TABLE OF CONTENTS

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INTRODUCTION

Telecom Italia S.p.A., named also “TIM S.p.A.”, is incorporated as a joint stock company under the laws of Italy. As used in this Annual Report, unless the context otherwise requires, the term “Company” means TIM S.p.A. the operating company for fixed and mobile telecommunications services in Italy and the holding company of the Tim Group that is engaged principally in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector.

The terms “we”, “us” and “our” refers to the Company, and, as applicable, the Company and its consolidated subsidiaries.

Unless otherwise indicated, the financial information contained in this Annual Report has been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (designated as “IFRS”).

Unless otherwise indicated, any reference in this Annual Report to Consolidated Financial Statements is to the Consolidated Financial Statements for the year ended December 31, 2018 of the TIM Group (including the notes thereto) included elsewhere herein.

References herein to TIM websites are textual references only and information on or accessible through such websites does not form part of and is not incorporated into this Form 20-F.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the United States Private Securities Litigation Reform Act of 1995.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Annual Report contains certain forward-looking statements.

Forward-looking statements are statements that are not historical facts and can be identified by the use of forward-looking terminology such as “believes,” “may,” “is expected to,” “will,” “will continue,” “should,” “seeks” or “anticipates” or similar expressions or the negative thereof or other comparable terminology, or by the forward-looking nature of discussions of strategy, plans or intentions.

The forward-looking statements in this Annual Report include, but are not limited to, the discussion of the changing dynamics of the telecommunications marketplace, including the continuing developments in competition in all aspects of our businesses from new competitors and from new and enhanced technologies, our outlook for growth in the telecommunications industry both within and outside of Italy, including our outlook regarding developments in the telecommunications industry, and certain trends we have identified in our core markets, including regulatory developments.

Such statements include, but are not limited to, statements under the following headings: (i) “Item 3. Key Information—3.1 Risk Factors”, (ii) “Item 4. Information on the TIM Group—4.1 Business—4.1.7 Updated Strategy”, (iii) “Item 4. Information on the TIM Group—4.3 Regulation”, (iv) “Item 5. Operating and Financial Review and Prospects”, (v) “Item 8. Financial Information—8.2 Legal Proceedings” and (vi) “Item 11. Quantitative and Qualitative Disclosures About Market Risks”, including statements regarding the likely effect of matters discussed therein.

Actual results may differ materially from those projected or implied in the forward-looking statements. Such forward-looking information is based on certain key assumptions which we believe to be reasonable but forward-looking information by its nature involves risks and uncertainties, which are outside our control, that could significantly affect expected results.

The following important factors could cause actual results to differ materially from those projected or implied in any forward-looking statements:

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The foregoing factors should not be construed as exhaustive. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

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KEY DEFINITIONS

The following terms appearing in this Annual Report have the meanings set forth below.

* * *

On May 16, 2018, the Board of Directors of TIM S.p.A. acknowledged that the grounds, under Italian law, for considering Vivendi the entity exercising direction and coordination powers over TIM no longer applied. Subsequently, on June 25, 2018, the Board of Directors approved amendments to the internal procedure governing transactions with related parties, and updated the relative related party boundary to reflect the new situation, whereby Vivendi no longer qualifies as the de facto controlling entity over TIM.

For further details, please see “Item 7. Major Shareholders And Related-Party Transactions”.

* * *

In addition to the foregoing terms, certain technical telecommunication terms relating to our businesses are defined in the glossary of this Annual Report (see “Item 4. Information on the TIM Group—4.5 Glossary of Selected Telecommunications Terms”).

In addition, we use the measure “Accesses” when considering certain statistical and other data for our domestic Italian business. “Access” refers to a connection to any of the telecommunications services offered by the Group in Italy. The following are the main categories of accesses:

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PART I

Item 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable

Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable

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Item 3.    KEY INFORMATION

3.1    RISK FACTORS

In addition to the other information contained in this Annual Report, investors should carefully consider the risks described below before making any investment decision. The risks described below are not the only ones we face. Additional risks not known to us or that we currently deem immaterial may also impact our business and results of operations. Our business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks, and investors could lose all or part of their investment.

We present below:

Our business will be adversely affected if we are unable to successfully implement our strategic objectives. Factors beyond our control may prevent us from successfully implementing our strategy.

On February 21, 2019, TIM’s Board of Directors approved the 2019–2021 Strategic Plan (the “Plan”). The Plan focuses on improving TIM’s execution and timely delivery of what planned as a key element for the organic transformation of TIM. The Plan provides to re-start from TIM real competitive advantages (network quality, scale and client proximity, technical competences and geographical presence) to guarantee industrial sustainability. On the Technological front, the Plan sets modernization, simplification and artificial intelligence at the core of future investments in order to ensure quality excellence and contain capital expenditures intensity. Quality and reliability on all customer touch points (activation, delivery and problem resolution) are as well at the center of the strategy. These strategic actions will allow to deliver a sustainable return on capital invested, to optimize invested capital and finally to delever the business.

Our ability to implement and achieve our strategic objectives and priorities may be influenced by certain factors, including factors outside of our control. Such factors include:

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As a result of these uncertainties there can be no assurance that the business and strategic objectives identified by our management can effectively be attained in the manner and within the time-frames described. Furthermore, if we are unable to attain our strategic priorities, our goodwill may be further impaired, which could result in further significant write-offs.

The following sets out more specific factors that may prevent us from achieving our objectives.

STRATEGIC RISKS

Weak global economic conditions, including the continuing weakness of the Italian economy and political conditions in Brazil, have adversely affected our business in recent years. After the economic recovery of 2017, the Eurozone economy has shifted from a recovery boom to an unexpected slower cruising speed. Economic conditions in the Italian economy have shown improvement, however, strong uncertainty persist with respect to the economic outlook, which could have a negative impact on our operating results and financial condition.

Our business is dependent on general economic conditions in Italy and in our other principal market, Brazil, including with respect interest rate levels, inflation, taxation and general business conditions. The weak economic conditions of the last several years have had an adverse impact on our business and result of operation.

The prolonged economic recession that Italy has experienced in recent years has negatively impacted development prospects in our core Italian market.

After the recovery of 2017 with an economic growth of 1.6%, Italy is experiencing a slowdown even stronger than the other EMU member countries: GDP in 2018 grew by 0.9% in real terms and for 2019 an even more modest growth is expected. The slowdown in Italian growth reflects the deceleration of exports (particularly towards the main trading partner, Germany, which in turn has recorded a sharp slowdown in the third quarter) and the expected normalization of monetary policies. On the domestic side, the uncertainty associated with fiscal policy interventions and the possible repercussions on financial markets and the deteriorating of consumer and business confidence weigh significantly.

During 2018, Brazilian economy presented a lower growth than previously expected, with the GDP growth of 1.1%, according to the Brazilian Institute of Geography and Statistics (“IBGE”), when compared to a previous growth projection of 2.8%, at the end of 2017. This result was directly impacted by political instability due to the presidential election, that led to a historical high of the dollar exchange rate in reais (R$4.19), which, amid other factors, such as the oil price fluctuation in the international market, contributed to a strong growth of the fuel prices, one of the main factors for the 10 days truckers strike, that also contributed directly for the deceleration of Brazilian growth.

Despite that, the inflation, measured by the IPCA continued under control, at 3.75% below the minimum target set by Central Bank, but with a slight growth when compared to 2017 (2.95%). Unemployment has decreased; however, consumer and business confidence still remain sensitive to the new government’s ability to approve relevant reforms to fiscal adjustment.

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Vivendi is our largest shareholder and exercises substantial influence over us.

As of the date hereof, the largest single shareholder in the Company is Vivendi S.A. (“Vivendi”), which holds, directly, a stake of approximately 23.94% of ordinary share capital. With a holding of this size, Vivendi can exercise significant influence over matters subject to a vote of the ordinary shareholders of the Company, such as nominations to the Board of Directors (the “Board”), matters involving mergers or other business combinations, the acquisition or disposition of assets, issuances of equity and the incurrence of indebtedness. In addition, Vivendi’s significant holding may also have the effect of discouraging others from making tender offers for our shares. See “Item 7. Major Shareholders and Related-Party Transactions—7.1 Major Shareholders”.

Competition Risks

Alternative infrastructure operators in Italy could pose a threat to us, particularly in the medium to long term

In the fixed market, alternative network operators (“AltNet”), such as Open Fiber S.p.A. (Open Fiber) and Infratel Italia S.p.A. (Infratel), have disclosed and started to implement plans to develop alternative ultrabroadband telecommunications networks in Italy in the main Italian cities and in so-called “market failure” areas. Similar alternative developments, either on a standalone basis or through partnerships with other licenced operarators (“OLOs”), could adversely impact our businesses, assets and goodwill and, as a consequence, our economic and financial performance. In particular, we face risks with respect to increasing competition in the National Wholesale Market, which could result in losses with respect to our customer base and revenues and a potential loss of retail market share and revenues.

Strong competition in Italy or other countries where we operate may further reduce our core market share for telecommunications services and may cause reductions in prices and margins thereby having a material adverse effect on our results of operations and financial condition.

