected by the anticipation of the expansion contract to the first half of the year. Net of this discontinuity, the reduction would be much more high -- much higher, 12% year-on-year. G&A and IT reduced 18% for lower indirect personnel, civil buildings and IT costs. Industrial costs benefited from 12% lower energy cost and consumptions, along with lower building costs. Commercial costs reduced 22%, thanks to lower content cost for CSP cleanup, more digital sales as well as improved efficiencies in credit management processes, leading to a much lower bad debt. Equipment benefiting from improved margins. Interconnection increased 12% with year-on-year comparison affected by last year positive regulatory ruling. Moving to Slide 17. CapEx increased 4.7% year-on-year at group level, reflecting the accelerated effort to expand our coverage in white areas, where we added 10,000 additional cabinets to date than 3,000 only in Q3. Please note that overall CapEx budget for 2020 is confirmed. Working capital contribution improved EUR 694 million at group level. Brazilian tax benefit and exchange rate more than offset negative one-offs in domestic's business unit. Page 18. Net debt in 9 months fell by almost EUR 2.2 billion and on after lease basis by almost EUR 1.2 billion, reaching EUR 20.7 billion, down EUR 1.7 billion versus September 2019. On Slide 19, you have the cost of debt, where you see that the debt is flat quarter-on-quarter and it's down 20 basis points year-on-year. Let's move to Slide 20. In Brazil, they already reported, so let's just quickly scan through the highlights of the results. Service revenue, positive solid trend reversal and growth of 1.3% year-on-year, with positive contribution from both mobile and fixed. EBITDA grew 1%, reflecting commercial activity pickup. ARPU grew in all segments. Remarkably, mobile ARPU posted an accelerated growth of 6.3% year-on-year from 1% growth in Q2. Customer satisfaction improved as well, with NPS growth in all segments since 2017. It was the best since 2017, actually. The company keeps being very active on infrastructure development, innovation and ESG-friendly. It was announced as a constituent of the new S&P/B3 Basic ESG Index, are ranked among the top 10 companies in the index. Now let me hand it back to Luigi. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [5] -------------------------------------------------------------------------------- Thanks, Giovanni. So we are on Page 22. And it looks like we're getting good news on vaccine in the last couple of days. But of course, there's still some time before it's going to be made available massively.So I would like to cope with COVID, which has brought a big change in our lifestyle. In Italy, the new restriction, more than in the first wave, are locally segmented and balancing the trade-off between preserving health and preserving the economic system. For this reason, mass positive measures have started to be deployed. And indeed the telco sector, more in general, digital sector, is said to be one of the big receiver of these aids because it is recognized as an important pillar of the newly digital, sustainable economy. In Italy, already EUR 2.7 billion funding had been approved for the telco sector by the local government, of which EUR 1.1 billion for voucher to stimulate UBB demand, EUR 1.1 billion for fiber rollout in gray areas and EUR 0.4 billion for school connectivity. Phase 1 of the voucher program started actually last Monday. Low-income families have a EUR 500 voucher, of which EUR 300 is for a device or a PC or a tablet and EUR 200 for connectivity, as long as they move to a speed above 30 megabit from either ADSL or voice only. So they have to upgrade their connectivity. More than 0.5 million families will be involved. We expect Phase 2 to kick around year-end, just before or just after the year-end. More importantly, the Next Generation EU Fund will bring the sector resources in excess of EUR 40 billion. Let's have a look at it next slide. As you will note, the Next Generation EU Fund has an overall value of EUR 750 billion, and the allocation for Italy is about EUR 209 million (sic) [EUR 209 billion], of which EUR 81 billion of public grants. EU and Italian authorities have anticipated that 20% of these resources will be dedicated to digital. This is a massive intervention that will change the shape of the market and our country infrastructure. We're looking at 5 key areas in particular: connectivity, which in turn we can divide into fiber rollout and acceleration of 5G rollout; a deployment of cloud and data service; and edge computing as well; and IoT services, in general, technologies, such as artificial intelligence solutions and IoT and blockchain; and last but not least, in fact, this is very key, the improvement of digital skills for people, companies and public administration. And we feel that TIM, FiberCop and/or AccessCo will be an important part of this effort to digitalize the country using also these resources. It will be a substantial change toward a more sustainable lifestyle. Talking about sustainability, let me give you an update on where we stand on ESG. When I become CEO, I was surprised to see TIM as a traditional strong focus on sustainability, which I, together with the Board, decided to further accelerate. We've been reporting sustainability since '98. I've been elected to participate to major sustainability indexes, and 25% of our institutional investor base is represented by ESG investors as defined by NASDAQ. As you know, sustainable targets are embedded in our plan. And in the next slide, we're providing an update on where we stand against them. We're now on Page 25, and it shows that we're on track on all these new targets that we have set. In some cases, we have already exceeded 9 months of our 3-year goals. For example, in employee engagement which, as I mentioned before, grew 16% in the year versus 14pp -- 14 percentage points planned by 2022. You can see all our achievements in the slides. Let me just point out some key developments. We decommissioned 25% of our data center service, we're modernizing our network with new equipment that is more economically efficient and increasing our user renewable energy as planned. Reduced energy consumption helped us reach our cost-saving targets as well as ESG targets on reduction of CO2 emissions. Smart working continues, and we're shaping our organization and buildings with the positive impact on our people wellness, but also in energy and real estate costs. Job rotation has increased, and the churn in young staff reduced. We created a venture capital fund, which is investing in innovative, sustainable ventures. We launched a new line of reconditioned equipment for the consumer segment. So just to close on ESG, it is a vital and very important part of our strategy. We will keep on pushing on ESG objectives. Now let's move on Page 26, and we decided to keep this for the end of the presentation because we already provided an intermediate update at the end of August on FiberCop and AccessCo. But just to remind where we are, we move to Slide 27. We can say today that FiberCop carve-out will be executed by year-end and closing this plan for Q1, further to obtaining authorization. And we don't expect any particular delays there. In the meanwhile, we're not waiting at the window. We keep operating according to the FiberCop plan under the current organizational structure through Flash Fiber. We're progressing also in the creation of a single network in open and productive discussion with the government and CDP. And as soon as the Open Fiber shareholders, or I should say