MILAN -- The Boards of Directors of Telecom Italia and Telecom Italia Media (TI Media), met today and approved the restructuring of the Group’s Internet business whereby Telecom Italia will absorb all Group internet activities, giving Telecom Italia Media the financial resources to expand its business.

More specifically, the transaction entails:

Industrial and strategic reasons for the transaction

As with the merger of TIM by incorporation into Telecom Italia (which the Shareholders' Meetings of the two companies will be examining in the coming days), this transaction is also aimed at satisfying the need to streamline the Groups’ activities, taking the following into consideration:

The acquisition of Virgilio and Tin.it

The details of the transaction, worth a total of Euro 950 million, are as follows:

The transaction, neutral from a tax point of view, will generate approximately Euro 850 million capital gain for TI Media at parent level and about Euro 900 million at a consolidated level.

The investment banks JP Morgan and Lazard and Professors Mauro Bini and Maurizio Dallocchio assisted the Telecom Italia Board of Directors in determining the transfer price for Tin.it and Virgilio. The TI Media Board of Directors was assisted by Morgan Stanley, and investment bank Merrill Lynch upon the autonomous and exclusive designation of the independent Directors.

In addition, Prof. Angelo Provasoli, mandated by Telecom Italia, audited the accuracy and fairness of the criteria used by all the consultants nominated by both Telecom Italia and TI Media.

The use of revenues from the Internet Asset Sale

New Investments

Telecom Italia Media plans to invest to consolidate its presence in the television business. This business offers attractive growth opportunities in digital terrestrial television as a new market in constant expansion offering value-added products (such as pay-per-view and interactive TV) that will contribute to increasing the company’s profitability.

Buyback of Own Shares

The TI Media Board of Directors has given mandate to the Chairman to call a Shareholders' Meeting to resolve upon:
authorization to buy back up to 10%ü of the company's ordinary and savings shares at a price per share of Euro 0.40 and Euro 0.33 respectively, corresponding to a maximum total of approximately Euro 148 million; a reduction in share capital through the cancellation ofü own shares bought back.

The Shareholders’ Meeting has been scheduled for May and the buyback, through public tender offer, following authorization by the Consob.

The transaction offers an opportunity for those TI Media shareholders to liquidate part of their investment at a price which is coherent with the valuation determined for the sale of the Internet assets; the proposed price represents a premium of approximately 20% over the average share price for the ordinary and savings shares over the past six months.

Telecom Italia will not participate in the buyback, leaving the entire amount for the transaction to the market. If the public tender offer is fully subscribed and the shares thus bought back are cancelled, Telecom Italia will increase its direct controlling stake (60.4%) and indirect stake (2.1% through Telecom Italia Finance) from the current 62.5% to 69.4% of the ordinary capital..

Dividend Payout

Financial resources in access of the user, may allow for a total dividend payout currently estimated at approximately Euro 550 million in 2006, in accordance with TI Media’s financial and operating requirements.

The Merger by Incorporation of La7 Televisioni into TI Media.

Once it exits the Internet business, TI Media will streamline its operating and corporate structure through the merger by incorporation of La 7 Televisioni (currently wholly-held by HMC S.p.A., a wholly-owned subsidiary of TI Media).

This transaction, which will not entail a capital increase by the acquiring company, does not require a Shareholders' Meeting resolution. The integration process is expected to be complete by the end of the year.

Proposed timetable

Telecom Italia SpA