Telecommunications operators have generally faced challenging market conditions in recent years, principally as a result of the decline in voice traffic and significant pricing pressures resulting from increased competition among operators.

Strong competition exists in all principal areas of the Italian telecommunications business in which we operate. Competition may become even more acute in the coming years, with additional international operators accessing the Italian market.

The Italian telecommunications market is experiencing a phase of heating of the competitive environment, mainly due to the entry of Iliad in the mobile market as the 4th network infrastructured operator. Iliad launched its mobile service in the Italian market at the end of May 2018 and has rapidly gained customers and consequently market share to the detriment of the other infrastructured operators, thanks to a simplified offer particularly aggressive in terms of price and volume of data. The other operators followed Iliad reducing prices and largely increasing GB allowance with an impact not only on the mobile sector with the explosion of overall MNP exchange and ARPU dilution, but also on the fixed, generating a price war to recover customer base lost on Mobile.

Moreover, convergence has enabled lateral competition from Information Technology (or IT), over-the-top (“OTT”), Media and Devices/Consumer Electronic players. This competition may further increase due to globalization and the consolidation of the telecommunications industry in Europe, including Italy, and elsewhere.

The emergence of alternative infrastructure operators could also pose a threat to us, particularly in the medium to long term.

Competition in our principal lines of business has led, and could lead, to:

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In addition, competition with respect to innovative products and services in our Italian domestic fixed-line, mobile telephony and broadband/ultrabroadband businesses, has led, and could lead to:

Although we continue to take steps to realize additional efficiencies and to rebalance our revenue mix through the continuous introduction of innovative and value-added services, if any or all of the events described above occur, the impact of such factors could have a material adverse effect on our results of operations and financial condition.

Continuing rapid changes in technologies could increase competition, reduce usage of traditional services and require us to make substantial additional investments.

We, like other operators, face increasing competition from non-traditional data services on new voice and messaging over-the-internet technologies, in particular OTT applications such as Skype, FaceTime, Messenger and WhatsApp. These applications are often free of charge, other than charges for data usage and are accessible via smartphones, tablets and computers. These applications provide users with potentially unlimited access to messaging and voice services over the internet, bypassing more expensive traditional voice and messaging services, such as SMS, which have historically been a source of significant revenues for fixed and mobile network operators like TIM. In Italy and Brazil, an increasing number of customers are using OTT applications services instead of traditional voice and SMS communications.

Historically, we have generated a substantial portion of our revenues from voice and SMS services, particularly in our mobile business in Italy, and the substitution of data services for these traditional voice and SMS volumes has had and could continue to have a negative impact on our revenues and profitability.

If non-traditional voice and messaging data services continue to increase in popularity, as they are expected to, and we are unable to address such competition, our average revenue per user (“ARPU”) could decline and we would face lower margins across many of our products and services, resulting in a material adverse effect on our business, results of operations, financial condition and prospects.

We may be adversely affected if we fail to successfully implement our Internet and broadband/fiber/4.5G/5G NGNM strategy.

The continuing development of Internet and broadband/fiber services constitutes a strategic objective for us. We aim to increase the use of our networks in Italy and abroad to offset the continuing decline of traditional voice services. Our ability to successfully implement this strategy may be negatively affected if:

However, implementation of 4.5G/5G ultrabroadband mobile technologies is dependent on a number of factors including the following:

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If we fail to achieve our objectives for the implementation of ultrabroadband mobile coverage in a timely manner, or at all, we may lose market share to our competitors in this strategically important segment.

Any of the above factors may adversely affect the successful implementation of our strategy, our business and results of operations.

Our business may be adversely affected if we fail to successfully implement our Information and Communications Technology (ICT) strategy.

We intend to continue focusing on Information Technology-Telecommunication (“IT-TLC”) convergence by addressing the ICT market, offering network and infrastructure management, as well as application management. In particular, as the market for cloud services continues to grow, the ICT market is expected to become a key element of our strategy.

We expect increasing competition in this market as additional competitors (mainly from telecommunications operators, through the acquisition of and partnerships with IT operators) also enter this market. If we fail to grow our market share or compete effectively, our revenues could be negatively affected.

Our business may be adversely affected if we fail to successfully implement our “next-generation networks” strategy.

One of our goals is to accelerate the roll-out of a new telecommunications network capable of providing customers with ultrabroadband connections, generally referred to as a next-generation network (“NGN”).

However, implementation of ultrabroadband technologies is dependent on a number of factors including:

In areas not provided for under our development plan or where implementation of the ultrabroadband plan is conditioned upon the grant of public funds, in addition to those listed above, the following factors should be considered:

If we fail to achieve our objectives for the implementation of ultrabroadband coverage in a timely manner, or at all, we may lose market share to our competitors in this strategically important segment, which may adversely impact our business, financial condition and results of operations.

We are subject to risks associated with political developments in countries where we operate

Changes in political conditions in Italy and in other countries where we have made significant investments (particularly in countries where the political situation is less predictable than in Western Europe) may have an adverse effect upon our business, financial condition, results of operations and cash flows.

The Italian government has exercised, and may in the future exercise, its significant powers with respect to us, including with respect to our ability to enter into strategic transactions

In 2012, regulations relating to the special powers regarding strategic assets in the energy, transport and communications sectors were published and became effective (Law Decree n. 21 of March 15, 2012, adopted with modifications by Law n. 56 of May 11, 2012: the “Golden Power Decree”).

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Article 1 of the Golden Power Decree (which refers to assets strategic for the defense and national security sector) grants the Italian Government:

Article 2 of the Golden Power Decree (which refers to strategic assets in the communications sector) grants the Italian Government:

In October and November 2017, the Government designated certain of the Company’s assets as strategic within the meaning of the above-described provisions of the Golden Power Decree and imposed various governance and organizational obligations and restrictions on the Company. This and any future exercise of the Government’s powers under the Golden Power Decree, or the mere existence of such powers, could:

OPERATIONAL RISKS

We face numerous risks with respect to the efficiency and effectiveness of resource allocation. Operational risks related to our business, include those resulting from inadequate internal and external processes, fraud, employee errors, failure to document transactions properly, loss or disclosure of critical or commercial sensitive data or personal identification information and systems failures. These events could result in direct or indirect losses and adverse legal and regulatory proceedings, and could harm our reputation and operational effectiveness.

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We have in place risk management procedures designed to detect, manage and monitor at a senior level the evolution of these operational risks. However, there is no guarantee that these measures will be successful in effectively controlling the operational risks that we face and such failures could have a material adverse effect on our results of operations and could harm our reputation.

System and network failures could result in reduced user traffic and reduced revenue and could harm our reputation. In addition, our operations and reputation could be materially negatively affected by cyber-security threats or our failure to comply with new data protection legislation UE 2016/679 General Data Protection Regulation (GDPR), of which implementation was mandatory by May 25, 2018.

We have executed a deep gap analysis, identified the main issues, and consequently planned and deployed a master plan to reach a full compliance with new General Data Protection Regulation 2016/679/EU (GDPR) requirements, facilitated by the strength of present data protection operative model adopted by the Company. However, deficiencies in full adoption of data security measures, implementing personal data processing and retention requirements and reporting data measures within a narrow mandatory timeframe could lead to disputes with data protection authorities, fines or harm to our reputation.

Our success largely depends on the continued and uninterrupted performance of our IT, network systems and of certain hardware and datacenters that we manage for our clients. Our technical infrastructure (including our network infrastructure for fixed-line and mobile telecommunications services) is vulnerable to damage or interruption from technology failures, power loss, floods, windstorms, fires, terrorism, intentional wrongdoing, human error and similar events. Unanticipated problems at our facilities, system failures, hardware and software failures, computer viruses and hacker attacks, as well as terrorist attacks against our infrastructure, which remains a target, could affect the quality of our services and cause service interruptions. Any of these occurrences could result in reduced user traffic and reduced revenue and could negatively affect our levels of customer satisfaction, reduce our customer base and harm our reputation. In addition, our operations involve daily processing and storage of large amounts of customer data and require uninterrupted, accurate, permanently available, real-time and safe transmission and storage of customer and other data in compliance with applicable laws and regulations. The proper functioning of, including prevention of unauthorized access to, our networks, systems, computers, applications and data, such as customer accounting, network control, data hosting, cloud computing and other information technology systems is critical to our operations. We may be held liable for the loss, release, disclosure or inappropriate modification of the customer data stored on our equipment or carried by our networks. IT system failure, interruption of service availability, industrial espionage, cyber-attack or data leakage, in particular relating to customer data, could seriously limit our ability to service our clients, result in significant compensation costs for which indemnification or insurance coverage may be only partially available, result in a breach of laws and regulations under which we operate or lead to fines and could cause long-term damage to our business and reputation.

Our business depends on the upgrading of our existing networks.

We must continue to maintain, improve and upgrade our existing networks in a timely and satisfactory manner in order to retain and expand our customer base in each of our markets. A reliable and high quality network is necessary to manage turnover by sustaining our customer base, to maintain strong customer brands and reputation and to satisfy regulatory requirements, including minimum service requirements. The maintenance and improvement of our existing networks depends on our ability to:

In addition, due to rapid changes in the telecommunications industry, our network investments may prove to be inadequate or may be superseded by new technological changes. Our network investments may also be limited by

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market uptake and customer acceptance. If we fail to make adequate capital expenditures or investments, or to properly and efficiently allocate such expenditures or investments, the performance of our networks, both in real terms and relative to our competitors, could suffer, resulting in lower customer satisfaction, diminution of brand strength and increased turnover.