shareholders, will take its decision on the matter, we're ready to proceed. Everything is ready on the technical side with both appointed advisers. On Brazil M&A, the auction for Oi is planned for mid-December. Our position as stalking horse is confirmed. And of course, when I say our, it's the consortium, ourselves, Telefónica and América Móvil. And we learned that the other dealer, Highline, has withdrawn from it. This is an update that we're providing on towers monetization since everything is done, and the cash in Q4 matches our anticipation, reaching EUR 1.6 billion. Overall, debt reduction from initiatives exceed EUR 2.3 billion. I'm also very pleased that the market has appreciated the industrial objectives, that together with Vodafone we set up some time ago, and now I would say that the merger and integration of the 2 companies have been fully executed. Now the company is in a position to reap the benefits on what was a change of paradigm in the tower sector in Italy. So we see a bright future for INWIT, as most are down, by the way. This slide is just a reminder of FiberCop, and I'm moving on Page 28, our FiberCop key financial plans to switch from copper to fiber. We're going to do that in August, and so I won't repeat it. But obviously, if you'd like, we'll get back to that. So I'm moving on Page 29 and on cloud service data center. Following from the approval of the Board in October, the kickoff of the NewCo is planned for Q1 '21 following authorization. Once again, things are proceeding as expected. The carve-out will be ready by year-end, so everything is moving as expected. Cloud in fact will accelerate cloud option and TIM maintain a leadership position. We are fully operative anyway under current organization, exploiting the increased demand for cloud services. We're building 3 hyperscale data centers, I should say, regions in Milan, Rome and Turin. And we're getting an excellent market acceptance for our joint proposition with Google. Our targets, as I said, they are confirmed, EUR 1 billion revenues by 2024; average growth, 20%, which is where we are today, by the way; and EUR 400 million EBITDA. So considering there's going to be incentive in this area, I think we are upside even on our targets. Let me take some conclusion and make some closing remarks on Page 31. We are on track on our objective to stabilize revenue and EBITDA in 2021. And this will start from Q4, which we expect to be better than Q3. We're confirming our financial and ESG guidance. And although on the back of a tragedy, government and Next Generation EU Funds increase confidence in the telecom sector perspectives. Our strategic initiatives are on track. And with that, we're ready for the Q&A session. Thank you for your patience and attention. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) First question comes from Mr. Jerry Dellis from Jefferies. -------------------------------------------------------------------------------- Jeremy A. Dellis, Jefferies LLC, Research Division - MD & Senior Telecommunications Analyst [2] -------------------------------------------------------------------------------- I have 2 questions, please. On the mobile side, Hutchison said on their third quarter call that there was quite some discounting activity on the TIM main brand and also on the Vodafone main brand in recent weeks. Clearly, you're talking about the elements of price inflection on the mobile side into 2021. Just be grateful if you could elaborate a little bit more on what you see is driving that pricing inflection beyond the concept renegotiation. And specifically, what elements are in your control? And what elements rely on perhaps Iliad raising from book pricing at some point next year? And then my second question which is a bit shorter is on the fixed broadband side. You obviously took the decision to raise front book prices this quarter, which is interesting. There is a potential, I suppose, broadband new entrant in the form of Iliad next year. So how much flexibility do you think you have to sort of pull the pricing lever on fixed broadband, knowing that they are sort of in the wings? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [3] -------------------------------------------------------------------------------- Okay. Let me answer your question -- your questions. On the first one, we're not aware of any particular discounting by either us or Vodafone. So things are going competitively as usual. And as I said, the trend has improved further, but it's not different. If you look at the last 3 quarters, basically, you have -- basically, the Wind, it's basically giving more customers than Vodafone and in the last, ourselves. I guess a lot depends on positioning. Marketing-wise, Iliad is positioned exactly where Wind was or where Wind is, and their type of customers is very similar. So that's where we were -- was suffering. Now I wouldn't blame us or Vodafone. Frankly, I shouldn't speak for Vodafone, but we're not aware of any particular Vodafone discounting either. Nothing major. And in fact, not much has changed in the relative terms. What happens is that the market remains a difficult market. In a sense, it's a very competitive market, I dare say one of the most competitive markets in Europe. But on a relative basis, we see Vodafone performing in a few days, you will see. I think we -- if one looks at all the elements, I don't think we had a bad performance on relative basis. And I'm not sure -- Wind doesn't report, obviously, their number officially, but I dare say that our performance, although not satisfactory on the mobile, as we all know, stands out on a relative basis. And obviously, results are in absolute term. Performance is relative. So I think we had a good performance. Iliad, as you know, it's burning cash as we speak. So eventually, they will raise prices. And as they gain market share, they obviously have a base which is becoming bigger than what they get additional. So I think, eventually, they will raise prices. I don't know when, but eventually, they will. And in fact, if you look at Page 16, you look basically that -- on the... -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [4] -------------------------------------------------------------------------------- 14. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [5] -------------------------------------------------------------------------------- 14, sorry, on the top of the right-hand corner. On the top, you see that -- well, effectively, we didn't put names, but operator 2 is Wind and operator 3 is Iliad. So effectively, Wind's loss has been Iliad's gain. And you have a bit, obviously, also from us. And almost the same, just that it's attached higher from Vodafone. So I'm not sure specifically what they were referring. But I guess, it was their explanation, but we did not do anything major nor did anything as long as we know Vodafone. Your second question was about Iliad coming in the market. We don't know when they will come. The fixed market is a different one. It takes time. We've not seen much in terms of preparation on the outside. So we'll see when they come, but it takes time for things to happen there. And you have less latitude that with an MVNO. And in fact, at some point, we'll see the effect. But as you know, Sky is in the market since June. We haven't noticed a lot of activity yet. So I think in a few months, we will reevaluate both things. But it's not a problem for the next couple or 3 quarters, I would say. I don't see them coming before mid of the year, at least. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Next question comes from Mr. Roman Arbuzov from JPMorgan. -------------------------------------------------------------------------------- Roman Arbuzov, JPMorgan Chase & Co, Research Division - Analyst [7] -------------------------------------------------------------------------------- The first one is around the vouchers TIM and the government help. I was wondering how quickly do you receive the government subsidy or the money that has been allocated to support the connectivity part? Is this money spread over the term of the contract? Or do you receive this money quite quickly? And therefore, it may impact your financials quite meaningfully as well in the near term? And then if you can also, in this context, provide perhaps some color how quickly and how significantly do you expect the impact of this program to be coming through and to be visible in your numbers? That will be very helpful. And then secondly, also related to this and a somewhat bigger-picture question, in terms of fixed line service revenue growth domestically in 2021 and given all the positive trends that you're observing in customer line trends and also the price increases that you've been putting through. Do you think it's now reasonable that you'll be growing fixed service revenue in 2021 fee? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [8] -------------------------------------------------------------------------------- Okay. On 2021, we will want to give details next time we discuss, as we explained, year-end and present the next 3 years updated. But let me give you some color anyway on -- by the way, let me answer your first question. Now my understanding, and I'm looking at a few colleagues in the room, that if I give any details wrong, please correct me. But my understanding that on the -- you know that the voucher is divided in 2 parts, one for the device and one for the connectivity. So effectively, we will get immediately the -- let's say that we sell the PC, let's say, that the cost, EUR 400, we will get immediately EUR 300. Now what that immediately means, of course, it will take a few days to process or so. But we are immediately right to get the subsidy. The second is on the connectivity. My understanding is that this is going to be a sort of pay as you go. Let's say that you have a 20-months contract just to simplify things, it will get -- we will get EUR 10 per month from the government entity, which is Infratel, which is managing this process. I don't know if it has been clear enough. So on the device side, we get immediately and -- the EUR 300 from the gov. So if somebody has to pay EUR 400, we will get EUR 100 from the buyer and EUR 300 from the government as we send the invoice. I would imagine that we will bulk invoices, and we'll send them periodically rather than having a continuous flow. But I'm sure that our administration has already worked out all these details, but the point is we are immediately right. On connectivity, it's on a pay as you go. So for example, if we were to lose the client after half of the period, we would only have right to half of the voucher. Your second question was about 2021. And on this, we are discussing about numbers and focus. I can tell you that the number is going to be obviously positive compared to this year. We are preparing the figures, our Board has not seen yet. So I would rather follow as a standard rituals and pass it to the Board before discussing it publicly. But as you might obviously expect, we are quite keen of seeing these schemes implemented and also the Next Generation EU Funding. And we obviously are seeing a positive. As a matter of fact, as I was saying before, all evidence is that there is a resurgence in demand for fixed, and this is going to be highly incentivated by this scheme. Now if you also -- if you look at the government comments in these very days and weeks, this subject is going to be simpler for the Italians. But in general, on the press, in all declaration actually, depending what they're working on, the government is stressing the fact that everybody should get good connectivity. And so the digital divide should be closed and that basically some of the funds will have to be allocated to make sure that all Italians have the availability of lines and learn how to use their lines. By the way, we also announced yesterday that we are having -- we expect to have by year-end the first Italian region, Apulia, without a digital divide, meaning 99% of the population, more or less, will be covered by FTTx. And that's going to be remarkable because for many years, we spoke about digital divide. This is the first time ever that an actual region is actually close to completion. And we announce soon the second one we're working on. We're completing the programs. But one by one, we intend to intervene, enclose the white areas everywhere. We owe to our shareholders, we owe it to our country. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Next question comes from Ms. Charlotte Perfect from Arete. -------------------------------------------------------------------------------- Charlotte Perfect, Arete Research Services LLP - Senior Analyst [10] -------------------------------------------------------------------------------- I have 2 questions. Firstly, on the regulatory side of things. We've got the regulated pricing schedule until the end of 2021. I was just wondering if there was any signs of a new market review during 2021? And what regulatory enablers you might be seeking? And of course, whether you were discussing AccessCo and FiberCop in that context as well. And then secondly, are you maybe yet to share in terms of the primary network for AccessCo where that network effectively runs up to? Is it up to -- from the exchange to after the cabinet? And then the secondary network, FiberCop takes it from there? Yes, those 2 questions. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [11] -------------------------------------------------------------------------------- Your question was what's going to happen to regulatory prices from '21 onward? -------------------------------------------------------------------------------- Charlotte Perfect, Arete Research Services LLP - Senior Analyst [12] -------------------------------------------------------------------------------- Yes. And if there are additional enablers. For example, in the U.K., you have a copper switch-over process and given the pricing around FTTC, et cetera, those kind of things. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [13] -------------------------------------------------------------------------------- Okay. Well, actually, we don't know that yet. As a matter of fact, we have a new AGCOM which has been started -- appointed recently and they start their activity in these very days. So I guess that telling you what's going to happen will be telling what we expect. But it's not official yet, and it will be inappropriate to speak on behalf of the authorities. We would imagine, however, that there's going to be an environment which will favor migration, that will favor a switch from, obviously, old technology to new technology which, by the way, for us, it's going to be beneficial because well have to stop supporting all technologies, which obviously require traditionally more maintenance. So -- but I expect there's going to be a good environment in this respect, and that -- but it will be inappropriate for me to comment on what AGCOM would start. We'll do -- I think probably in a quarter, we'll be able to tell you more. But as a matter of fact, if it has a particular interest to you, what we can do is that through Carola, we will update you as we have some official