BERNABÈ: “2009 EBITDA AND DEBT REDUCTION OBJECTIVES REACHED, THANKS TO INCISIVE COST CONTROL AND CONTINUING EFFICIENCY RECOVERY. THESE RESULTS CONFIRM THE EFFECTIVENESS OF THE GROUP’S STRATEGY AND ALLOW US TO DISTRIBUTE OUR SHAREHOLDERS A DIVIDEND OF AROUND €1 BILLION.”

“WE WILL CONTINUE ALONG THE PATH SET OUT IN THE 2009-2011 INDUSTRIAL PLAN PRESENTED AT THE END OF 2008 WITH THE OBJECTIVE OF STABILIZING THE GROUP’S ORGANIC EBITDA FOR THE THIRD CONSECUTIVE YEAR IN 2010 AT €11.3 BILLION ALSO THANKS TO THE CONTRIBUTION FROM BRAZIL WHICH RECORDED GOOD PROGRESS IN THE FIRST THREE MONTHS OF THE YEAR.”

“THE UPDATE OF THE INDUSTRIAL PLAN TO 2012, FOCUSED ON THE DOMESTIC MARKET AND BRAZIL, ALLOWS US TO EXPECT AN OPERATING FREE CASH FLOW TURNOVER TARGET AT THE END OF THE PERIOD OF 26%, ONE OF THE HIGHEST AMONG EUROPEAN COMPANIES, AND TO CONFIRM A DEBT REDUCTION OF €5 BILLION BY 2011 AS FORESEEN IN THE PLAN PRESENTED AT THE END OF 2008.”

SPARKLE: RISK PROVISION CREATED FOR A TOTAL OF €507 MILLION

ECONOMIC IMPACT IN 2009 LIMITED TO €10 MILLION FOR FINANCIAL CHARGES

TELECOM ITALIA GROUP PRELIMINARY RESULTS CONFIRMED:

REVENUES: €27,163 MILLION, -6.3% COMPARED WITH THE END OF 2008; -5.6% ORGANIC VARIATION

EBITDA: €11,115 MILLION, +0.2% COMPARED WITH THE END OF 2008;

ORGANIC EBITDA: €11,327 MILLION, -0.5% COMPARED WITH 2008;

ORGANIC EBITDA MARGIN: 41.7%, +2.2 pp COMPARED WITH 2008;

INCOME BEFORE TAXATION: €3,339 MILLION, AN INCREASE OF 15.4% COMPARED WITH 2008

NET INCOME: €1,581 MILLION, A REDUCTION OF €596 MILLION COMPARED WITH 31 DECEMBER 2008 MAINLY DUE TO THE EFFECT OF THE WRITE-DOWN FROM HANSENET GOODWILL, HIGHER TAXES FOR THE YEAR AND THE TERMINATION OF SOME FISCAL BENEFITS

FREE CASH FLOW FROM OPERATIONS: €6,298 MILLION (+€662 MILLION COMPARED WITH 2008) EQUAL TO 23.2% OF REVENUES, AN INCREASE OF 3.8pp COMPARED WITH 2008

ADJUSTED NET DEBT: €33,949 MILLION, A DECREASE OF €577 MILLION (€34,526 MILLION AT THE END OF 2008); A DECREASE OF €1,144 MILLION IN Q4 (€35,093 MILLION AT 30 SEPTEMBER 2009). IN 2009 TAXES PAID FOR €2,301 MILLION (€633 MILLION IN 2008)

NET FINANCIAL DEBT WAS €34,747 MILLION (€34,039 MILLION AT THE END OF 2008)

INVESTMENTS MADE FOR AROUND €4.5 BILLION IN 2009, WITH APPROXIMATELY €3.5 BILLION DEDICATED TO STRENGTHENING THE NETWORK AND TECHNOLOGY PLATFORMS IN THE DOMESTIC MARKET THUS ANTICIPATING AND SATISFYING CUSTOMER NEEDS