Many of these tasks are not entirely under our control and may be affected by applicable regulation. If we fail to maintain, improve or upgrade our networks, our services and products may be less attractive to new customers and we may lose existing customers to competitors, which could have a material adverse effect on our business, financial condition and results of operations.

We are continuously involved in disputes and litigation with regulators, competition authorities, competitors and other parties and are the subject of a number of investigations by judicial authorities. The ultimate outcome of such proceedings is generally uncertain. If any of these matters are resolved against us, they could, individually or in the aggregate, have a material adverse effect on our results of operations, financial condition and cash flows in any particular period.

We are subject to numerous risks relating to legal, tax, competition and regulatory proceedings in which we are currently a party or which could develop in the future. We are also the subject of a number of investigations by judicial authorities. Such proceedings and investigations are inherently unpredictable. Legal, tax, competition and regulatory proceedings and investigations in which we are, or may become, involved (or settlements thereof) may, individually or in the aggregate, have a material adverse effect on our results of operations and/or financial condition and cash flows in any particular period. Furthermore, our involvement in such proceedings and investigations may adversely affect our reputation.

If we, or another Group company, face an adverse decision in any of the legal proceedings to which we are a party, and are ordered to pay amounts greater than what we have recognized to cover potential liabilities, we may face adverse effects with respect to our and/or our Group’s operations, financial position, income statement and cash flows.

The final outcomes of those proceedings are generally uncertain. As of December 31, 2018, we had, on a consolidated basis, recognized potential liabilities of 508 million euros. In recognizing these liabilities, we took into consideration the risks connected with each dispute and the relevant accounting standards, which require reserves to be recognized where liabilities are probable and can be estimated reliably. The provisions represent an estimate of the financial risk connected with the particular proceedings, in line with the relevant accounting standards. Nonetheless, we may be obligated to meet liabilities linked to unsuccessful outcomes for proceedings that were not taken into consideration when calculating those reserves and the provisions made may not be sufficient to fully meet such obligations through use of our reserves. Such a development could have adverse effects on our business, financial position, results of operations and cash flows.

Risks associated with the use of internet by our customers could cause us to suffer losses and adversely affect our reputation.

Pursuant to applicable Italian regulation, we, as a host and provider of data transmission services, are required to inform competent authorities without delay of any alleged illegal or illicit activity by our customers of which we are aware. We must also provide the authorities with any information we have identifying such customers. Any failure to comply with this obligation could cause us to become involved in civil proceedings or could harm public perception of our brand and services. Any such event could result in legal and/or regulatory proceedings, make us subject to direct or indirect monetary losses and could materially harm our reputation.

We are exposed to the risk of labor disputes, in particular as a result of our plan to restructure our labor costs.

We have undertaken a restructuring of various aspects of our workforce in an effort to improve standards of service and expertise and achieve greater efficiency and reduce personnel costs.

To that end, we have subscribed a new union agreement on June 11, 2018 at Labor Minister, where parties defined the path and a set of measures to manage the staff and support the 2018-2020 Strategic Plan.

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The Agreement of June 11, 2018 concluded the complex process and the CIGS procedure, during the joint examination sessions pursuant to article 24 of Italian Legislative Decree no. 148/2015, with the signing of an agreement with the Ministry of Labor and Social Policy, which set out a series of measures and interventions geared at supporting the pursuit of the business objectives and management of the 4,500 declared redundancies in connection with the 2018-2020 Industrial Plan, which was approved by the Board of Directors on March 6, 2018, with non-traumatic, socially sustainable instruments.

Negotiations related to the Company Collective Bargaining Agreement are ongoing. See “Item 6 Directors, Senior Management and Employees—6.5.2 Industrial Relation” for further details.

Relations between us and our workers/trade unions are not generally adversarial and strikes or protests involving a majority of workers are not common, however, such occurrences carry a moderate risk of disruptions in work and/or reduced service. Generally, such occurrences would be expected negatively impact our customers, our business and our reputation.

FINANCIAL RISKS

Our leverage is such that deterioration in cash flow can change the expectations of our ability to repay our debt and the inability to reduce our debt could have a material adverse effect on our business. Continuing volatility in international credit markets may limit our ability to refinance our financial debt.

As of December 31, 2018, our consolidated gross financial debt was 30,972 million euros, compared to 32,864 million euros on December 31, 2017. Our consolidated net financial debt was 25,995 million euros as of December 31, 2018, compared to 26,091 million euros on December 31, 2017. Our high leverage continues to be a factor in our strategic decisions as it has been for a number of years and the reduction of our leverage remains a key strategic objective. As a result, however, we are reliant on cost-cutting and free cash flow to finance critical technology improvements and upgrades to our network, although we are taking steps to raise additional capital to support critical investment.

Due to the competitive environment and the continuing weak economic conditions, there could be deterioration in our income statement and financial measures used by rating agencies, such as Moody’s, Standard & Poor’s and Fitch, to assess our ability to repay our debt and determine our credit quality.

Although rating downgrades do not generally have an immediate impact on outstanding debt, other than outstanding debt instruments for which the interest expense is specifically impacted by such ratings, downgrades could adversely impact our ability to refinance existing debt and could increase costs related to refinancing existing debt and managing our derivatives portfolio.

Factors that are beyond our control such as deterioration in the telecommunications sector, unfavorable fluctuations in interest rates and/or exchange rates, further disruptions in the capital markets, particularly debt capital markets and continuing weakness in general economic conditions at the national level could have a significant effect on our ability to reduce our debt and refinance existing debt through further access to the financial markets. Because debt reduction is one of our strategic objectives, failure to reduce debt could be viewed negatively and could adversely affect our credit ratings.

The management and development of our business will require us to make significant further capital and other investments. If we are unable to finance our capital investments as described above, we may need to incur additional debt in order to finance such investment. Our future results of operations may be influenced by our ability to enter into such transactions, which, in turn, will be determined by market conditions and factors that are outside our control. In addition, if such transactions increase our leverage, it could adversely affect our credit ratings.

Fluctuations in currency exchange and interest rates and the performance of the equity markets in general may adversely affect our results.

In the past, we have made substantial international investments, significantly expanding our operations outside of the Euro zone, particularly in Latin America.

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Our non-current operating assets are located as follows:

We generally hedge our foreign exchange exposure but do not cover conversion risk relating to our foreign subsidiaries. According to our policies, the hedging of the foreign exchange exposure related to the financial liabilities is mandatory. Movements in the euro exchange relative to other currencies (particularly the Brazilian Real) may adversely affect our consolidated results. A rise in the value of the euro relative to other currencies in certain countries in which we operate or have made investments will reduce the relative value of the revenues or assets of our operations from those countries and, therefore, may adversely affect our operating results or financial position.

In addition, we have raised, and may raise an increasing proportion, financing in currencies other than the euro, principally U.S. dollars and British pound sterling. In accordance with our risk management policies, we generally hedge the foreign currency risk exposure related to non-euro denominated liabilities, through cross-currency and interest rate swaps.

Furthermore, we are exposed to interest rates risk on that portion of our consolidated gross debt which is subject to the accrual of interest at floating rates; that represents 29 percent both as of December 2018 and 2017.

The decision to keep such a fixed—floating rate debt structure goes towards the goal to minimize negative interests’ impact and is partially implemented through derivatives instruments whereby fixed rate liabilities are synthetically converted in floating rate ones. As of December 31, 2018, and December 31, 2017, we had derivative contracts in place for the sole management of our interest rate risk, including interest rate swaps, for notional amounts of 4,334 million euros. Any changes in interest rates that have not been adequately hedged by derivative contracts may result in increased financial liabilities in connection with our floating rate debt, which may have adverse effects on the results of our operations and cash flows.

An increase of sovereign spreads, and of the default risk they reflect, in the countries where we operate, may affect the value of our assets in such countries.

We may also be exposed to financial risks such as those related to the performance of the equity markets in general, and, more specifically, risks related to the performance of the share price of Group companies.

The potential impact of the UK’s departure from the EU (“Brexit”) will depend on negotiations on the separation agreement with the EU, the outcome of which remains uncertain, after the House of Commons rejected the separation plan backed by the UK Prime Minister in March 2019.

Brexit and possible outcomes of the exit negotiations could cause further instability in the global and European financial markets already made delicate by the trade dispute between USA and China.

The potential effects of Brexit could negatively affect our financial condition, our business, and the related economic results and cash flows.

COMPLIANCE RISKS

Because we operate in a heavily regulated industry, regulatory decisions and changes in the regulatory environment could adversely affect our business.

Our fixed and mobile telecommunications operations, in Italy and abroad, are subject to regulatory requirements. As a member of the EU, Italy has adapted its regulatory legislation and rules for electronic communications services to the framework established by the EU Parliament and Council.

