EY Capri 2017 - Arnaud de Puyfontaine, Presidente Esecutivo, Telecom Italia

I have here in front of you this morning twin interests in the success and growing convergence of the Italian digital economy, both as executive chairman of TIM, the country's leading telecommunications group, and as chief executive of Vivendi, the European media and entertainment group that regards Italy as a strategic growth market. Although we do not conduct our Italian business meeting in such beautiful surroundings as here in Capri, our commitment at Telecom Italia is that our services reach every part of the country with fast, reliable, and consumer-friendly communications.

Let me start by saying that Vivendi is an industrial and long-term investor for TIM, with a clear and ambitious vision for the company. The ambition is to make TIM great again and accelerate the digitalization process of Italy through investment and people. TIM will continue to be the largest investor in Italy in any sector, with more than 11 billion euros invested in the 2017-2019 period. Creating value for TIM is creating value for the Italian people and for Italy.

The last few months have been bumpy, to say the least, and of course I'm referring to the intense speculation surrounding TIM. Let me be crystal clear, very clear. First, these speculations are completely disconnected from reality. Second, Vivendi acted in strict respect of regulations and laws. And third, today I must say that TIM is committed to having a constructive collaboration with institutions and regulators. Last week, TIM's governance evolved with the nomination of Amos Genish as managing director or delegate of TIM. He is a very talented manager with strong international expertise in telcos. His duty, his task, will be to improve the transformation of TIM to become a truly digital telco. The short-term objectives are based on some key fundamentals which are mostly focusing on superior customer experience and new services based on ultra-broadband coverage.

Today I want to focus particularly on this last point: the growing convergence of telecommunications, content distribution, entertainment production, and importantly, how we serve changing audience consumption habits. And it is happening in every country in the world. The opportunities created by convergence are a major factor behind our strategic approach in Italy, which is central to TIM's first shareholder strategy to build a powerful media group focused on Southern Europe. Why are we doing so? We are expanding here in Italy because it is a market where we see a great opportunity to develop an infrastructure which will provide audiences and customers the ability to use fixed and wireless networks to access and pay for high-quality content. This market, like others in Europe and the US, has overcome the disruption created by first-generation file-sharing and online content, when piracy and unreliable distribution networks impeded the ability to monetize digital entertainment. Companies such as TIM have overcome that disruption by utilizing two key technology assets. These assets, which have changed the entire audience relationship with digital content, are firstly ultra-fast broadband connectivity and secondly smartphone devices capable of handling large amounts of data. The combination of smartphone capability and fast broadband infrastructure has made convergence a reality. Importantly, bundled billing arrangements and subscription packages mean that consumers are not only willing but are fully accepting the pay for high-quality mobile content.

Convergence and consolidation is not a new phenomenon in the media and telecommunications industry, of course. Examples include AT&T's ongoing acquisition of Time Warner, BT's move in the UK into content distribution with bids for sports rights, and Vivendi, as you know, acquired Havas to converge in marketing, consumer science, advertising, and data management. By consolidating assets and by making strategic investments, the companies that believe in convergence are gaining economies of scale and the ability to invest in content that grows with an international audience. And unlike most companies seeking vertical convergence between telco and media, Vivendi and TIM have opted for more horizontal convergence. In our experience, the distinctive consumer proposition and different business models of telco and creative media content companies are such that they do not automatically fit together in the same company. This is why I do consider partnerships as the most efficient approach in order to make gains both in terms of scale and agility. Our vision of convergence is to build a constellation of partners: telco operators, internet service providers, device manufacturers, and so on. There is clearly a benefit to working together. In media and telco, there are basic economics to convergence that make it attractive. On the one hand, media companies need to work with telco operators to distribute that content to a wider audience and to cover the cost of production across very substantial subscriber bases. On the other hand, network operators can no longer be competitive by offering basic services to their customers; they need innovative content and services to enrich their offers and differentiate themselves. This cross-fertilization is a win-win-win-win strategy that should benefit the audiences who subscribe or pay as they go for all types of digital content.

In the world of convergence, our approach must be totally focused on meeting and exceeding customer demand. Clearly, customer demand is shifting inexorably from fixed to mobile network services. Mobile is now the preferred mechanism for delivery, consumption, and production of content. Mobile networks offer a direct relationship with customers in which we can use data management to better understand audience usage and preferences for different types of content. This is the air traffic control of media consumption in the future. TIM will push the transition to this more sophisticated audience management equation. This effort is overdue. For 15 years, the company has underperformed compared with some of its international peers, but convergence creates an opportunity for TIM to get back in the game and to become a leading telco provider and content partner in Italy and abroad. It is worth remembering that 20 years ago, TIM was Europe's largest telco operator. It was, compared to its peers, one of the most agile and innovative companies of its kind. MP3 technology, for example, was developed in TIM's R&D labs in Turin, which was a revolutionary technology at the time. In other words, TIM is a company with a strong network and technology legacy, which needs to improve the customer experience and has the potential to capitalize on the convergence revolution.

Vivendi, our number one shareholder, which invested more than 4 billion euros in the company since May 2015, is supporting that effort. The past decade has seen TIM losing sometimes some kind of momentum against its peers, its debt increasing, and so on and so forth. TIM today is in urgent need of a relaunch, and Vivendi is helping to engineer that. These results are starting to be visible. In the last quarter, TIM achieved the best results in the last 10 years. The group is now entering into a new phase. As a long-term investor, Vivendi brings both long-term stability that will enable TIM to invest for the long-term returns and content capabilities to attract a wider audience. Some offers are already live on track, like the launch in Italy of Studio+ and a unique mobile-first, mobile-only content offering developed by Vivendi. As CEO of Vivendi and executive chairman of TIM, I want to facilitate the launch of joint projects in the interest of both partners. As we speak, the Board of Directors is currently analyzing the potential creation of a joint venture between Canal+ and TIM, intended to enable a major acceleration of the plan for telco-media convergence. Thanks to this joint venture, the group would then have access to the experience and content of one of the most important production and rights companies in the world. The joint venture would focus on productions and co-productions, both Italian and international, and on the acquisition of rights, including sports rights. We at TIM can rely on Vivendi to thrive in the digital age. In an environment where most European media and telco are disrupted by changing consumer habits and the rise of dominant online players, joining the forces of TIM and Vivendi is the winning strategy to grasp all the opportunities offered by convergence. This will be the key to future success. It is about managing the interface between network connectivity and offering the sort of paid-for content that audiences demand. Vivendi is one of the global media and entertainment companies that can make this work here in Italy and elsewhere. I am determined to make TIM the best telco operator in Italy at a European level and make TIM a showcase for convergence. This work is underway, we are making progress, and I am confident of the success. Thank you very much.