PROPOSED DISTRIBUTION OF DIVIDENDS OF 5 EURO CENT PER ORDINARY SHARE AND 6.1 EURO CENT PER SAVINGS SHARE, EQUAL TO A PAY OUT RATIO OF 74%

STRATEGIC GUIDELINES AND TARGETS FOR THE 2010-2012 THREE-YEAR PERIOD:

-- STRONGER CASH FLOW GENERATION: OPERATING FREE CASH FLOW OF €21 BILLION OVER THE THREE YEAR PERIOD; CASH FLOW FROM OPERATIONS TO REPRESENT 26% OF REVENUES IN 2012

-- DEBT REDUCTION OF €5 BILLION CONFIRMED FOR THE 2008-2011 PERIOD; 2012 DEBT TARGET LESS THAN €28 BILLION

-- 2009-2012 EFFICIENCY PLAN EXTENDED AND INCREASED ON CASH COSTS OF €2.7 BILLION (VS 2 BILLION IN THE PREVIOUS 2009-2011 PLAN) OF WHICH €900 MILLION ALREADY CREATED IN 2009 AND AROUND €1 BILLION EXPECTED IN 2010

-- THE HEADCOUNT REDUCTION PLAN BY THE END OF 2010 ALMOST COMPLETED

-- INVESTMENTS EXPECTED FOR APPROXIMATELY €12 BILLION IN THE THREE YEARS, OF WHICH APPROXIMATELY €9 BILLION IN ITALY FOR THE COMPETITIVE DEVELOPMENT OF FIBRE, THE STRONG BOOST IN INNOVATION AND THE IMPROVEMENT OF RADIO NETWORK PERFORMANCE

The Telecom Italia Board of Directors, chaired by Gabriele Galateri di Genola, yesterday examined and approved the Group’s Annual Report on Operations at 31 December 2009.

Today in Milan, Telecom Italia CEO Franco Bernabè, CFO Andrea Mangoni, Head of Domestic Market Operations Marco Patuano, CTO Oscar Cicchetti and the Diretor Presidente of Tim Brasil Luca Luciani, present to the financial community and media the Group’s strategic guidelines and targets for the 2010-2012 period.

Franco Bernabè, CEO of Telecom Italia, said: “The results achieved during 2009 are very satisfactory in light of the profound changes implemented in the mobile business both in Italy and in Brazil; the ability to recover efficiency has enabled the Group to reach the objectives of profitability and to look more calmly towards 2010. The strong cash generation and the further reduction in the debt level allow us to strengthen Telecom Italia’s role as leader in technological development, moving closer to the customer and its needs. In view of the full year results, and convinced of the effectiveness of the actions taken, that will continue in the near future, the Board of Directors has decided to propose to the shareholders the distribution of a 5 euro cent dividend for ordinary shares and 6.1 euro cent for savings shares, a decision which is coherent with the results and the trust in the evolution of the Group.”

“Telecom Italia today has the opportunity to highlight the stages reached in the path outlined a year ago in the presentation of an industrial plan which was focused on a return to fundamentals. 2009 was a year of great challenges characterised by a profound economic crisis and, for what concerns Telecom Italia, by important commercial and organisational changes. The actions taken this year by the company allow us to confront future challenges. We will continue to focus on keeping under control operating and investment costs which are concentrated in those business sectors which are considered most profitable. This selective approach will allow us to increase cash generation, which remains our primary objective, together with debt reduction. Geographically, our growth will come from Italy and Brazil. With Tim Brasil, which has now completed its re-positioning, we are ready to successfully compete as a pure mobile operator, in one of the emerging countries with higher growth potential”.

TELECOM ITALIA GROUP RESULTS

The consolidated financial statements at 31 December 2009 take into account the restatements and provisions as a result of information obtained from the the information available under the Court order issued in relation with the ongoing investigation involving, among others, the subsidiary Sparkle, and of subsequent auditing of financial statements starting from 2005. As a result, the 2008 comparative data as well as the main economic/financial data from the 2005, 2006, 2007 financial periods have been coherently restated.