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Pursuant to the EU regulatory framework, the Italian regulator, Autorità per le Garanzie nelle Comunicazioni (“AGCom”), is required to identify operators with “Significant Market Power” (“SMP”) in the relevant markets subject to regulation. On the basis of market analyses proceedings (Market Analyses), AGCom imposes requirements necessary to address identified competition problems. Current requirements are mainly focused on the regulation of our wholesale business, while the regulation of retail markets has been largely withdrawn, with the exception of price tests on retail access offers (for telephone, broadband and ultrabroadband services).

Within this regulatory framework, the main risks we face include the lack of predictability concerning both the timing of the regulatory proceedings and their final outcome and possible AGCom decisions that apply retroactively and their potential impact on expected Group results and on the guidance presented to the market (e.g., review of prices from prior years following the decisions of Administrative Courts, repricing decisions, proceedings that impact technological decisions and return on investment).

In principle, a new “round” of Market Analyses should be conducted by AGCom every three years, in order to deal with the evolution of market conditions and technology developments and set the rules for the subsequent three-year period. However, the regulatory review process does not always follow the expected schedule.

Regulation is a key factor in evaluating the likelihood of return on investments and therefore in deciding where to invest. Regulatory uncertainty and regulatory changes imposed on us can impact our revenues and can make it more difficult to make important investment decisions.

Moreover, a high level of disputes arising from operators challenging AGCom decisions before Administrative Courts result in an even greater degree of uncertainty with respect to rules and economic requirements.

The Italian Antitrust Authority, Autorità Garante per la Concorrenza ed il Mercato (“AGCM”), may also intervene in our business, setting fines and/or imposing changes in our service provision operating processes and in our offers.

Our Brazilian Business Unit also is subject to extensive regulation. Our international operations, therefore, face similar regulatory issues as we face in Italy, including the possibility for regulators to impose obligations and conditions on how we operate our businesses in Brazil as well as taking decisions that can have an adverse effect on our results, including setting, and in particular, reducing the mobile termination rates we can charge. As a result, the decisions of regulators or the implementation of new regulations in Brazil and the costs of our compliance with any such decisions or new regulations, may limit our flexibility in responding to market conditions, competition and changes in our cost base which could individually or in the aggregate, have a material adverse effect on our business and results of operations.

Due to the continuous evolution of the regulatory regime affecting various parts of our business in Italy and in our international operations, we are unable to clearly predict the impact of any proposed or potential changes in the regulatory environment in which we operate in Italy, Brazil and our other international markets. Regulations in the telecommunications industry are constantly changing to adapt to new competition and technology. Changes in laws, regulation or government policy could adversely affect our business and competitiveness. In particular, our ability to compete effectively in our existing or new markets could be adversely affected if regulators decide to expand the restrictions and obligations to which we are subject or extend them to new services and markets. Finally, decisions by regulators regarding the granting, amendment or renewal of our authorizations, or those of third parties, could adversely affect our future operations in Italy and in other countries where we operate.

For further information regarding the matters discussed above and other aspects of the regulatory environments in which our businesses operate, see “Item 4. Information on the TIM Group—Item 4.3 Regulation”.

We operate under authorizations granted by government authorities.

Many of our activities require authorizations from governmental authorities both in Italy and abroad. These authorizations specify the types of services the operating company holding such authorization may provide. The continued existence and terms of our authorizations are subject to review by regulatory authorities and to interpretation, modification or termination by these authorities. Although authorization renewal is not usually guaranteed, most authorizations do address the renewal process and terms that may be affected by political and regulatory factors.

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Many of these authorizations are revocable for public interest reasons. In addition, our current authorizations to provide networks and services require that we satisfy certain obligations, including minimum specified quality levels, service and coverage conditions. Failure to comply with these obligations could result in the imposition of fines or even in the revocation or forfeiture of the authorization. In addition, the need to meet scheduled deadlines may require us to expend more resources than otherwise budgeted for a particular network build-out.

Additional authorizations may also be required if we expand our services into new product areas, and such authorizations may be related to auctions (e.g., in the assignment of spectrum right of use) or otherwise prove expensive or require significant cash outlays, or have certain terms and conditions, such as requirements related to coverage and pricing, with which we may not have previously had to comply. If we are unable to obtain such authorizations within the expected timeframe, at a commercially acceptable cost, or if the authorizations include onerous conditions, it could have a material adverse effect on our business, financial condition and results of operations.

In Brazil we also operate under an authorizations regime. As a result, we are obliged to maintain minimum quality and service standards. Our failure to comply with the requirements imposed by Regulatory Agency for Telecommunications—Agencia Nacional de Telecomunicacoes (“ANATEL”) and by the Brazilian Government may result in the imposition of fines or other government actions, including the suspension of the service commercialization for a given period.

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

The effects of, and any damage caused by, exposure to an electromagnetic field were and are the subject of careful evaluations by the international scientific community, but until now there is no scientific evidence of harmful effects on health. We cannot rule out that exposure to electromagnetic fields or other emissions originating from wireless handsets will not be identified as a health risk in the future.

Our mobile communications business may be harmed as a result of these alleged health risks. For example, the perception of these health risks could result in a lower number of customers, reduced usage per customer or potential consumer liability. In addition, although Italian law already imposes strict limits in relation to transmission equipment, these concerns may cause regulators to impose greater restrictions on the construction of radio base station towers or other infrastructure, which may hinder the completion of network build-outs and the commercial availability of new services and may require additional investments.

We face the risk that our organizational policies and procedures embodied in the organizational model prepared pursuant to Legislative Decree 231/2001 may fail to prevent certain officers and employees from engaging in unlawful conduct, for which we would be jointly liable.

We have put in place an organizational model pursuant to Legislative Decree 231/2001, in order to create a system of rules capable of preventing certain forms of unlawful conduct by senior management, executives and employees generally that might result in liabilities for us. The organizational model has been adopted by us and by our Italian subsidiaries. A specific version of the organizational model has been adopted by TIM Participacoes pursuant to the anti-corruption Brazilian law (Lei 12.846/13).

The organizational model is continuously reviewed and must be kept up to date to reflect changes in operations and in the regulatory environment. We have established a 231 steering committee to prepare and consider proposals for changes to the model, for submission to the Board for approval.

Notwithstanding the existence of this model or any updates that we may make to it, there can be no assurances that the model will function as designed, or that it will be considered adequate by any relevant legal authority. If the model is inadequate or deemed to be so, and we were held liable for acts committed by our senior management, executives and employees or are found otherwise non-compliant with the requirements of the legislation, we may be ordered to pay a fine, our authorizations, licenses or concessions may be suspended or revoked, and we may be prohibited from conducting business, contracting with the Italian public administration, or advertising goods and services. Such developments would have adverse effects on our business, results of operations, financial condition and cash flows.

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3.2    EXCHANGE RATES

We publish our consolidated financial statements in euros. References to “€”, “euro” and “Euro” are to the euro, the single unified currency that was introduced in Italy and 10 other member states of the EU on January 1, 1999. References to “U.S. dollars”, “dollars”, “U.S.$” or “$” are to U.S. dollars, the currency of the United States of America.

For convenience only (except where noted otherwise), certain euro figures have been translated into dollars at the rate (the “Euro/Dollar Exchange Rate”) of €1.00= U.S.$ 1.1456, using the last noon buying rate in The City of New York for cable transfers in foreign currencies as announced by the Federal Reserve Bank of New York for customs purposes (the “Noon Buying Rate”) on December 31, 2018.

These translations should not be construed as a representation that the euro amounts actually represent such dollar amounts or have been or could be converted into dollars at the rate indicated.

For the purpose of this Annual Report, “billion” means a thousand million.

The Ordinary Shares (the “Ordinary Shares”) and Savings Shares (the “Savings Shares”) of TIM trade on Mercato Telematico Azionario (“Telematico”), managed by Borsa Italiana S.p.A. (“Borsa Italiana”) in euro. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro price of the Ordinary Shares and the Savings Shares and the price of the Ordinary Share American Depositary Shares (“Ordinary Share ADSs”) and the Savings Share American Depositary Shares (“Savings Share ADSs”), on the New York Stock Exchange (“NYSE”). Cash dividends are paid in euro. Exchange rate fluctuations will affect the U.S. dollar amounts received by owners of Ordinary Share ADSs and Savings Share ADSs upon conversion by the Depositary of cash dividends paid in euro on the underlying Ordinary Shares and Savings Shares. See “Item 10. Additional Information—10.5 Description of American Depositary Receipts”.

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3.3    SELECTED FINANCIAL AND STATISTICAL INFORMATION

The selected financial data set forth below are consolidated financial data of the TIM Group as of and for each of the years ended December 31, 2018, 2017, 2016, 2015 and 2014, which have been extracted or derived, with the exception of amounts presented in U.S. dollars, financial ratios and statistical data, from the Consolidated Financial Statements of the TIM Group prepared in accordance with IFRS as issued by IASB and which have been audited by the independent auditor PricewaterhouseCoopers S.p.A.

In 2018, the Group applied the accounting policies on a basis consistent with those of the previous years, except for the new standards and interpretations adopted by the Group since January 1, 2018, the impact of which is illustrated under “Adoption of the new IFRS 9 and IFRS 15 standards” described in the “Note—Accounting Polices” of the Notes to the Consolidated Financial Statements included elsewhere herein.