position. As you know, our position is not -- it's rarely or almost never to comment on our interaction with authorities because we know they don't like it. I think you're also asking about timing for FiberCop and Open Fiber. Well, on FiberCop, as we said, we expect that we start activity in Q1 -- or rather, the company will start its activity. Our activity is ongoing already. It's ongoing through Flash Fiber so it's going to be contributed to FiberCop. But there's not going to be any delay on our plans because it's already started. With regards to Open Fiber, as I said before, everything is ready to go. I mean to complete negotiation and so on, including on the technical side where, by the way, there were a couple of articles about who would be the single adviser. I can tell you that, in all discussion, you typically have 1 adviser per side. Otherwise, it's called an arbitration. So I think we have our adviser. I think the counterparty has their adviser. They'll talk to each other. But I think it's basically now very much in the government and in CDP ends in their discussion with Enel, which to my understanding is progressing. But I don't think it's up to me to tell you where are they. I think they're making progress, but I leave it to them to make their comments. I am -- yes, sorry. You were saying something? -------------------------------------------------------------------------------- Charlotte Perfect, Arete Research Services LLP - Senior Analyst [14] -------------------------------------------------------------------------------- That's very helpful. And I was just wondering if it was more around the primary network and what that constitutes, which is what you're putting into AccessCo in addition to FiberCop. So how did the primary network look like to help us with our modeling, both from, I think, the exchange to just after the cabinet? But is there any more that you can share around what primary network consists and what that looks like? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [15] -------------------------------------------------------------------------------- Not really because this is part of our negotiation. So this is something that we really share with the counterparty rather than with the markets first. But basically, we said before, it's the part of the network because that includes the cabinet. It goes from our backhauling from our backbone to the cabinets. And it's basically state-of-the-art, very good but I don't have to sell it to you, I have to sell it to them. But it's a very valuable and unreplicable asset, but this is part of the exercise, which we would like to have in the next few weeks. So we will give you details once they have been discussed with our counterparts. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Next question comes from Mr. Andrew Lee from Goldman Sachs. -------------------------------------------------------------------------------- Andrew J. Lee, Goldman Sachs Group, Inc., Research Division - Equity Analyst [17] -------------------------------------------------------------------------------- I had 2. Just one follow-up on your questions around the Open Fiber discussions. Obviously, there's discussions ongoing, you highlighted with CDP and the government. What -- do you have any view on time line for decisions on this? I think you had a view a couple of quarters ago. I wonder if we can have an update on that. And do we see your potential selling parties in terms of both ones on that front? And then secondly, just on the revenue stabilization and growth outlook for '21 and '22. I appreciate your comments to an earlier question, but I just wondered what construction you see of this inflection to top line growth in Italy? Should we see -- should we be expecting fixed line growth offsetting mobile declines? Or do you think both fixed and mobile can grow over the next year or so? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [18] -------------------------------------------------------------------------------- Let me answer your first question. First, well, when we had our discussion in the end of August -- or rather, we spoke at beginning of August. But then at the end of August, we announced that we had a memo. And we were ready to go on negotiating with Enel. Picture it was a bit complicated by an offer that Enel received from Macquarie. I guess -- so the Enel, I think, announced publicly that they were taking their time to look at it. I guess they had been looking at it for a couple of months. They must know it by heart. And I suppose they will take some decision I would imagine fairly soon. I don't know, obviously, I can't talk to them -- I can't talk for them, I meant. This is basically what we need to get started, their decision. I think the government has reiterated various times the fact that it's time to take decisions and to move forward. We are debating, which is an Italian pastime since the Roman times, and -- but it's now time to move forward. So I suppose that -- and we will quickly move hopefully. We will move quickly and understand if there are terms and conditions to make a single network. I think this is a debate that is taking what is on my personal view, even too much time, because we have to move forward in implementing cloud, implementing edge computing, implementing artificial intelligence, implementing all the technologies for which the network is an enabler. So I imagine that being a top priority for our government, I think this is going to be something that will happen sooner rather than later. But I'm not in a position to give you an exact date on which Enel will take a decision. With regards to your second question, and again, without getting into details that belong to the next meeting and belong to our Board first. But yes, you're right in saying that, from what we see, we would expect the fixed market to have a better dynamics than the mobile in the sense that because of the underlying trend, which is going to be also boosted by these incentives in general by a favorable policy towards fixed line deployment and adoptions by the Italians, we see that moving and also price dynamics in the fixed is more positive in a sense that we have seen that over time, our competitors have all moved their prices in the last year or so. And even the new entrants, Sky has taken a price point which is somewhat similar to the other competitors. So there is good pricing in that respect. With regards to the mobile, we see an improvement in mobile because certain issues were one-offs. Certain other issues, for example, on the roaming and visitors, you will -- in a positive case, we would have, again, assuming COVID by next spring/summer is off, we will have the roaming of visitors and of Italians going abroad and so on. If not, we already got the hit. So on a comparative basis, we will not have anymore the decline for that. With regards to the debt, we did not have actually the hit that we were expecting. And in fact, we see that improving further. What also happened in the past was that on the small and medium, maybe some companies cancel their lines. Again, we already got the hit, so we are seeing that part improving basically at the lower pace than fixed. Clearly, and this might change dramatically where Iliad had to change a different attitude towards pricing. So were they to reinsert EUR 9.99 as substitution for the EUR 7.99 rather than a companion, this might change for the better, the pricing dynamic of the sectors. So as we are today, we see fixed which I remind you is the bulk, however, our business to be recovering faster than the mobile. We'll be more precise, as I said, at the end of the next quarter. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Next question comes from Mathieu Robilliard from Barclays. -------------------------------------------------------------------------------- Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [20] -------------------------------------------------------------------------------- I had 2 questions, please. First, in terms of the subsidies that you have highlighted in your presentation. I was curious with regards to the one for the so-called gray areas. So I understand this would be a subsidy to help you accelerate or deploy you and others, infrastructure. And I was wondering if we think about you getting a share of that in 2021 and beyond, does that mean that you may have a lower CapEx? Or does it mean that you can have more ambitious coverage targets? So that's the first question. And with regards to the second question, free cash flow, obviously, as you highlighted, very strong performance in Q3. I do note that one of the positive elements was the cash tax, which was a positive contribution. I was wondering if that's something we can expect also for Q4 of 2021? Or it's just a one-off, so to speak, for the Q3? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [21] -------------------------------------------------------------------------------- Okay. I'll answer you on the first one, and then I'll ask Giovanni to take your second question. On the first one, I think your first guess was right in a sense that, typically, this will be a contribution to the way we work on the white areas was that, basically, the government would tell there is this amount available as a subsidy if you do connect the area. And so it would reduce your CapEx. So there will be a reduction in CapEx because, basically, as you build, they will pay you a part of this cost. I hope that was clear. Did I answer your question? Okay? -------------------------------------------------------------------------------- Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [22] -------------------------------------------------------------------------------- So well, actually, if I can follow up. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [23] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [24] -------------------------------------------------------------------------------- So let's assume you have in your CapEx plan for 2021, and you already disclosed kind of your guidance over 3 years that you were going to cover x number of homes. Basically, what you're saying is you're still covering this x number of homes but maybe at a lower CapEx. You're not increasing it to x + 1 or x + 2? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [25] -------------------------------------------------------------------------------- Correct. Basically, let's assume that the government gives you EUR 100 as a subsidy. I'll give you an actual example. Basically, let me tell you I work in [19 16] for the white areas. Basically, the government had a bid for connecting the white areas. It started with the first lot and basically you say there was up to EUR 1.4 billion available. Telecom Italia bid for EUR 1.1 billion. Open Fiber bid for EUR 675 million subsidies, so they got it. And so I would expect a similar mechanism effectively, maybe more checks on actual execution this time. But we basically -- what I mean is that it's going to be more care in making sure you don't get a bid which is too low to be executed. But effectively, I would imagine that they will follow a similar path. This has not been explained yet. For example, they -- instead -- well, it's a bit different though. It's -- also, we didn't mention that also the bid for connectivity for the school has started. That's EUR 400 million. And basically, we will have -- the country has been divided into 7 areas, and you can bid for 1 or more. And EBITDA will have to be presented for -- in the next 60 days or so. But that's a different one as compared to the gray areas. So gray areas, that's probably going to be similar to the white ones. But the -- basically, what happen is that they will publish the expected rules of the game for public consultation, and you can comment and give -- I mean, obviously, the players will comment and give suggestion or so. They will then decide, get EU approval and then publish the final. So to make a long story short, yes, there's going to be a reduction in CapEx. I think Giovanni will take your question about the working capital. -------------------------------------------------------------------------------- Giovanni Ronca, Telecom Italia S.p.A. - CFO [26] -------------------------------------------------------------------------------- On the tax side, I would say that it's a long-lasting benefit, the one that we are exploiting related to patents. So the benefit is compensating all tax -- cash taxes that we were supposed to pay in 2020, and the benefit will be similar in 2021. I'm referring to the domestic business. In Brazil, you have a similar benefit coming from the dispute we won last year that created an important tax credit that we will reutilize over time. And so we will continue to benefit from it both in '20 and '21. -------------------------------------------------------------------------------- Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- So we should expect minimal cash charges in 2021, I guess, is the message? -------------------------------------------------------------------------------- Giovanni Ronca, Telecom Italia S.p.A. - CFO [28] -------------------------------------------------------------------------------- Correct. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Next question comes from Mr. Mandeep Singh from Redburn. -------------------------------------------------------------------------------- Mandeep Singh, Redburn (Europe) Limited, Research Division - TMT Specialist Sales [30] -------------------------------------------------------------------------------- I have 3 questions, hopefully quick ones. First question is, obviously, with the group's structure evolving into FiberCop and then, hopefully, AccessCo, your data centers being spun out, can you sort of explain the industrial logic of TIM Brasil within the group? And do you feel that you still need to own that? Are you deriving any benefit from only owning that? Or do you think that business should be separated from Telecom Italia Group? That's the first question. Second question is just coming back to mobile. I understand all the bullishness on fixed, but mobile human ARPU is around EUR 11. That's pretty low in any context or any European context. I mean do you think that can still go lower? And if so, what are the drivers of it going sort of -- I'm just struggling to see how it can go much lower. And I suppose the third question is back to what I think Charlotte was asking around the scope of AccessCo. So we've seen the valuation. We obviously know the valuation of FiberCop as agreed with KKR. And we've seen the various press reports on the price that Macquarie are reportedly going to pay for the stake in Open Fiber. And that seems to be valued as similar, if not higher price than FiberCop, which seems a little bit strange given the size and scale of your business. So was there sort of equalizing or the delta factor with other components you include in AccessCo above and beyond what you've already got in FiberCop? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [31] -------------------------------------------------------------------------------- Okay. Let's start from Brazil. By the way, the data centers have been carved out, but that does not mean that we want to divest it. The carve-out, I think, it's another way, first of all, to get focus on the business, but it also shows how much value there is in this company. This is tremendously, in my opinion, a compelling case in terms of sum of the parts. And this is -- I mean, if you think about a EUR 1 billion business with EUR 400 million EBITDA and you apply today's multiple rather than ours to this business, that's going to underscore a certain evaluation, which is quite relevant. I think we also -- I mean, everybody knew that we were active in this field, but after the -- that joint partnership with Google, we want also to underline that the company is there, that we're going to be the market leader there. We have -- basically, we are the only national in this area. And by the way, we see a growing tendency of underlining the importance of data sovereignty, and we will also work through GEA X to -- with other companies to create European standards. We feel that's quite important. So I just wanted to make sure that this is understood. This is not a business that we carve out to depart from. But as a matter of fact, it's one of our centerpoint of our growth going forward. With regards to Brazil, I think at this stage, we are interested in strengthening TIM Brasil and making sure it becomes a market leader, the market leader or one of the market leaders. You might very well say there's going to be only 3, so it's definitely going to be one of the market leaders, yes. But for us, market leader doesn't necessarily mean the biggest. It means the most profitable, the most effective, the one most people respect. And TIM Brasil is working well in this respect. It's doing well. I think we got an unprecedented opportunity because moving from 4 operator to 3, like the U.S. case showed, is a very great opportunity. If I were to tell you that we, Wind and Vodafone were doing the same and -- within Italy, you would end up and go buy stock, our stock because it will be a tremendous opportunity. And so it is in Brazil. Basically, it's a large country, which is an untapped potential in terms of growth because it still has to grow at the same level in terms of sophistication on the fusion of these instruments than the European or U.S. markets, and there's going to be only 3. So at this stage, we are very much focused on making sure that the company is worth more. And we believe it will: a, because it's a company that is doing well. It's well managed and has good position and holding strength or all its KPIs are positive; and b, because there is an unprecedented opportunity to consolidate the markets. So the combination of the 2 make me think that we will want to see that happening. Then going forward, I would say that it's -- I would say that this is not something on which I would say we will never reconsider. But at the moment, we are not considering a divestiture. We're happy with the ownership in TIM Brasil simply because we think it's going to be worth more and it's going to create value for the TIM shareholders. I don't know if I've answered your question. -------------------------------------------------------------------------------- Mandeep Singh, Redburn (Europe) Limited, Research Division - TMT Specialist Sales [32] -------------------------------------------------------------------------------- Yes, you have. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [33] -------------------------------------------------------------------------------- Okay. Then you were asking about the ARPU. Mobile ARPU, I think it's -- I agree. I agree with you. I think it's -- it will have to go up simply because, you see, it's not our problem. It's a market problem. Everybody has the same problem. And typically, when everybody has the same problem, it tends to grow. And I've seen that in many other industries, so it's a question of time. If we were in a position where Iliad were generating cash rather than burning and Vodafone and Wind were doing very well, then I would tell you that Telecom had a major problem. We still have a problem, of course, because the ARPU is too low. But we think that our competitors have the same or worse problem and that we're rolling businesses to make money and to produce cash flow. And I very much respect Xavier Niel. He's a very smart entrepreneur, and smart entrepreneurs like to make money. At the moment, he's not making it. So we'll see. What happen in the near future? My bet will be that we'll see a higher ARPU rather than lower ARPU in a year. Then you were asking about a real devaluation. Well, in fact, that's an exercise that I'm really looking forward to it. Bear in mind that one of the things that we will do -- I mean, we would have to do, is that to normalize valuations. Meaning if you value 2 companies, and in one case, you put a business plan which say the market will grow at 5%. In other case, you say the market will grow at 20%. Of course, the one that we put at the market at 20% is going to be worth more 20 years from now. So I think we will have to understand what assumptions are made. And the only thing that I can tell you is that, when we will have to make a cross-evaluation, it will have to be with the same set of standards. That's why we call for a group of people that will make evaluation or institutions, of course, that will make evaluation based on common criteria. So what is the ARPU that we expect per line in 2027? What's the overall market growth? I mean what's the economic growth? I mean as you know, when you do long-dated plans, depending on what rates you use or what assumptions, the results can be very different. The other thing is that what remedies? Do you guarantee anything? I mean because if you guarantee certain, could I say, the fact that there's going to be -- today, there are 20 million houses passed. And then if you find that there are only 10, then what is the criteria to calculate the house? Is that 20 meters from the client? Or it's actually in the client house? Because then there are some cost to complete the house rather than not. So to make a long story short, we don't know how this Macquarie offer valuate Open Fiber. But obviously, any combination would imply that you use the same meters. Otherwise, in one case, you're talking pounds and the other one, you're talking kilos, it doesn't work. Hope I'm being clear enough. -------------------------------------------------------------------------------- Mandeep Singh, Redburn (Europe) Limited, Research Division - TMT Specialist Sales [34] -------------------------------------------------------------------------------- Can I just follow up, please, briefly? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [35] -------------------------------------------------------------------------------- Sure, sure. -------------------------------------------------------------------------------- Mandeep Singh, Redburn (Europe) Limited, Research Division - TMT Specialist Sales [36] -------------------------------------------------------------------------------- Yes. So really, we're just getting to the second bit of that same question, which is would -- what you put into the single network be something different to what you are putting in FiberCop, I think as Charlotte was asking. So would that be a method to increase the value of what TI is contributing to the combined single network? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [37] -------------------------------------------------------------------------------- It would have this effect, but not necessarily because, of course, our, let's say, our -- assuming they've been valuated with different criterias, you will probably find that our company alone will be worth more. And anyway, the synergies alone that you could generate would increase the value of our share. And so the company -- yes, so FiberCop would benefit anyway from -- if anything else, assuming that is exactly the same logic that we use exactly the same numbers, we have the same and -- which is not the case, by the way. But assuming that, that was the case, the synergies alone would be -- would warrant an increase in valuation. Then you have the primary. Now the reason why the primary is involved is because in talking with -- the logic is somewhat different. Let me try to explain it without giving you any, I would say, confidential aspects of our partners. Taking an idea from our discussion is that, if you have something which is mixed, fiber and copper, and you transform into a copper, you have a much more valuable network, which command higher multiple. So their x multiple would be different. So they did not have particular interest of a primary network, which is basically fiber and does not, by the way, need the same level of investment. And so it's basically fiber these days. Basically, when we're discussing with CDP and the government and so on, they basically say, "Okay. Let's get things together and create a company that would encompass all the fixed part of networks in Italy." So we get a Fastweb component, we get ourselves, but -- we get Open Fiber and we also get the primary part that is dedicated to fixed, obviously, the cabinets and the part dedicated to that. That would be a sizable chunk of assets. But as I say, I will stop here. But the reason is not necessarily to increase our share -- would have the effect of increasing our share by definition because we would contribute something, again, which will be a significant asset. But the main reason would be to put together all the fixed-only assets. I hope I've been exhaustive or at least clear. -------------------------------------------------------------------------------- Mandeep Singh, Redburn (Europe) Limited, Research Division - TMT Specialist Sales [38] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Next question comes from Mr. Domenico Ghilotti from Equita. -------------------------------------------------------------------------------- Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [40] -------------------------------------------------------------------------------- I have a couple of questions. The first is your (inaudible). (technical difficulty) -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [41] -------------------------------------------------------------------------------- Domenico, you need to repeat because your line was very bad. Thank you. -------------------------------------------------------------------------------- Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [42] -------------------------------------------------------------------------------- Can you hear me? Can you hear me? -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [43] -------------------------------------------------------------------------------- Yes. Thank you. -------------------------------------------------------------------------------- Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [44] -------------------------------------------------------------------------------- Okay. Sorry. Okay. So my question is on your ICT business. On one side, you are underlining the strong growth that you had close to 20%. On the other side, I see on the cost side a strong increase in the cost of goods sold. So I'm trying to understand if this is -- this business is, say, what is the profitability underlying from this business? And if we have, let's say, too much cost attached for developing the business? The second question is a follow-up on the voucher. So I'm trying to understand if the voucher is driving more new customers, so voice-only customer or no broadband customer or if you see more upgrades from, say, low ADSL to ultra-broadband and how this is changing your metrics. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [45] -------------------------------------------------------------------------------- Okay. Let me answer your question. On the second one, the easy answer, but the only answer I can give you today is that we don't know because it started yesterday or rather Monday. So we need to see the profile of the first customers that we get. We need a few weeks to start getting a full, I can say, a fuller picture. At the moment, we don't know. The basic idea was to bring people that would not use fiber or broadband to use it in order to allow them to do smart working and so on and so forth. Your second question was -- Carola? -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [46] -------------------------------------------------------------------------------- ICT. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [47] -------------------------------------------------------------------------------- Yes, on ICT. Basically, ICT has a different dynamics. Basically, when you do connectivity, connectivity is, obviously, has a high fixed cost and a lower cost specific per customer because you already have built network. ICT tends to have a lower profitability but -- than pure connect in terms of EBITDA margin, but of course, has a much lower CapEx requirement. It also -- it's -- I think you should look at it in 2 ways. One, that under the ICT goes a lot of the new technologies that we cannot call it as connectivity. So you -- I mean, we will try also over time to give a line for IoT. But now, for example, we go under ICT. For example, the smart room that we did in Venice, at the moment, you would find that's called as ICT. And by the way, this ICT has a very strong -- and so I'm told, cloud go under ICT at the moment. So we'll try to be more, I would say, more specific in telling you which is which. But another very important point is that when we have a large client, well, I made an example of the smart room in Venice. Of course, we also sell them connectivity. And of course, they will be much more loyal because we can provide full solution to some of our large clients. We have a differentiation strategy that allow us to present them solution and giving them a smart room and giving them a cloud and giving them cybersecurity and giving, I said probably the right word, solutions that clearly requires some engineering, some specific bids as we are among the few that have. I suppose we are doing it in Italy and has a different dynamics from pure connectivity. So you will see that growing. We keep it as a separate segment. And in general, don't underestimate the marginality because, for example, as I said, on cloud, it's close to 40%. It's approaching 40%. So not all ICT, it depends what you do in ICT. I mean if you were simply a reseller, of course, your margin will be much lower. If you actually sell a solution, it's a solution being more differentiated, being unique somehow, tends to be better priced. I hope I did answer your question. I would ask for our next question then. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Next question comes from Mr. Luigi Minerva from HSBC. -------------------------------------------------------------------------------- Luigi Minerva, HSBC, Research Division - Senior Analyst [49] -------------------------------------------------------------------------------- Thanks for taking my 2 questions. The first one is on copper switch-off. I think there's been discussion at the government level to include a provision in the next budget law that could force mandatory copper switch-off by 2025. So I'm wondering how -- well, what do you think about it? Whether -- it looks like a very tight timing. So whether you think it is feasible and what the impact on your future CapEx could be if that was to be implemented. And the second question is a clarification on the use of the funds from the recovery -- recovery fund from the European Union. So I was -- I just wanted to understand, if you were to use EUR 1.1 billion to roll out fiber in the gray areas, where then the network ownership would be left with? So would TI still be the owner of that network? Or would it be the state, the owner, and TI would have to use it as a concession? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [50] -------------------------------------------------------------------------------- Well, on the switch-off, frankly, we don't know because there's no official target, nor we have discussed that with authorities. We think that eventually will be a good idea so that we can focus on a single technology rather than supporting more than one. And so I think, in principle, we would be favorable to the concept, but we're not aware that there has been a discussion in that respect yet and nor fixed a date specifically. And your second question is the... -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [51] -------------------------------------------------------------------------------- Increase in CapEx, increase -- no, increase in CapEx to get there. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [52] -------------------------------------------------------------------------------- No. I think basically, you were asking if we have to increase CapEx. No, because we already have expected to -- it's already incorporated in our plan, as I say, relative CapEx. So we're fine with our guidance on CapEx. You were asking then about the Next Generation EU Funds. Do you mind repeating your question? -------------------------------------------------------------------------------- Luigi Minerva, HSBC, Research Division - Senior Analyst [53] -------------------------------------------------------------------------------- Yes, sure. No, I was wondering, if you were to deploy fiber in the gray areas using the funds from the recovery fund, who will then own the network? Will the state own the network? Or will TI own the network? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [54] -------------------------------------------------------------------------------- Actually, the -- let me make a clarification. The EUR 1.1 billion, which is expected to be allocated to the gray areas, is Italian government money. It's not Next Generation EU Fund. It was already established before this fund -- the European fund was established. And the regulations have not been issued yet, so we don't know. We'll have to wait for regulation to come out. By regulation, I mean the rules of the contract. These have not been published yet. I expect them to be sent out for publications around -- for public comments around year-end, but they're not out yet. Bear in mind that in the gray areas, we have FTTC basically everywhere, and this is all ours. So for us, it will be easier to complete the exercise, but that's ours. That's the one thing that we know for sure. So we would expect it to maintain that even if we were to get the subsidy. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- Last question is from Mr. Fabio Pavan from Mediobanca. -------------------------------------------------------------------------------- Fabio Pavan, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [56] -------------------------------------------------------------------------------- I will have 2, will be very, very quick. First one is on 5G. You were mentioning in your presentation what is going on about the rollout. My question is, do you think we should start appreciating some contribution from 5G already in 2021? Or maybe it's too early? And if so, could be something related to B2C offer or eventually supported to FWA deployment? And the second question is a follow-up again for -- sorry for that, on AccessCo. Would you say that the implementation of a single network could be instrumental for putting at work the next-generation new funding? -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [57] -------------------------------------------------------------------------------- Okay. Let me answer your first question on the 5G rollout. Well, I guess it's a bit of -- in 2021, you'll have some contribution, but we don't expect to rely on 5G to get our stabilization. You will start seeing the beginning. We expect to basically to use it on FWA. Actually, FWA is something that we will want to do more and more. It works well. It's effective. It has a very good profile of cost, profitability and customer satisfaction. So you will see a lot of FWA. And actually, some of our business clients will be surprised by the power of 5G. It will start seeing also some B2B and in industrial districts, I would say. So we don't expect to have yet a lot of consumer demand in 2021. So the first will be FWA and business. But again, we'll be more specific in the next meeting, but we don't -- we see work on 5G, not yet a lot of profitability. It's still a 4G year, so to speak. With regards to your other question was -- sorry... -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [58] -------------------------------------------------------------------------------- AccessCo. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [59] -------------------------------------------------------------------------------- AccessCo? -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [60] -------------------------------------------------------------------------------- Incremental (inaudible) funding. -------------------------------------------------------------------------------- Luigi Gubitosi, Telecom Italia S.p.A. - CEO, MD, GM & Executive Director [61] -------------------------------------------------------------------------------- Oh, yes, I'm sorry. I apologize, Fabio. Your question was whether -- well, of course, if you have a single company, it's technically easier because you have only one, I could say, candidate. And so you go into direct rather than -- direct negotiation rather than doing a tender. Having said that, otherwise, you would go through tenders as has been done in the past. So I don't think it's correct to say that having a single company will be the only way to use the EU funds. It would definitely make it easier from a procedural point of view in a sense there would be, let's say, that there's only 1 network company. Of course, would you give it to do the networking? So it would help, but it's not a must-have for the use of the European funds. At least that's my understanding. With this, I think, as Carola was saying, we complete our session. As usual, Carola and myself and all the team are available for further questions. And we look forward to maintaining the dialogue. So please do call us if there's anything that comes up to your mind that you want us to elaborate on. Or otherwise, we will see you for the annual results meeting. Thank you very much. I give it back to Carola. -------------------------------------------------------------------------------- Carola Bardelli, Telecom Italia S.p.A. - Head of IR [62] -------------------------------------------------------------------------------- Thank you, Luigi. Thank you, everybody, for participating, and have a good rest of the day. Bye-bye. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- The conference call is over. Thank you for calling.