Risk provisions totalling €507 million were set aside up to the end of 2009 (of which €10 million in 2009) and are intended to address risks and additional charges of a fiscal and legal nature. Telecom Italia considers that certain operations carried out in the years 2005, 2006 and 2007 presented severall anomalies, as outlined by IAS 8, such to conclude today that the financial statements of the years in question must be restated.

2009 Financial Year

The main variations to the consolidation area in 2009 were as follows:

-- the Group’s stake in HanseNet Telekommunikation GmbH (a German broadband carrier) was posted under Discontinued Operations. The sale was completed on 16 February 2010. Pursuant to IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations), the company’s economic performance in 2009 as well as in the corresponding periods of the 2008 fiscal year, were placed under an ad-hoc P&L item called "Income (losses) from Discontinued Operations/Assets Held for Sale". Capital-related results at 31 December 2009 are displayed as two separate items on the consolidated balance sheet;

-- on 30 December 2009 Tim Participações acquired 100% of the fixed network operator Brazil Intelig Telecomunicações Ltda, consolidated the same day under Telecom Italia Group, within the Brazil business unit;

-- Telecom Media News S.p.A. was excluded from consolidation from 1 May 2009, following the sale of a 60% stake by Telecom Italia Media S.p.A.

The main changes during 2008 were as follows:

-- exclusion of Entel Bolivia starting in Q2 2008, following its nationalisation pursuant to a decree issued by the Bolivian Government on May 1, 2008. This stake can now be found under Current Assets;

-- exclusion of the “Pay-per-View” business starting December 1, 2008, following its sale by Telecom Italia Media S.p.A..

Revenues in FY 2009 were down by 6.3% at €27,163 million from €29,000 million at the end of 2008 (-€1,837 million). In organic variation terms, the decrease in consolidated revenues was 5.6% (-€1,625 million).

In detail, the organic variation in revenues is calculated by excluding:

-- the effect of variation in the consolidation area (-€58 million, caused mainly by the exit of Entel Bolivia in Q2 2008 and by the exclusion of the “Pay-per-View” business by Telecom Italia Media S.p.A starting in December 2008);

-- the effect of exchange rate variations (-€161 million, equal to the balance between the €171 million loss incurred by the Brazil business unit and the €10 million profit from the other business units);

-- other non-organic revenues of €17 million in 2009 (€24 million in 2008).

EBITDA came to €11,115 million, up €25 million (+0.2%) on 2008, EBITDA margin rising from 38.2% of revenues in 2008 to 40.9% in 2009. Organic EBITDA fell by €52 million (-0.5%), while the organic EBITDA margin stood at 41.7% in 2009, up 2.2 percentage points from the end of 2008 (39.5%).

In 2008 CAPEX included €477 million for the purchase of mobile telephony licenses to be allocated to the 3G service of the Brazil mobile business unit. Investments in the Domestic business unit, even including the €89 million for the purchase of the IPSE frequencies, fell also due to the impact of cost reductions and investment plans started in 2008.

Cash flow from operations and other cash flows: cash flow from operations in 2009 amounted to €6,298 million, a €662 million improvement on 2008, mainly due to the reduction in investment requirements (€-497 million compared with 2008). It is also noted that in 2009, the Group made tax payments for €2,301 million, significantly higher than in previous years.

Net financial debt stood at €34,747 million, up €708 million from 31 December 2008 (€34,039 million). Compared to 30 September 2009 (€35,506 million) indebtedness fell by €759 million.

In order to provide a better picture of net financial debt, as early as June 2009 the Company deemed it necessary to introduce a new financial measure “adjusted net financial debt”. This item excludes the purely accounting, non-monetary effects stemming from the valuation at fair value of derivatives and related financial assets/liabilities. As a matter of fact, the valuation of derivative financial instruments, which are designed – among other things – to manage the exchange and interest rates of future variable contracts does not actually imply any cash settlement.