The selected financial data below should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report.

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19

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For the purpose of these calculations, the weighted average number of:

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3.4    DIVIDENDS

The determination of our future dividend policy, and the amounts thereof, will depend upon a number of factors, including but not limited to our earnings, financial condition and cash requirements, prospects and such other factors as may be deemed relevant at the time.

The following table sets forth the dividends per Ordinary Share and per Savings Share declared by TIM with respect to each of the last five fiscal years and the aggregate dividends paid in such years. Actual dividends paid are rounded to the nearest whole cent.

No ordinary share dividend is being paid for the year ended December 31, 2018.

Payment of annual dividends is subject to approval by the holders of Ordinary Shares at the annual general shareholders’ meeting, which must be held within 180 days after the end of the financial year to which it relates (pursuant to article 18, second paragraph, of the Company’s Bylaws). In addition, Article 21 of the Company’s Bylaws gives the Board of Directors the power to approve the distribution of “interim dividends”. Pursuant to Italian law, the distribution may be approved after the final approval of the preceding year’s financial statements, and the interim dividends may not exceed the lower of (i) the difference between profits from the preceding fiscal year and amounts required to be attributed to legal and statutory reserves and (ii) available reserves. Once paid in compliance with applicable laws, shareholders cannot be required to repay interim dividends to the Company if the shareholders collected such dividends in good faith. Dividends not collected within five years from the date they become payable will be forfeited in favor of the Company. If profits are not fully distributed, additional reserves are created.

According to the Italian Civil Code, before dividends may be paid with respect to any year, an amount equal to 5% of the profit of the Company for such year must be set aside to the legal reserve until the legal reserve, including amounts set aside during prior years, is at least equal to one-fifth of the par value of the Company’s issued share capital. This legal reserve is not available for payment of dividends. Such restriction on the payment of dividends applies, on a non-consolidated basis, to each Italian subsidiary of the TIM Group. The Company may also pay dividends out of available retained earnings from prior years or other reserves.

Dividends in respect of Ordinary Shares and Savings Shares held with Monte Titoli S.p.A. (“Monte Titoli”) are automatically credited to the accounts of the beneficial owners with the relevant participant of Monte Titoli, without the need for presentation by such beneficial owners of any documentation. See “Item 10. Additional Information—10.4 Description of Capital Stock”.

Arrangements between Euroclear or Clearstream and Monte Titoli permit the shareholders to collect the dividends through Euroclear or Clearstream. Holders of American Depositary Receipts (“ADRs”) are entitled to receive payments in respect of dividends on the underlying Ordinary Shares and Savings Shares, as the case may be, in accordance with the relevant Deposit Agreement.

Dividends payable on the Company’s Ordinary Shares and Savings Shares may be subject to deduction of Italian withholding tax. See “Item 10. Additional Information—10.6 Taxation”. Italian regulations do not contain any specific restrictions on the payment of dividends to non-residents of Italy. See “Item 10. Additional Information—10.2 Exchange Controls and Other Limitations Affecting Security Holders”.

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Pursuant to Italian law, in connection with the payment of dividends, participants of Monte Titoli are required to supply to the Italian tax authorities certain information concerning the identity of non-resident shareholders holding Ordinary Shares or Savings Shares. Shareholders are required to provide their Italian tax identification number, if any, or alternatively, in the case of legal entities, their name, country of establishment and address, or in the case of individuals, their name, address and place and date of birth, or in the case of partnerships, the information required for legal entities and the information required for individuals with respect to one of their representatives. In the case of Ordinary Share ADSs and Savings Share ADSs owned by non-residents in Italy, TIM understands that the provision of information concerning the Depositary, in its capacity as holder of record of the Ordinary Shares and Savings Shares, as the case may be, will satisfy these requirements.

The Depositary, in accordance with instructions from TIM, will provide information to beneficial owners of Ordinary Share ADSs and Savings Share ADSs, that are considered U.S. residents for purposes of applicable law. To the extent such owners wish to benefit from reduced withholding tax rates on dividends under an income tax treaty, claims for such benefits must be accompanied by the required information. See “Item 10. Additional Information—10.6 Taxation”.

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Item 4.    INFORMATION ON THE TIM GROUP

4.1     BUSINESS

4.1.1    BACKGROUND

The legal name of the company is Telecom Italia S.p.A. also named “TIM S.p.A.”.

The Annual Shareholders Meeting held on May 25, 2016 approved an amendment to the Company’s bylaws, permitting the company to be named “Telecom Italia S.p.A.” or “TIM S.p.A.”.

TIM is a joint-stock company established under Italian law on October 29, 1908, with registered offices in Milan at Via Gaetano Negri 1. The telephone number is +39 (02) 85951. The company is recorded in the Milan Companies Register at number 00488410010, R.E.A. (Repertorio Economico Amministrativo) at number 1580695 and R.A.E.E. (Rifiuti di Apparecchiature Elettriche ed Elettroniche) register at number IT08020000000799.

Our Depositary in New York (JP Morgan Chase Bank N.A.) is presently located at 4 New York Plaza, New York, New York 10004.

The duration of the company, as stated in the company’s Bylaws, extends until December 31, 2100.

After the effectiveness of the demerger of Telco S.p.A. (previously the largest shareholder of TIM and whose investors were Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A., Mediobanca S.p.A. and Telefónica S.A.), on June 24, 2015, Vivendi S.A. (“Vivendi”), an integrated media and content group based in France, became o our largest shareholder with an ownership stake in TIM equal to 14.9% of Ordinary Shares. In the following months, Vivendi further increased its shareholding in the Company and, as of April 8, 2019, Vivendi holds 23.94% of the ordinary share capital of TIM. Vivendi does not hold Savings Shares (or Savings Share ADSs) and does not have different voting rights in meetings of ordinary shareholders of TIM.

At the Shareholders’ Meeting held on April 24, 2018, a new Board of Statutory Auditors was appointed for a 3-year term that terminates following the approval of the financial statements for the year ended December 31, 2020. Vivendi’s slate obtained the higher number of votes and as a result, 3 out of 5 Standing Auditors were appointed from such slate.

The Shareholders’ Meeting held on May 4, 2018, established the number of Directors at 15, the duration of their term of office at three financial years (until the approval of the financial statements as of 31 December 2020) and appointed a new Board of Directors. As the slate presented by the shareholders Elliott lnternational LP, Elliott Associates LP e The Liverpool Limited Partnership received more votes, in accordance with the Bylaws, 10 out of 15 Directors were appointed from this slate, while the remaining 5 were appointed from Vivendi’s slate.

See “Item 6. Directors, Senior Management and Employees—6.1 Directors” for further details.

We file Annual Reports on Form 20-F and furnish periodic reports on Form 6-K to the SEC. Our SEC filings are available at the website maintained by the SEC at www.sec.gov.

As described elsewhere in this Annual Report, certain reports, statements and presentations related to TIM can be found on our website at www.telecomitalia.com.

4.1.2    DEVELOPMENT

On February 21, 2019, TIM presented its 2019–2021 Strategic Plan. The 2019-2021 Plan sets out the primary strategic objectives of the TIM Group over the next three years as well as a number of strategic priorities to achieve such objectives.

For more details, please see “4.1.7 Updated Strategy”.

4.1.3    BUSINESS

The Group operates mainly in Europe, South America and the Mediterranean Basin.

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The TIM Group is principally engaged in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector.

The operating segments of the TIM Group are organized according to the respective geographical location of the telecommunications business (Domestic—Italy and Brazil).

In 2018, there were no significant changes in the scope of consolidation of the TIM Group.

For further details please see “Item 5. Operating and Financial Review and Prospects—5.2 Results of Operations for the Three Years Ended December 31, 2018—5.2.2. Business Segments” and “Note—Scope of Consolidation” of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report.

The following is a summary description of the TIM Group’s principal geographical business areas.

Domestic Business Area

TIM operates as the market leader in Italy providing telephone and data services on fixed-line and mobile networks for final customers (retail) and other operators (wholesale).

Olivetti, part of the Business segment of Core Domestic, operates in the area of office products and services for information technology (“IT”), covering the “traditional” offer areas of the office and retail world as well as the innovative world of IoT, M2M and Big Data.

INWIT S.p.A. operates in the electronic communications infrastructure sector, specifically relating to infrastructure for housing radio transmission equipment for mobile telephone networks, for TIM and other operators.

The Telecom Italia Sparkle group operates at an international level in the development of fibre-optic networks for wholesale customers (in Europe, the Mediterranean and South America).

TIM is one of four mobile operators authorized to provide services using GSM 900 technology in Italy and one of four operators authorized to provide services using GSM 1800 (formerly DCS 1800) technology in Italy. It is also one of four operators holding a UMTS authorization and providing third-generation telephony services in Italy and it is one of the three operators that acquired a 800MHz spectrum in 2011 to provide 4G Service in Italy. In addition, TIM possesses 2600MHz and 1450MHz licenses.

The auction for the award of frequencies for 5G services was held during 2018. TIM awarded the largest part of the spectrum, respectively 10+10 Mega at 700MHz, 80 Mega in the 3.6-3.8 GHz band and 200 Mega in the 27 GHz band, strengthening its competitive position in terms of bandwidth and quality of service offered.

At December 31, 2018, the TIM Group had approximately 10,149 thousand physical accesses (retail) in Italy, a decrease of 895 thousand compared to December 31, 2017. The broadband portfolio in Italy was 11,184 thousand accesses at December 31, 2018 (consisting of approximately 7,575 thousand retail accesses and 3,609 thousand wholesale accesses), an increase of 1,030 thousand compared to December 31, 2017 (10,154 thousand accesses). In addition, the Telecom Italia Group had approximately 31,818 thousand mobile telephone lines in Italy at December 31, 2018, an increase of 1,063 thousand compared to December 31, 2017.

Brazil Business Area

TIM Brasil is a telecommunications company that offers mobile voice and data services, broadband Internet access, value-added services, and other telecommunications services and products in Brazilian market. These services are provided through 4G, 3G and GSM technologies. With the acquisitions of 700MHz and 2.5GHz radiofrequencies, focus is on accelerating the development of the 4G network. With the acquisitions of Intelig Telecomunicações (now TIM S.A.), Tim Fiber RJ and Tim Fiber SP (now merged into TIM S.A.), TIM Brasil’s portfolio of services has been expanded by offering optic fiber data transmission using full IP technology, such as DWDM and MPLS and offering residential and business broadband services.

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At December 31, 2018, the TIM Group had 55.9 million mobile telephone lines in Brazil, as compared to 58.6 million at December 31, 2017.

4.1.4    DISPOSALS AND ACQUISITIONS OF SIGNIFICANT EQUITY INVESTMENTS IN 2018

For a description of disposals and acquisitions of significant equity investments in 2018 please see “Note —Scope of consolidation” and “Note—Investments” of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report.

4.1.5    RECENT DEVELOPMENTS DURING 2019

On April 5, 2019 the rating agency Fitch Ratings downgraded TIM’s Long Term Issuer Default Rating to BB+ with a Stable outlook.

4.1.6 OVERVIEW OF THE TIM GROUP’S MAJOR BUSINESS AREAS

The following is a chart of the TIM Group’s Business Units as of December 31, 2018:

For further details about companies which are part of the Business Units, please see Note “List of companies of the TIM Group” of the Notes to the Consolidated Financial Statements included elsewhere herein.

For revenues, operating profit (loss) and number of employees of the TIM Group’s Business Units please see “Item 5. Operating and financial review and prospects—5.2 Results of operations for the three years ended December 31, 2018—5.2.5 Business unit financial data”.

4.1.7 UPDATED STRATEGY

Strategic Priorities and Objectives for the 2019–2021 Strategic Plan

On February 21, 2019, TIM’s Board of Directors approved the 2019–2021 Strategic Plan (the “Plan”).

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The Plan focuses on improving TIM’s execution and timely delivery of what planned as a key element for the organic transformation of TIM, while exploiting strategic options to unlock value.

The main objectives over the Plan’s horizon are the following:

The main strategic priorities in the domestic (Italian) market are:

Consumer:

Content:

Business:

Wholesale:

An important contribution to the Plan is also expected from the subsidiaries TIM Brasil, Inwit and Telecom Italia Sparkle, for which strategic priorities include:

TIM Brasil:

Inwit:

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Telecom Italia Sparkle:

The strong focus on Execution is one of the key pillars of the plan requiring discipline, focus and simplicity. A streamline organization is needed to promote accountability and improve the way of working. Dedicated Delivery Units have been set up to facilitate and orchestrate the transformation, particularly on transversal topics and to ensure the implementation of the identified cost cutting initiatives. A revised corporate culture capable of building capabilities, fostering talents and engaging the entire employee base will complete the operating platform transformation.

On the Technological front, the Plan sets modernization, simplification and artificial intelligence at the core of future investments in order to ensure quality excellence and contain capital expenditures intensity. It will be finalized the migration to an all-IP network and it will be built a brand new and fully automated 5G network. At the same time the decommissioning of legacy platforms, equipment and applications will be completed as soon as possible.

Quality and reliability on all customer touch points (activation, delivery and problem resolution) are at the center of the strategy. To this aim the most important processes will be redesigned and a central end-to-end factory will lead the process re-engineering effort.

On February 21, 2019, TIM and Vodafone Italia announced to have signed a Memorandum of Understanding and agreed to enter into exclusive discussions for a new network sharing partnership. Both companies intend to enter into an active network sharing partnership for 5G, to consider active sharing for 4G and to expand their existing passive sharing agreement. Vodafone and TIM have also agreed to explore a potential transaction that would entail the parties consolidating their approximately 22,000 passive towers located in Italy into a single business entity, potentially combining Vodafone’s passive tower infrastructure with the infrastructure of Inwit, the 60%-owned and publicly listed tower subsidiary of TIM. The partnership would allow acceleration of 5G deployment to have a wider geographic reach and to achieve significant operating expenditure and capital expenditure synergies.

TIM started discussions with Open Fiber to explore all possible options including a full business combination, in order to explore the value creation opportunity that a single network presents. The Company continues to work with its financial advisors on exploring the single network opportunity and on maximizing the value of TIM’s fixed network. Convergence of the two networks would carry advantages for all stakeholders, including the companies involved, the market, shareholders and the country as a whole, which would benefit from faster, cutting-edge infrastructure.

There can be no assurance that these objectives will actually be achieved. See “Introduction—Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the United States Private Securities Litigation Reform Act of 1995”.

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4.1.8    THE ORGANIZATIONAL STRUCTURE

The following diagram highlights the organizational structure of the TIM Group as of April 8, 2019:

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4.2    BUSINESS UNITS

4.2.1    Domestic

The Domestic Business Unit operates as the market leader in providing voice and data services on fixed and mobile networks for final retail customers and other wholesale operators. Internationally, the Business Unit develops fiber optic networks for wholesale customers (in Europe, in the Mediterranean and in South America).

The Business Unit operates, through INWIT, in the electronic communications infrastructure business, specifically infrastructure for housing radio transmission equipment for mobile telephone networks for TIM and other operators.

Olivetti operates in the area of products and services for Information Technology.

As of December 31, 2018, the Domestic Business Unit was organized as follows:

The principal operating and financial data of the Domestic Business Unit are reported according to the following two cash-generating units (“CGU”):

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At December 31, 2018, as a result of the customer-centric approach, TIM utilized the following sales structure for each of its customer segments:

Distribution

The sales structure is organized according to a vertical, multi-channel approach, in which different types of distribution channels are specialized for different customer segments of the market, based on clusters of customers and services. This approach enhances the focus and customization of our products.

Consumer customers are managed by several channels focused on volume and value acquisitions, including:

In addition to these partners, distribution is also carried out through the “Public Telephone” channel, consisting of 6 technical partners that provide maintenance and other related services.

Commercial customers are managed by a single sales unit that addresses customers through both Direct and Indirect Sales. The Sales channel is organized into five different segments. One of these segments is aimed to the main customers, which includes the most important Private enterprise and the Public central government and is managed only through the Direct Sales Channel. The remaining four manage strategic, large, medium and small regional customers and include both Direct and Indirect Sales Channels.

The company distribution channels include:

Features:

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As of the end of 2018 more than 1000 sales staff have been working on a individually dedicated customer portfolio to manage and develop, supported by pre sales and post sales teams, according to a strong growth plan of direct sales coverage of the market, that is expected to scale up performances through increased proximity and quality of the relationship. The main activities include supporting the digital transformation journey of private enterprises and public administrations, offering the whole range of services (fixed and mobile voice and data, ICT services and products) and developing custom solutions and projects.

The Wholesale (“W”) department manages relationships with approximately 400 other telecommunications operators (Wholesale Market), who can be both customers and competitors of TIM. These customers purchase TIM network and professional services to build services for their own customers.

In order to ensure complete management of the relationship with customers, the Wholesale department is organized to cover all stages of the process:

The Wholesale department is set up as an independent department, which allows TIM, along with other conditions (accounting separation, compliance with the resolutions of the Authorities) to manage transparency and fairness in its relationship with other operators, as well as compliance with all regulatory requirements.

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v    CUSTOMER AND LINES

The table below sets forth, for the periods indicated, certain statistical data of the Domestic Business Unit:

For a description of the main regulatory events that occurred in 2018 and which may have a significant impact on the operation of the Domestic Business Unit, please see “Item 4. Information On The TIM Group—4.3 Regulation”.

The market

During 2018, the Italian TLC market was affected by a downturn due to tougher competition in the mobile sector.

The expansion of broadband and ultra-broadband has been the main driver of market growth, helping to open up new opportunities for telecommunications providers to develop convergent offers that bundle together TLC services with Media & Entertainment services, IT services and Digital services.

The Italian telecommunications market has always been highly competitive; in particular core competition with other operators in the sector is still the factor with the greatest impact on market trends. Telecommunications

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operators must also face the challenges from Over the Tops (OTT) and device manufacturers, that operate in the new digital world using completely different assets and competitive strategies to TLC players.

The traditional business models of the various market players are, therefore, changing to exploit new opportunities and meet the challenges posed by the new entrants:

With regard to the current positioning of telecommunications providers in converging markets, on the other hand, as partially described above, the following is taking place with different levels of progress:

During 2018, the bidding for the award of frequencies for 5G services took place, which led to an overall outlay for telecommunications companies of over 6.5 billion euros, well above the minimum bid price.