Adjusted net financial debt stood at €33,949 million, down €577 million from 31 December 2008 (€34,526 million).

In Q4 2009 adjusted net financial debt fell by €1,144 million. The effects of the positive management dynamic have only partially been absorbed by the tax payments.

The liquidity margin at 31 December 2009 stood at €7,347 million (€5,581 million at 31 December 2008). During 2009 the status of the European and American financial markets allowed Telecom Italia to issue new bonds and to access new financing at advantageous conditions. In addition, €6.5 billion are also available on non revocable long term credit lines (maturing 2014), which are not subject to covenants that may limit their availability. In the current uncertain climate on financial markets, the Telecom Italia Group maintains a high level of financial cover, while at the same time optimising the average cost of debt.

At 31 December, 2009 the Group’s headcount (excluding employees from discontinued operations) stood at 71,384, of whom 60,872 in Italy.

BUSINESS UNIT RESULTS

Figures for Telecom Italia Group included in this press release refer to the following business units:

-- Business unit Domestic: includes domestic fixed-line and mobile-line voice and data services provided to end users (retail) and other carriers (wholesale), as well as associated support operations;

-- Business unit Brazil: refers to telecommunications operations in Brazil;

-- Business unit Media: includes TV network-related activities and operations;

-- Business unit Olivetti: focuses on the development and manufacturing of digital printing systems and office products;

-- Other Operations: includes financial firms and other smaller operations not strictly related to the core business of the Telecom Italia Group.

Following the inclusion of HanseNet among Discontinued Operations, the European Broadband business unit has been removed. The other companies originally included in that business unit have been moved under “Other Operations”. In order to make a proper comparison, segment reporting for comparable periods has been restated accordingly.

Figures for Telecom Italia Media at 31 December 2009 and related events after 31 December 2009 can be found in the press release issued on 25 February 2010 after the Board Meeting of the company that approved them.

DOMESTIC

Revenues amounted to €21,662 million, down 6.7% (-€1,565 million) compared with 2008. The organic change was -6.8%.

Highlights:

Core Domestic Revenues

Core Domestic revenues stood at €20,579 million, down 6.9% (-€1,525 million) from 2008. The organic change was -6.9%.

The following highlights the performance of individual market segments as compared with 2008:

Consumer: Our marketing policy underwent a radical change in 2009. Against a challenging macroeconomic backdrop, as certain customer groups reined in their spending and competition ratcheted up in the marketplace, TIM rapidly repositioned its offer by moving away from its previous focus on mobile terminals as a significant driver of end-customer choices, coupled to a series of incentives for the sales network, and shifted to a new approach based on effective advertising communication, increasingly customer loyalty focused offers, and remuneration of sales channels on the basis of the actual quality of the customers they acquire.

Consumer segment revenues registered a decrease of €1,196 million (down 9.8%). This figure included €742 million (6.6%) less from revenues from services, and €454 million (49.1%) less from product sales, most notably on mobile devices. The €742 million reduction in revenues from services is attributable to fixed-line telephony (down €333 million, 8%) and outgoing mobile calls (down €213 million, 6%). Outgoing mobile calls were impacted by a contraction in the customer base and the effects of the regulatory interconnection rate review, which had a significant impact on revenues from mobile termination (down €168 million, of which €122 million attributable to the cut in rates), alongside a contraction in revenues from traditional value added services (revenues from messaging were down €76 million, 9%) and content (down €61 million, 24%). Performance in traditional areas of business was partially offset by growth in the customer base and revenues from fixed-line broadband services (up €114 million, 13%) and mobile broadband services (up €42 million, 12%);