TIM and Vodafone were awarded the largest part of the spectrum: 10+10 MHz at 700 MHz, 80 MHz in the 3.6-3.8 GHz band respectively (the most requested to launch good-quality 5G services) and 200 MHz in the 27 GHz band, thereby reinforcing our competitive positioning in terms of bandwidth owned and quality of service offered.

Based on performance capabilities in terms of speed, latency and number of connected devices, 5G is an opportunity for telecommunications companies with the necessary bandwidth to open new vertical markets (e.g., automotive, smart agriculture, logistics, cloud robotics), provide new services, commence new production processes and increase the efficiency of optimized product management.

Competition in Fixed-Line Telecommunications

The fixed-line telecommunications market has continued to see a decline in access and voice revenues, while broadband and ultra-broadband revenues have shown continuous growth. In recent years, service providers have concentrated mainly on expanding the penetration of broadband and ultra-broadband services and defending Voice revenues by introducing bundled voice, broadband and service deals in a highly competitive environment with consequent pricing pressure.

Deals and offers are also becoming more competitive thanks to the consolidation, among competitors, of an approach based on control over infrastructure (above all, Local Loop Unbundling (LLU), as well as Fiber to the Cabinet (FTTC) networks). The main fixed-line service providers are also offering mobile services, also as Mobile Virtual Operators (MVOs).

As concerns competition in infrastructure, two providers—Open Fiber (an ENEL Group company) and Infratel (controlled by the Ministry of Economic Development)—presented plans for the development of their own optic fiber networks as alternatives to the TIM network, which respectively target major Italian cities and areas of market failure.

Open Fiber announced a plan to invest 3.8 billion euros in the development of Fiber to the Home (FTTH) in 271 large Italian towns by 2022, reaching around 9.6 million homes.

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Open Fiber obtained 3.5 billion euros in funding in July 2018. Following the receipt of such funding, the development of the Open Fiber network was stepped up considerably, opening up to 71 Italian towns (as of January 2019), including many major Italian cities, such as Milan, Turin and Bologna, where “Metroweb” (acquired in December 2016) had previously expanded, as well as Bari, Cagliari, Catania, Naples, Padova, Perugia, Venice, Genoa, Palermo and Florence, and smaller towns that are mainly satellite areas of Milan, Turin and Bologna.

In the meantime, according to media reports, our main competitors in the TLC retail market have signed an agreement with Open Fiber to link their new ultra-broadband customers onto its network, where available.

As concerns areas of market failure—the so-called “white areas” in the C and D clusters of the government’s Ultra-Broadband Plan—Infratel held three public calls for tenders over the last three years for the development of a UBB network to deliver services to around 7,500 municipalities across 19 regions.

In January 2019, there were approximately 1,174 work sites open for the first two Infratel/Open Fiber contracts, of which 977 for fiber optic connections and 197 for wireless connections (FWA).

Therefore the development of Open Fiber Plans—both in major Italian cities and market failure areas—will drive a significant shift in infrastructure competition, with the development of various competitive dynamics depending on the overlap and reach of available ultrabroadband infrastructure:

Competition in the Italian fixed-line telecommunications market is also characterized by the presence of other service providers besides TIM, such as Wind-Infostrada, Fastweb, Vodafone, and Tiscali, which have business models focused on different segments of the market. In December 2018, fixed accesses in Italy were estimated to be around 20.3 million (including OLO Infrastructured and FWA-Fixed Wireless Accesses) down slightly on the previous year. Competition in the access market led to a gradual reduction in TIM’s market share.

As concerns the Broadband market, at December 31, 2018, the number of fixed-line broadband (including both broadband and ultrabroadband customers) customers in Italy was estimated to have reached a penetration rate of approximately 86% of all fixed-line access. The spread of broadband continues to be driven by the penetration of computers and other enabled devices (such as Smart TVs), but also by growing demand for fast connections and access to new over-IP services that are becoming increasingly widespread (Media & Entertainment, IT and Digital services).

Competition in Mobile Telecommunications

The mobile market has continued to see the rationalization of second and third SIM cards for human communications, while sales of SIM cards for machine to machine (M2M) communications are growing.

Moreover, growth in mobile broadband customers has continued thanks to the high penetration rate of LTE on mobile lines, especially as a result of the increasing spread of smartphones.

Alongside innovative services that have already caught on and are under full-scale development, as in the case of mobile apps, there are other market environments, associated with the development of mobile broadband, with major potential for growth in the medium term, such as the Internet of Things and mobile payment.

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The competitive scenario on the Italian mobile telecommunications market in 2018 was marked by the entry of the French operator Illiad, that launched its own service in May, becoming the fourth infrastructured operator in Italy, alongside TIM, Vodafone and WindTre. With a particularly aggressive price and data volume offering, Illiad has rapidly won over customers and consequently gained a market share to the detriment of other infrastructured operators, mainly WindTre and Vodafone, while TIM has shown a greater resilience, thanks also to the contribution from the second brand virtual operator, Kena Mobile, launched during 2017. To best respond to the competitive threat of Illiad, Vodafone also launched its own low-cost operator in June 2018, ho.mobile.

At the same time, mobile virtual operators (MVO), of which PosteMobile is the most important player, also reported a growth trend, taking market share away from infrastructured operators.

This tougher competition following Illiad’s entry to the market resulted in a new drop in the spend on services, after several years of relative stability.

4.2.2    BRAZIL

The Brazil Business Unit (Tim Brasil group) provides mobile telephone services using UMTS, GSM and LTE technologies. Moreover, the Tim Brasil group offers fiber optic data transmission using full IP technology, such as DWDM and MPLS and residential broadband services.

At the end of 2018, Tim Brasil group’s coverage reached 93% of the urban population with its 4G network, achieving 3,272 cities with such technology, a 9.0% increase when compared with the same period of 2017.

TIM’s strategy is to fulfill consumers’ needs by understanding what they value and earn their trust based on three pillars: (i) innovation, which is already in the company’s DNA and will continue as a priority, with new plans, offers, partnerships and technologies; (ii) quality, as TIM has worked to become a leader in 4G coverage and maintain strong investments in infrastructure to deliver the best to its customers and be prepared for the future; (iii) user experience, which, in addition to the two other pillars, is important to establish a new relationship with customers and act to give every client the best caring experience, great services and a transparent relationship with the company.

The table below sets forth the number of mobile lines of the Brazil Business Unit:

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With the rapid changes in the consumption of telecommunications services by Brazilian users, Tim Brasil continued its efforts to innovate its offerings for all customer segments (Postpaid, Control and Prepaid) bringing significant changes in all segments, mostly by providing to its customers substantial internet packages with social media and digital services on top of unlimited off-net calls.

This change aims to help Tim Brasil grow its postpaid base, focusing in lock-in offers to increase loyalty and drive churn reduction, and also to protect and increase the value of the prepaid base (segment which the Company maintain its leadership) by providing more complete voice and data offers, at reasonable prices, which, based on a robust 4G network, driven the traffic on such technology to achieve 76% of Tim Brasil total traffic.

Those efforts are producing important results that can be seen by the migration to more expensive packages (from prepaid to control plans and also from control plans to postpaid ones), with a resilient combined postpaid ARPU, while the prepaid segment shows increasing commitment with average recharges growth and stable ARPU.

As of December 31, 2018, we had more than 11.5 thousand points of sale through premium shops and dealers (exclusive or multi-brand) and consolidated partnerships with large retail chains. This figure includes Tim Brasil’s 159 own stores. In addition to these retail stores, Tim Brasil customers have access to prepaid phone services through supermarkets, newsstands, and other small retailers, totaling more than 332 thousand points of sale throughout Brazil.

For the corporate market, Tim Brasil has more than 429 third-party business partners and 87 employees focused on serving small and medium-size companies and a direct sales force team of 98 employees focused on large companies.

In order to serve the customer base of over 55.9 million customers, Tim Brasil maintains 10 customer care centers. Moreover, Tim Brasil has continuously invested in alternative customer service channels, developing solutions based on interactive voice response and self-service and mobile applications for iOS and Android.

For the main regulatory developments which occurred in 2018 that may have an economic impact on the Brazil Business Unit, please see “Item 4. Information On The TIM Group—4.3 Regulation”.

At the end of 2018, the Brazilian mobile market reached 229.2 million lines 7.3 million lines (or 3.1%) lower than at the end of 2017. Consequently the Brazil Business Unit churn rate in 2018 was 47.2% (53.2% in 2017).

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4.3    REGULATION

As a telecommunications operator, the TIM Group is subject to sector-specific telecommunications regulations, general competition law and a variety of other regulations, including privacy and security, which can have a direct and material effect on the Group’s business areas.

This section describes the legislative framework and the recent legislative key developments.

4.3.1    THE EU REGULATORY FRAMEWORK

TIM’s operations within the European Union (“EU”) are subject to the EU regulatory framework for electronic communications networks and services, which includes directives, regulations, recommendations and communications. As a Member State of the EU, Italy is required to transpose directives issued by the EU into national legislation. The regulations adopted by the European Commission (“EC”) are applicable and binding on each Member State without the need of further national implementation. Recommendations and communications, on the other hand, are not legally binding although they have to be taken into account by each Member State.