Business: The contraction in revenues (down €394 million compared with 2008 (down 9.6%, or down 9.5% in organic terms) may predominantly be ascribed to the challenging economic conditions faced by SMEs in 2009, which consequently exerted downwards pressure on consumption. This was compounded by the contraction in the customer base, which slowed compared to a year earlier in the Fixed-line sector, but accelerated in the Mobile sector. The reduction in revenues intensified in both of these sectors (Fixed line revenues were down 11%, Mobile revenues were down 9%), though negative growth was less pronounced in the final quarter of the year compared to the previous quarter. Against this backdrop, a number of positive year-on-year trends emerged: Fixed-line broadband revenues remained stable; Fixed-line data services posted growth of 3%; and mobile browsing revenues registered 16% growth;

Top: Revenue performance (down €131 million – a reduction of 3.4% year on year, and of 1.9% in the fourth quarter) was predominantly effective by a contraction in the overall telephony and data market (down 8.7% year on year, and down 7.7% in the fourth quarter), as a result of the economic circumstances and, in consequence, of businesses reducing consumption. This trend was partially offset by the strong, ongoing rise in revenues from ICT solutions and offerings (up 15.3% year on year, and up 15.3% in the fourth quarter), as the company increased its market share from around 9.2% in December 2008 to 11.4% in December 2009. The mobile segment essentially held up from the previous year (down 0.1% year on year, down 0.1 % in the fourth quarter);

National Wholesale: The rise in revenues (up €258 million or 14.8%; 14,9% in organic terms) was generated by growth in the Other Licensed Operator (OLO) customer base for Unbundling of the Local Loop, Wholesale Line Rental and Bitstream services.International Wholesale Revenues

In 2009 the International Wholesale business segment (Telecom Italia Sparkle Group) posted revenues of €1,710 million, down €120 million from 2008 (-6.6%; -7.1% at organic level), following a decline in voice services in both the captive and the third-party markets. The good performance of the IP/Data, Multinational Corporations and Consulting businesses partially offsets the above decline in voice services.

Besides the market segment overview given above, the following revenue figures are broken down by technology (fixed-line/mobile).

Fixed-Line Telecommunications Revenues

Revenues amounted to €14,739 million, down €261 million (-1.7%) from 2008. The organic change in revenues was negative by €279 million (-1.9%).

At 31 December 2009 retail accesses stood at approx. 16.1 million (-1,255,000 compared to 31 December 2008). The wholesale customer portfolio grew to approx. 6.2 million accesses (+1,221,000 compared with 31 December 2008). The total access market was substantially stable compared with December 2008.

The total broadband portfolio amounted to 8.7 million accesses (+607,000 compared to 31 December 2008, broken down into 7 million retail and 1.7 million wholesale accesses.

Retail Voice

Revenues from the Retail Voice business amounted to €6,804 million, down €720 million (-9.6%) from 2008.

Revenues from all market segments suffered a physiological reduction in both customer base and traffic volumes as a consequence of a very competitive operating environment. Additional factors were a decline in regulated fixed-to-mobile termination rates and the disabling of a number of Premium services executed by the company on both a compulsory and voluntary basis (the decline in revenues from VAS services compared to 2008 amounted to €45 million). However, the economic impact of lower access revenues (-€177 million) was offset in the domestic business segment by the good performance of wholesale services (+€170 million from regulated intermediate services such Local Loop Unbundling and Wholesale Line Rental).

Internet

Revenues from the Internet business segment amounted to €1,707 million, up €77 million from 2008 (+4.7%). The Narrowband component declined even further and currently accounts for a mere 2% of total revenues. The total retail Broadband portfolio reached 7 million accesses on the domestic market, up 246,000 accesses from the end of 2008. Flat-rate customers now account for 83% of total retail Broadband customers (compared to 77% at the end of 2008). Also on the rise is the IPTV service in the Consumer segment, with a portfolio of 401,000 customers to date (+72,000 compared to the end of 2008) and the Web-based offerings and services provided through the Virgilio portal. The Alice Casa package has 621,000 customers (+503,000 compared to December 31, 2008) and accounts for 8.9% of the total Broadband portfolio (1.7% as of December 2008).

Business Data

Revenues from the Business Data segment were €1,730 million, up €10 million (0.6%) on 2008. This was driven by the good performance of ICT products and services, for which revenues grew by €72 million (up 9.5%), spearheaded by 13.8% growth in services.

Wholesale

At the end of December 2009, Telecom Italia’s Wholesale division customer portfolio consisted of approx. 6.2 million accesses for voice services and 1.7 million accesses for Broadband services. Overall revenues from domestic Wholesale amounted to €2,888 million, corresponding to growth of €429 million (17.4%) compared with 2008. The upwards trend in revenues in this sector is ascribable to growth in the alternative operator customer base, which is served via a variety of access types. Total Wholesale sector revenues in 2009 were €4,117 million.

Mobile Telecommunications Revenues

As noted previously, a wide-ranging review of consumer sector sales policy in the mobile business generated a significant reduction in mobile terminal sales, which decreased from 7.9 million in 2008 to around 4.8 million in 2009. This policy had evident benefits on helping to hold up Domestic Business Unit profit margins.

However, revenues from Mobile telecommunications over the year decreased by €1,090 million (down 11.3%) to €8,597 million compared with the same period in 2008. The company's new strategic orientation resulted in a sharp contraction in revenues from terminals (down 44%). This was compounded by the impact of the planned introduction of revised regulatory interconnection rates, and the reduction in the customer base, which was at its strongest in the first half of the year. The excellent results achieved by mobile broadband offerings partially offset the negative trend in traditional value added services (text messages).

At year-end 2009, Telecom Italia supplied around 30.8 million mobile lines. The reduction in this figure compared with year-end 2008 may be ascribed to a more selective sales policy focused on higher value clients – a strategy borne out by the number of post-paid lines, which now account for around 20% of the total, compared with around 17% at year-end 2008. At the same time, the company undertook a termination of unused lines. In 2009, verification continued of prepaid SIM cards to detect cards not properly associated with an ID document. Over the year, this led to the termination of more than 2.9 million SIM cards; in excess of 760 thousand SIM cards were re-registered properly.

-- EBITDA for Domestic business was €9,895 million, down €64 million from the same period of 2008 (-0.6%). The EBITDA margin was 45.7%, up 2.8 percentage points from 2008. The organic change in EBITDA compared to 2008 was negative by €211 million (-2.1%), with the EBITDA margin standing at 46.5% (44.2% in 2008).

-- EBIT was €5,394 million, down 11 million (-0.2%) from 2008, with the EBIT margin standing at 24.9% (compared to 23.3% for 2008). The organic change in EBIT was negative by €93 million (-1.6% from 2008).

-- CAPEX was €3,523 million, down €135 million from 2008. The capex margin was 16.3% (compared to 15.7% in 2008). This decline was mainly a consequence of the optimisation and rationalisation of network investments and lower investments in handsets (rentals or multi-year contracts) and the purchasing of the Wi-MAX license.

-- Headcount was 58,736 employees, down 3,080 from 31 December 2008.

BRAZIL (average real/euro exchange rate 2.76933)

In December 2009 Tim Brasil Group reached 41.1 million lines (+12.9% against 31 December 2008) with a market share of 23.6%.

Revenues for 2009 amounted to 13,907 million reais, down 0.3% (-44 million reais) from 2008 (revenues from VAS +16.1%). Average monthly revenues per customer amounted to 28.2 reais in December 2009, compared to 31.6 reais in December 2008.

EBITDA for 2009 amounted to 3,476 million reais, up 6.7% (+217 million reais) from 2008. The EBITDA margin was 25.0%, 1.6 percentage points higher than for 2008. This result was achieved through efficiency measures designed to streamline the cost structure and release resources to boost Tim Brasil's sales. Compared to 2008, the organic change in EBITDA amounted to +312 million reais, with the EBITDA margin standing at 25.7% (23.4% 2008).

In 2009 EBIT stood at 580 million reais (compared to 507 million reais in 2008). This result can be ascribed to an improved EBITDA compared to 2008, partially offset by depreciation & amortisation related to the 3G licence acquired in the second quarter of 2008, by capex associated to the new UMTS network and by actions aimed at preserving the capacity and quality of the 2G network. Compared to 2008, the organic change in EBIT was positive by 168 million reais, with EBIT margin standing at 4.9% (3.6% in 2008).

CAPEX in 2009 amounted to 2,671 million reais, a decline of 941 million reais compared with 2008, the year in which the 3G licence was acquired.

The headcount at 31 December 2009 stood at 9,783 employees.

On 30 December 2009 Tim Participações completed the acquisition of 100% of the Brazilian fixed network operator Intelig Telecomunicações Ltda via the merger by incorporation in Tim Participações S.A. of the parent (Holdco Participações Ltda).

OLIVETTI

2009 revenues were €350 million, down €2 million compared to 2008 (-0.6%).

EBITDA was a negative €14 million, €16 million better than 2008 thanks to a dramatic cut in fixed costs.

EBIT was a negative €19 million, an improvement of €18 million compared to 2008.

CAPEX in 2009 came to €4 million, an increase of €1 million compared with the previous year.

The headcount at 31 December 2009 stood at 1,098 employees.

TELECOM ITALIA S.p.A. RESULTS

Revenues were €20,474 million, down €1,510 million (-6.9%) from 2008. The organic variation in revenues is -6.9%.

This is due to the physiological decline in revenues from traditional business in the Consumer (-9.8%) and Business segments (-9.7%) and, to a lesser extent, in the Top segment (-3.5%). Revenues were positive, however, for innovative services such as broadband (fixed-line and mobile) in both the Consumer and Business segments, while the Top segment reported strong growth in ICT solutions and packages (+15.3%).

The year also saw a significant increase in revenues for the National Wholesale segment (+14.8%) driven by growth in OLO (Other Licensed Operators), Local Loop Unbundling, Wholesale Line Rental and Bitstream customers.

EBITDA was €9,508 million, down €30 million (-0.3%) from 2008. The organic change in EBIT was a negative 1.7% (-€170 million). The EBITDA margin came to 46.4% (43.4% in 2008); in organic terms the EBITDA margin stood at 47.3% of revenues (44.8% in 2008).

EBIT was €5,161 million, up 33 million from 2008 (+0.6%). The organic change in EBIT was -0.8% (-€43 million). The EBIT margin was 25.2% (23.3% in 2008); in organic terms the EBIT margin stood at 26.3% of revenues (24.6% in 2008).

The net income of Telecom Italia S.p.A. was €1,399 million, down €74 million from 2008 (€1,473 million).

The headcount at 31 December 2009 stood at 54,236 employees.



SPARKLE

The ongoing criminal investigation involving Telecom Italia Sparkle, and the Rome court Order issued in relation with this investigation (the “Order”) which was served on the company on 23 February 2010 allege that a number of former directors, former employees and current employees of Telecom Italia Sparkle committed crimes of cross-border criminal conspiracy, tax evasion, international money-laundering, reinvestment of proceeds from criminal activities, and registering assets under false names. The crimes of a cross-border criminal conspiracy, international money-laundering and reinvestment of proceeds from criminal activities are offences that may entail administrative liability for a corporation under the Legislative Decree no. 231/2001.

As part of the proceedings, the Rome Judge issued a seizure order for €298 million, corresponding to the alleged unlawful deduction of VAT related to the transactions under investigation. A hearing was scheduled in chambers to discuss the request for the appointment of an Administrator for Telecom Italia Sparkle pursuant to Legislative Decree no. 231/01. On 6 April 2010, the Preliminary Investigations Judge cancelled this hearing as there were no longer any grounds to proceed on this matter.

In addition to the amounts seized, Telecom Italia Sparkle provided guarantees for an amount of €195 million, of which €72 million correspond to the potential confiscation of profits generated by the sales transactions noted above, and €123 million corresponding to the difference between the amount already seized and corresponding to the VAT deducted during tax years 2005, 2006 and 2007 (€298 million), and the highest amount the company could potentially owe in settlement of its tax position regarding the use of VAT credits on the basis of one of the various settlement procedures with the Italian Tax Authorities.

The sales transactions effected, in the financial years 2005, 2006 and 2007, related to “Premium” telecommunications services carried over the Telecom Italia Sparkle network and were conducted with a number of smaller telecommunications carriers resident in the European Union (EU).

Internal investigation – 2007

In November 2006, the Rome Judge interviewed a number of Telecom Italia Sparkle officials, directors and employees as witnesses with knowledge of the facts with regard to an investigation on a VAT fraud alleged to have been committed by a number of Italian telecommunications operators, including the clients and suppliers identified in the Order. Subsequently, in January 2007 Telecom Italia Sparkle launched an internal investigation into contracts and commercial relations with these particular clients and suppliers. On completion of the internal investigation, which was undertaken with the assistance of independent tax consultants, in June 2007commercial relations with the above-mentioned parties were terminated for precautionary reasons. As part of the investigation, Telecom Italia assessed its VAT position and particularly the tax paid with regard to the above-mentioned commercial transactions. On the basis of information available at the time, the conclusion of the investigation was that deduction of VAT on these purchases was appropriate.

Subsequent elements

Analyses and information acquired since the Order have provided additional elements for assessment of the events under investigation and the analysis undertaken in the past, adding previously unknown information which has become available through investigations undertaken by the Rome Prosecutors, using their specific powers and faculties.

Internal investigation – 2010

Subsequent to the issue of the Order, the company appointed independent legal, accounting and tax advisors to undertake a documentary investigation into activities between 2005 and 2009. The advisers’ analysis concerned contracts and relations maintained by Telecom Italia Sparkle other than those covered under the Order, referring in particular to counterparties other than major telecommunications carriers and other Telecom Italia Group companies, with a particular focus on traffic data and associated revenues, costs and payments. The Corporate Organs were informed about the extent and results of this analysis.

Restatement
Drawing upon further information available under the Order, along with data acquired as part of the 2010 internal investigation, Telecom Italia concluded that a number of transactions in the financial years 2005, 2006 and 2007 were affected by certain anomalies regarding the actual existence of the transactions and traffic, in addition to the progress and routing of traffic itself, to such an extent that the company now believes that these operations were subject to errors as defined under IAS 8.

Therefore, in compliance with IAS 8, but without acknowledging any liability whatsoever, the company is restating the revenues and costs recorded in 2005, 2006 and 2007 for these operations as follows:

2005-2007: adjustment of revenues and costs for the operations concerned; the surplus of revenues over costs has been adjusted and recognized against provisions for risks and charges under “Trade and miscellaneous payables, sundry payables and other current liabilities” in regard to legal risks and charges connected with this matter;

2005-2007: provisions for risks and charges – included under “Trade and miscellaneous payables, sundry payables and other current liabilities” – for further tax risks and charges;

2005-2009: provisions for risks and charges concerning legally-applicable interest associated with the above provisions, for the year to which they apply.

After making these adjustments and provisions, the data for the 2008 financial year used in comparisons (including the statement of financial position as of 1 January 2008) have been restated as previously mentioned.

OUTLOOK FOR THE 2010 FINANCIAL YEAR

With regards to the Telecom Italia Group results for the current financial year, the objectives linked to the main economic indicators, as outlined in the 2010-2012 industrial plan, which is reported in the section 2010-2012 Three Year Plan, foresee the following for the full year 2010:

Revenues (equivalent consolidation area and exchange rate) fell by 2% - 3% compared with the previous year;

organic EBITDA substantially stable compared with the previous year;

Capex was approximately €4.3 billion;

Adjusted Net Debt approximately €32 billion.

Telecom Italia (TIM)