National Regulatory Authorities (“NRAs”) are independent bodies tasked with regulating and supervising the telecommunications sector and compliance with the EU framework in each Member State. In Italy, this body is “Autorità Garante per le Comunicazioni” (“AGCom”) while the Ministry of Economic Development (“MISE”) is responsible for national broadband plan, spectrum and numbering management, integrity and security of the network.

Until December 19, 2018 the EU Regulatory Framework has been based on five directives (“Framework”, “Access and Interconnection”, “Authorization”, “Universal Service and Users’ Rights” and “Privacy and Data Protection” together, the “Directives”) that regulate all forms of fixed and wireless telecommunications and data transmission. In Italy, the Directives have been transposed into the “Codice delle comunicazioni elettroniche” (Electronic Communications Code – ECC) which is currently in force.

On December 20, 2018 Directive 2018/1972 establishing the European Electronic Communication Code (the “EECC”) entered into force. The Directive reviews and combines in one document the “Framework”, “Access and Interconnection”, “Authorisation” and “Universal Service and Users’ Rights” Directives (the revision of the Privacy and Data Protection Directive, the so-called e-privacy Directive, is ongoing under separate proceedings). On the same date, Regulation 2018/1971 also entered into force, reviewing the former BEREC (Body of European Regulators for Electronic Communications) Regulation (EC) 1211/2009. The transposition of the EECC into the law of each Member State must occur by December 21, 2020.

The EECC includes measures to promote wholesale-only models of investments and stimulate investments in very high capacity network (VHCN), new rules on spectrum (e.g., minimum license duration) to improve certainty on investment return, changes to regulation of services, introducing more level playing field between telecom operators and new over-the-top-players (OTTs), and the introduction, in the scope of Universal Service Obligation (USO), of the affordability for consumers (with low income or special social needs) of adequate broadband internet access service and voice communications services at least at a fixed location.

In addition, the BEREC Regulation, by amending Regulation (EU) 2015/2120, introduces price caps to be applied from May 15, 2019 on Intra-EU international fixed and mobile calls (19c€/min) and SMS (6c€/SMS) for consumers.

A Recommendation issued by the EC on “relevant product and service markets susceptible of ex ante regulation” (Commission’s Recommendation on relevant markets) completes this set of legal instruments with the definition of a list of relevant markets “whose characteristics may be such as to justify the imposition of regulatory obligations”. The Recommendation currently in effect (no. 2014/710/UE) was published on October 9, 2014, following updates in 2003 and 2007. The number of relevant markets subject to ex ante regulation has been reduced over time from 18 to 4, following the growth of the competition in the whole sector (see “Wholesale Market Analyses”).

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In 2010, the EC adopted a Communication, the “Digital Agenda for Europe” (the “DAE”), setting forth long-term EU strategies for Broadband. The DAE sets non-binding targets on broadband coverage and take-up to be achieved by 2020:

In September 2016, through the Gigabit Society Communication, the EC set the following (not binding) additional targets for the year 2025:

Intra-EU roaming services are regulated by the roaming Regulation 531/2012 (the “Roaming III Regulation”), as amended by the Telecom Single Market Regulation 2015/2120 (the “TSM Regulation”) which provides for the abolishing of any roaming service surcharge on top of domestic service prices subject to “fair use” limits to avoid abuses, starting from June 15, 2017 (Roam Like at Home—RLAH regime).

For intra-EU traffic exceeding the fair use limits, operators are allowed to levy a surcharge on top of domestic tariffs. Such a surcharge is capped at the following wholesale caps, established by the Regulation 2017/920, which reviews the Roaming III Regulation wholesale caps.

The TSM Regulation introduces new rules on Net Neutrality, which have applied since April 2016. In particular, the TSM Regulation:

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The TSM Regulation also places additional transparency obligations on providers of internet access services in addition to those already included in the Electronic Communications Regulatory Framework.

TIM must comply with the EU Regulation 2016/679, “General Data Protection Regulation” (“GDPR”) since May 2018. The new regulation has adopted a risk based approach, allowing a higher flexibility for service providers to process personal data, while ensuring a high level of protection of personal data of individuals. The GDPR introduces administrative fines of up to 4% of an undertaking’s annual global turnover for breaching the new data protection rules.

TIM has put in place a specific project to carry out all the activities needed to ensure its compliance with the new rules introduced by the GDPR.

While the GDPR is a horizontal regulation, applying to all categories of providers, TIM must comply also with the complementing sectorial rules (Directive 2002/58/EC, the so called “e-Privacy Directive”), currently under revision, which imposes additional limitation to the data processing by operators of electronic communications services. The EC proposal aligns the fines for non-compliance to the GDPR’s.

4.3.2 THE ITALIAN REGULATORY FRAMEWORK

The main legal references for the electronic communications sector in Italy is the “Electronic Communications Code” (“ECC”), which transposed into national law the EU Access, Authorization, Framework and Universal Service directives. Moreover, there are other laws affecting TIM’s business which govern non-sectorial areas such as consumer, data and security protection and laws which govern specific aspect of communication sector such as Legislative Decree n. 33/2016 (implementing 2014/61/UE Directive), setting forth measures for costs reductions in UBB networks installations and promoting the use of existing infrastructures.

With the law no. 119/2018 dated December 18, 2018, the Government amended the ECC introducing the power for AGCom to define adequate measures of investment remuneration to incentivize the merger of different access networks put under the control of a non-vertically integrated subject offering only wholesale network services.

4.3.3 MARKET ANALYSES

The EU regulatory framework requires the National Regulatory Authorities to carry out market analyses before imposing obligations on individual operators having a Significant Market Power (“SMP”) according to the specific EU guidelines.

A description of the Italian wholesale market analyses is summarized below together with the main recent developments regarding the electronic communications markets.

In December 2015 (Decision n. 623/15/CONS), AGCom defined the rules for the access to TIM’s copper and fiber fixed networks for the years 2015-17.

The main regulatory measures are the following:

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The NEM, through the reorganization of both assurance and delivery processes, aims to improve end-to-end performance and to remove any possible internal-external process asymmetries between TIM Retail and the alternative operators (such as differences in internal and external reasons for “refusal” of delivery orders, provision times, customer data bases and order workflows) that could produce potential discrimination between TIM retail and the alternative operators in the conditions of provision of the wholesale services.

The NEM implementation was completed in April 2017 and the migration process of all operators to the New Delivery Systems was completed in July 2018.

With Decision 623/15/CONS, AGCom also asked TIM to present a proposal to introduce a disaggregation model for the delivery and assurance activities of the local loop and sub-loop unbundling lines. TIM’s proposal (sent to AGCom in February 2016 and submitted to public consultation by AGCom in April 2016) is based on the extension of the “System Unico” (i.e., the recourse to external companies by the competing operators) to the above-referenced delivery and assurance activities. In August 2017, with Decision 321/17/CONS, AGCom defined the technical and organizational conditions of the disaggregation model. According to the approved model, alternative operators can autonomously choose whether TIM or external companies have to carry out the above mentioned ancillary activities for LLU and SLU services. Moreover, the alternative operator can make direct arrangements with the external companies regarding a series of activities, such as the contact policy, the economic conditions for the management of the appointments, etc. The main Italian operators started to apply the disaggregation model between December 2018 and February 2019.

On February 20, 2017 AGCom launched the fourth round of the access markets analysis (Decision 43/17/CONS) to review the obligations and economic conditions of the wholesale access services for the period 2018-2021. The markets analysis also takes into account TIM’s voluntary legal separation project in relation to its fixed access network.

On March 6, 2018, TIM’s Board of Directors approved the project to voluntarily separate the fixed access network through the creation of a legal entity (NetCo) separate from the rest of the company (ServCo). The new company (NetCo), 100% controlled by TIM, will have its assets (access network infrastructure, from the exchange to customers’ homes, as well as buildings, electronic equipment and IT systems) and the personnel necessary to provide wholesale services independently. The model is intended to guarantee full equality of treatment, thanks to a single access point; a “one-stop shop” for regulated and unregulated wholesale services for all operators, including TIM.

On March 27, 2018, TIM notified to AGCom the voluntarily separation project and on June 6, 2018, AGCom found the project admissible. Therefore, pursuant to Article 50 ter of the Electronic Communications Code, AGCom started a coordinated analysis of the different markets related to the access network to assess the effect of the project on existing regulatory obligations.

From January 18 to March 4, 2019, AGCom carried out a public consultation (Decision 613/18/CONS) on the outcome of the coordinated markets analysis.

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In the text under consultation, AGCom gives a positive evaluation of TIM’s access network separation project since it strengthens the equivalence conditions and softens the competitive issues found in the previous market analysis. Anyhow, the Authority deems that some vertical integration issues remain (Netco is fully controlled by TIM and ServCo operates directly in the retail market and indirectly in the wholesale market) as well some risks of anticompetitive conduct.

With reference to the separation project, AGCM propose to:

With reference to the other aspects of market analysis, AGCom makes the following proposals: