Gruppo FASTWEB Bilancio al 31 dicembre 2007

(Translation from the Italian original which remains the definitive version)

FASTWEB Group 2008 Annual Report

FASTWEB S.p.A.

Registered and administrative offices 20155 Milan, Via Caracciolo, 51

Share capital € 41,344,209.40 fully paid up

Tax and VAT code and registration with the Milan Company Register 12878470157

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Letter to the Shareholders

Dear Shareholders

The reorganisation that became effective on 1st January 2008 with the set up of three commercial Business Units - each responsible of the entire industrial process from customer acquisition to activation and post sale support - paid off. The Company was able to address all market segments very effectively, further increasing both its internal efficiency and customer satisfaction. As a consequence, the challenging 2008 targets set by the management were achieved. Keeping unchanged the number of employees and thanks to a strict opex and capex control, FASTWEB increased its customer base by 17%, posted a 19% revenue growth, improved the EBITDA margin from 28.6% to over 30%, reported a first ever net profit and reduced the capex/sales ratio from 38% in 2007 to 26% in 2008. The significant improvement of all operational and financial parameters was accompanied by a further improvement of the customer satisfaction index both at Company level (+5%) and within each Business Unit. This trend indicates that the reorganization started last year contributed to further enhance the capability of the Company to guarantee high service levels and confirms that FASTWEB ranks at the top end of the Italian telecom market. Thanks to 220,000 net additions, the customer base grew from 1,263,000 subscribers at the end of 2007 to 1,483,000 as at 31 December 2008, a 17% increase. As a result, FASTWEB share of net adds grew in the year by an estimated 19%, up from 17% in 2007. 2008 consolidated revenues amounted to 1,708 million euro, a 19% increase from 1,433 million euro in 2007 and higher than the 14% growth rate targeted for 2008. The performance was particularly strong in the fourth quarter, when revenues totalled 467 million euro, a 21% improvement with respect to the same period 2007. The Executive Business Unit (large corporate accounts, Public Administration, wholesales activities) was a key performer, with 2008 revenues rising 41% to 671 million euro, confirming that FASTWEB is Telecom Italia’s main competitor in a segment that continues to offer significant growth opportunities. Many important new accounts were acquired in 2008, including Gruppo Lottomatica, UBI Banca, Allianz, Lidl, Coop, Alstom Power and Coin. These acquisitions together with the Public Administration contracts made a significant contribution to revenue growth. FASTWEB successfully renegotiated also a number of key contracts expiring in 2008, in many cases extending the perimeter of the agreements through upselling activities (with an expected increase in future revenues) and an extension of the contract duration. Renewals included the Unicredit contract for data and voice services. The new contract has a three-year duration (2010- 2012) and also involves the Capitalia network (following the merger between the two banks), with a total of approximately 5,000 additional branches that will be migrated to FASTWEB infrastructure. The Consumer Business Unit (residential subscribers and Micro Business) reported revenues of 808 million euro, up 11% from 2007. Over and above the positive trend in net adds, the Business Unit achieved a significant improvement in the inbound sale channel performance which accounted for more than 50% of new subscribers. In particular, web sales accounted for 14% versus 4% in 2007. The IPTV service also recorded a positive trend, with subscribers increasing by 13% in the year. FASTWEB launched its mobile services for residential subscribers in September, with the objective of creating a fully convergent fixed-mobile service. The marketing of these new solutions, supported by an effective advertising campaign that contributed to developing a significant market awareness, was mainly directed to FASTWEB customer base, with a redemption rate in line with the Company expectations. Active SIM cards at the end of the year amounted approximately 30,000. The SME Business Unit (small and medium enterprises) reported revenues of 229 million euro, a result in line with 2007 (+3% if the impact of the reduction in termination rates is excluded). This Business Unit, which was created at the beginning of 2008, focused its activities on the setting up and the fine tuning of the industrial process. Also, the launch of an entirely new service portfolio dedicated to the SME market at the end of 2008 was very well received by the market.

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Further, a new brand and a communications plan fully dedicated to the SME market were launched in February 2009. These initiatives will allow the Business Unit to increase revenues and market share in 2009. Revenues generated by the Consumer Business Unit in 2008 amounted to 48% of consolidated revenues, while the SME and the Executive Business Unit accounted for 13% and 39% respectively. The trend in margins was also positive and in line with targets. The progressive growth in consolidated EBITDA allowed FASTWEB to report an EBITDA of 548 million euro. Excluding the impact of the 30 million euro extraordinary item booked in the second quarter, 2008 industrial EBITDA was 518 million euro (equal to 30% of consolidated revenues), a 26% growth with respect to 2007 and representing 98% of full year target. FASTWEB posted a consolidated net profit of 6 million euro, compared with a net loss of 125 million euro in 2007. Net capital expenditure in the year was 437 million euro and was mainly related to customer driven capex, a significant part of which was driven by the activation of new corporate customers. The positive revenue trend combined with the decrease in capital expenditure produced an improvement in the capex/sales ratio which was equal to 26% in 2008 from 38% in 2007, further reflecting that FASTWEB business model is structurally oriented towards cash generation. Net cashflow for the year was positive for 55 million euro, a significant improvement with respect to the negative cashflow of 128 million euro in 2007. The results achieved in 2008 make us optimistic that 2009 will be a good year for your Company. We are determined to build on the success achieved so far and to further consolidate FASTWEB position on the Italian market.

FASTWEB S.p.A. Chief Executive Officer (signed on the original)

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Contents FASTWEB Group – 2008 Annual Report

Key financial figures and other performance indicators 3 Company officers 5 Information about the shareholding structure 7 Directors’ Report 10 Organisation and employees 11 The market 13 Performance 16 Financial development 18 Network infrastructure and technology 24 Legislative context 25 Related party transactions 37 Corporate governance report 38 Risk management 54 Other information 56 Subsequent events 58 Outlook 58 The Board of Directors’ proposal to the Shareholders’ meeting 59 Consolidated financial statements 60 Explanatory notes to the consolidated financial statements 67 1 Preparation criteria 67 2 Consolidation policies 69 3 Segment reporting 70 4 Accounting principles and policies 70 5 Notes to the main balance sheet captions 80 6 Notes to the main income statement captions 108 7 Commitments and contingent liabilities 116 8 Related party transactions 116 9 Other information 117 Statement on the consolidated financial statements pursuant to article 81- ter of Consob regulation no. 11971/1999 and subsequent modifications and amendments 118

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Report of the independent auditors on the consolidated financial statements of FASTWEB Group as at and for the year ended December 2008 119 FASTWEB S.p.A. - Separate financial statements as at and for the year ended 31 December 2008 123 FASTWEB S.p.A. - Explanatory notes to the separate financial statements 130 1. Preparation criteria 131 2. Segment reporting 132 3. Accounting principles and policies 132 4. Notes to the main balance sheet captions 142 5. Notes to the main income statement captions 170 6. Commitments and contingent liabilities 178 7. Related party transactions 178 8. Other information 179 9. Approval of the financial statements 179 Statement on the separate financial statements pursuant to article 81-ter of Consob regulation no. 11971 of 14 May 1999 and subsequent amendments and integrations 180 Report of the independent auditors on the financial statements of FASTWEB S.p.A. as at and for the year ended December 2008 181 Report of the Board of Statutory Auditors to the Shareholders 183

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Key financial figures and other performance indicators

Variance Variance Actual data (€/000) Year 2007 Year 2008 2007-2008 2007-2008 %

Consumer (000) 1,313 1,482 169 13% Revenues 1,433,239 1,708,059 274,820 19% Gross Operating Margin (EBITDA) 480,262 547,716 67,454 14% Gross Operating Margin (EBITDA) % 33,5% 32,1% -1,4% Operating Rersult (EBIT) 98,263 134,320 36,057 37% Operating Rersult (EBIT) % 6,9% 7,9% 1,0% Net Result (124,692) 6,057 130,749 Net Result % -8,7% 0,4% 9,1% Equity 904,766 910,096 5,330 1% Net Financial Debt 1,265,395 1,457,311 191,916 15% Capital Expenditure 540,710 437,617 (103,093) -19% Free Cash Flow (128,215) 55,110 183,325 Employees 3,4173,408 (9) 0%

Customers Revenues 1,600 1,482 1.800,000 1,708,059 1,313 1,400 1.600,000 1,433,239 1,200 1,062 1.400,000 1,259,996 1.200,000 967,798 1,000 1.000,000 0,800 714 800,000 600,000 0,600 400,000 0,400 200,000 0,200 0,000 2005 2006 2007 2008 0,000 2005 2006 2007 2008

CLIENTI 2008 RICAVI 2008

SME Executive 13% 39%

Consumer 92%

SME 4% Executive 4% Consumer 48%

Micro Busi ness Micro Business

Families

Families

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EBITDA EBIT

134.320 600.000 547.716 150.000 480.262 98.263 500.000 100.000

400.000 50.000 301.254 300.000 203.293 0 200.000 2005 2006 2007 2008 -50.000 100.000 -100.000 (87.548) 0 (107.395) 2005 2006 2007 2008 -150.000

RISULTATO NETTO DEBITO FINANZIARIO NETTO

20.000 6.057 1.600.000 1.457.311 0 1.400.000 1.265.395 2005 2006 2007 2008 -20.000 1.200.000 1.081.266 1.000.000 -40.000 800.000 -60.000 600.000 469.071 -80.000 400.000 -100.000 200.000 -120.000 0 (123.575) 2005 2006 2007 2008 -140.000 (124.833) (124.692)

INVESTIMENTI TECNICI NETTI FREE CASH FLOW

800.000 100.000 55.110 683.525 700.000 50.000 600.000 529.376 540.710 0 -50.000 2005 2006 2007 2008 500.000 437.617 -100.000 400.000 -150.000 (128.215) 300.000 -200.000 200.000 -250.000 100.000 -300.000 (298.944) 0 -350.000 2005 2006 2007 2008 -400.000 (372.662)

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Company officers

Board of Directors

Carsten Schloter Chairman Legal representative

Ulrich Dietiker Deputy Chairman Legal representative Stefano Parisi CEO and General Manager Legal representative and powers for the ordinary and extraordinary management of the Company Lisa Lamanna Merkt Director

Daniel Jürg Ritz Director

Silvio Scaglia Director Urs Schäppi Director Peter Hermann Staub Director Andrea Broggini Director Independent Director Alberto Giussani Director Independent Director Manilo Marocco Director Independent Director

The term of office of the Board of Directors expires upon approval of the financial statements as at and for the year ending 31 December 2009. The Board of Directors checked that the Directors Andrea Broggini, Manilo Marocco and Alberto Giussani, appointed as Lead Independent Director, meet the related requirements pursuant to the Consolidated Finance Act and the Code of Conduct. The Board of Directors also set up the following internal committees, assigning them the duties provided for in the Code of Conduct:

Remuneration Committee

Andrea Broggini Chairman Alberto Giussani Manilo Marocco

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Internal Control Committee

Manilo Marocco Chairman Andrea Broggini Alberto Giussani

The Chief Executive Officer, Stefano Parisi, is responsible for supervising the working of the internal control system.

Comitato Direttivo

Stefano Parisi Roberto Biazzi Alberto Calcagno Andrea Conte Roberto Contin Mario Mella Mauro Greco Giovanni Moglia Sergio Scalpelli Danilo Vivarelli Mario Rossi

Board of Statutory Auditors

Michele Siri Chairman Pierluigi Galbussera Statutory Auditor Patrizia Occhiuto Statutory Auditor Mauro Bontempelli Substitute Statutory Auditor Vieri Chimenti Substitute Statutory Auditor

The term of office of the Board of Statutory Auditors expires upon approval of the financial statements as at and for the year ending 31 December 2010.

Independent Auditors

PricewaterhouseCoopers S.p.A. The independent auditors’ term of office expires with the meeting of the shareholders held to approve the financial statements as at and for the year ending 31 December 2016.

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Information about the shareholding structure

Share capital of FASTWEB S.p.A. at 31 December 2008

Shares Share capital 41,344,209,40 Number of ordinary shares 79,508,095

Shareholders The following table lists the direct or indirect holders of ordinary FASTWEB S.p.A. shares exceeding 2% of the share capital at 31 December 2008 based on the shareholder register, communications received and other information available:

Shareholder % No. of ordinary shares Swisscom Italia S.r.l. 82.1% 65,261,941 Market 17,9% 14.246.154

Total 100.0% 79,508,095

At 31 December 2008 FASTWEB does not possess any treasury shares, neither directly nor through third parties.

Shareholders of FASTWEB S.p.A. at 31 December 2008

FASTWEB S.p.A. shareholding structure

Market 17.9%

Swisscom Italia S.r.l. 82.1%

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In accordance with article 123-bis of Legislative decree no. 58 of 24 February 1998 (the Consolidated Finance Act), introduced by article 4 of Legislative Decree 229 of 19 November 2007, it should be noted that: ƒ the only securities making up the Company’s share capital are ordinary shares; ƒ there are no restrictions to the transfer of shares, such as, for example, limits to the holding of shares or the requirement to obtain approval by the Company or other shareholders; ƒ there are no shares that give special control rights; ƒ there are no restrictions of any type to voting rights, for example, limits to voting rights to a certain percentage or certain number of votes, conditions imposed for the exercise of voting rights or systems whereby, with the Company’s cooperation, the financial rights connected to the securities are separate to title of the shares; ƒ the Company is not aware of any shareholder agreements covered by article 122 of the Consolidated Finance Act; ƒ reference should be made to the subsequent Corporate Governance Report for information on the regulations applicable to the appointment and replacement of directors and changes to the Company by- laws; ƒ there are no significant agreements to which FASTWEB S.p.A. or its subsidiaries are parties and that become effective, are changed or terminated in the case of the change of control over the Company; ƒ there are no agreements between the Company and the Directors that provide for termination benefits in the case of their resignation or dismissal without just cause or if the employment relationship ceases due to a public purchase offer.

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FASTWEB Group structure The structure of the FASTWEB Group at 31 December 2008 is as follows:

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FASTWEB Group Directors’ Report

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Organisation and employees

Organisational structure of the FASTWEB Group

Organisation and employees In January 2008, FASTWEB introduced a new segment-based internal organisational structure, based on better customer segmentation and single point of reference for the entire customer process by segment. This continued the reorganisation commenced in 2007 with the set up of the Field Operations area. In fact, since January 2008, FASTWEB has four Operating Areas which manage the different customer categories from their acquisition through to their activation, customer care, additional commercial activities and supply of the service in an integrated fashion: ƒ Consumer; ƒ Small Medium Enterprise (SME); ƒ Executive; ƒ Network & Systems. The Group also created the position of Chief Operating Officer, who reports to the CEO. His duties comprised facilitating the introduction of the new organisation by coordinating the three Business Areas and the Network & Systems Area in operating terms and identifying and implementing action plans in order to ensure achievement of the budget and business plan objectives. In 2008, FASTWEB significantly increased its investments in training in order to improve its workforce's professional and personal skills. Accordingly, it invested approximately € 2 million in technical and management training courses. The training methods are based on innovation and experimentation, aimed at ensuring that the course content best meets the participants' effective requirements. Payment of an additional remuneration element (MBO) was confirmed for 2008 for certain employee categories. It is based on both the Company’s and the individual’s achievement of shared objectives set at the beginning of each year. All the other employees not part of this MBO plan received a 2008 performance bonus (based on the 2007 EBITDA and CSI) as provided for in the trade union agreement signed in February 2007 for the four year period 2007 to 2010.

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FASTWEB decided to end the long-term 2006/2011/2014 incentive plan, earmarked for the members of the Comitato Direttivo in advance and to adopt a new long-term 2008-2011 incentive plan to foster the Group's top management's loyalty and ensure the Group's growth and productivity. As a result of this plan, which became effective on 1 January 2008, the Board of Directors decided the minimum and maximum participation amounts which were tied to the achievement of a combination of the cash flow proxy target and the annual revenue target for 2008. Payment takes place if the beneficiary is still with the Group at the end of each year of the plan, except for the right to receive payment of the vested variable component before the Termination Event. The Group consolidated its workforce during the year. The number of group employees fell from 3,417 at the end of 2007 to 3,408 at the end of 2008. The Parent’s employees numbered 3,380 at year end compared to 3,388 at the end of 2007.

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The market

The FASTWEB Group is active in the Italian landline telecommunications services market which is the fourth largest in Europe in terms of value, after Germany, the UK and France. End customer expenditure approximated € 16 billion in 2008, slightly lower than that recorded at the end of 2007. FASTWEB is the main alternative operator to Telecom Italia in the broadband segment of the landline telephony network market. As shown in Chart 1, the domestic market has seen strong growth in the last few years, shooting from just over a million connections in 2002 to roughly 11 million at the end of 2008, equal to service penetration of approximately 43% of households and businesses. Over the next five years, the forecast growth levels will be among the highest in Europe, although lower than in the past, and they will ensure a penetration level of more than 60%.

Chart 1 Growth in the number of broadband lines in Italy (2002 – 2008)

Source: Between 2008, internal figures Nevertheless, the growth of broadband lines in Italy is below the average of the EC states, as shown in Chart 2, mainly because of certain peculiarities of the Italian market, such as: ƒ scarce computer literacy: use of personal computers is just above 50% (compared to a European average of more than 60%), with significant differences tied to socio-cultural aspects such as geographical location and family make-up; ƒ unfavourable macro economic climate: technological product and service expenditure decreased in 2008 compared to the previous year and forecasts for 2009 do not include a reversal in this trend; ƒ small offer of services that encourage demand: especially in the public sector (schools, national health service and post offices) and also in the private sector where the availability of on-line services which would foster adoption of broadband connections is significantly less than in the other main European countries. Chart 2 also shows how the incumbent operator in Italy has held on to its leadership position, with a larger broadband market share than that of other former European monopolies in their respective markets.

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Chart 2 Penetration of broadband services in main European countries and broadband market share of the incumbent

Source: Between June 2008 Penetration is calculated on the basis of households

FASTWEB’s strategic positioning The Italian broadband market is dominated by seven key national players, each of which has its own position in terms of prices, products and services offered and customer segments. The market has seen significant, rapid growth in competition and strong price pressure which continued in 2008. The main characteristics of 2008 are: ƒ Entry of Vodafone which, after purchasing Tele2 in 2007, launched its first Vodafone brand products; ƒ Development of converging offers by landline and mobile phone operators. Vodafone has followed the trend moving from the voice mobile network, assisted by the vast number of added value services and increasingly cutting-edge technological terminals. Thus, mobile phone operators are given the possibility of entering a market with great growth potential compared to mobile telecommunications, where penetration is very high. This is the reason underlying Vodafone’s acquisition of Tele2 and the agreement of mobile virtual network operator (MVNO) contracts by FASTWEB, BT and TISCALI. ƒ The rise in services such as IPTV and Internet applications (on-line gaming, social networking) which increasingly require secure and bi-directional bands and the use of reliable broadband connections. FASTWEB has always based itself on its valuable network infrastructure and its ability to be technologically innovative and has positioned itself on the market promoting its characteristic features, namely: ƒ Superior product and service quality, enabling focus on high value customers and maintenance of a price premium approach. ƒ Continuous development of its product portfolio to interpret the main market trends and customer requirements, thus increasing customer loyalty. ƒ Maintenance of a technological leadership position thanks to the availability of a new generation network, completely alternative to that provided by Telecom Italia, which covers the main Italian cities.

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This approach has enabled FASTWEB to be very competitive in all market segments: residential customers, firms and shops, small, mid-size and large companies, Public Administration and other telecommunications operators. The main progress made in 2008 was based on this approach confirming FASTWEB’s position as the technological leader of the supply of broadband services and innovative products with the: ƒ Introduction of the 100 Mbit per second connection service for small and mid-size companies: FASTWEB was the first in Italy and one of the first in Europe to launch an ultra broadband service which will enable companies in areas served by FASTWEB’s optical fibre network to access Internet in a fully secure mode with excellent service. ƒ Development of converging services: thanks to the agreement with H3G at the end of 2007, FASTWEB launched its first mobile services for the residential and business segments. Products such as high-speed internet access, e-mail, single answering machine and others will be available to mobile phone users allowing FASTWEB to expand its product portfolio and increase its customers’ loyalty. ƒ Launch of “UniFAST Communication”, the new Unified Communication product which will enable large companies to converge traditionally vertical services (telephone, e-mail, web applications) and new state- of-the-art communication services (presence, instant messaging and conferencing) on one platform, available on any type of terminal with positive effects on productivity and efficiency. The success of FASTWEB’s market position is shown by its results. In fact, it strengthened its position during 2008, despite the very competitive market, reaching 14% as well as improving all its main financial ratios.

All the above confirm FASTWEB as the main alternative operator to the former incumbent on all market segments, thanks to a product and service portfolio which has increased steadily and will allow the Group to continue its growth started in 1999 in future years.

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Performance

FASTWEB strengthened its market position and further developed its strategies during 2008 with a number of organisational, commercial and technological projects that enabled it to maintain its leadership position among the alternative Italian operators in terms of service quality and range, number of direct customers and broadband access, range of its infrastructure and growth rates. Its performance was entirely satisfactory and in line with the objectives set by management at the beginning of the year. One of the key projects was the new organisational structure rolled out in January 2008. The main competitive advantage was the possibility to provide a complete range of services to each market segment (residential customers, micro businesses, small and mid-size enterprises, large companies and the Public Administration). The new organisation has increased the Company’s ability to identify and meet the specific requirements of each customer type while concurrently improving its internal business process. To this end, FASTWEB reorganised its structure setting up three commercial business units for the end-to- end management of customers in the different market segments: ƒ Consumer: retail residential and micro business; ƒ SME: small and mid-size enterprises; ƒ Executive: large companies, the Public Administration and wholesale activities designed for other telecommunications operators. The greater focus on the separate market segments was not limited to developing specific service portfolios, but also entailed a clear-cut division of the internal operating structures in charge of the entire business process of winning, activating and managing customers. Specifically, this included the set up of a special function for the SME segment. Its aim is to fully develop the opportunities offered by an increasingly attractive segment (in terms of profitability) to operators that can offer state-of-the-art technological solutions. Overall, the reorganisation has improved the efficiency levels of all the business processes, leading to excellent quality and volume performances. FASTWEB and Telecom Italia entered into an industrial agreement in June for the next generation network infrastructure. The agreement covers, inter alia, the incumbent’s access to FASTWEB’s cable pipelines and allows the Group to further gain from its optical fibre network which, with its 2 million potential customers, is the widest fibre access infrastructure in Europe. FASTWEB’s network is thus a unique strategic asset in the Italian and European context. Thanks to this industrial agreement, the two parties have come to an out-of-court agreement about certain disputes which had seen them on opposing sides for some time. As a result of this return to a more friendly spirit and as a partial settlement, FASTWEB recognised non-recurring income of € 30 million in the second quarter of the year, the cash effects of which were seen in the third quarter. The disputes included issues about Telecom Italia’s technical default and a claim for damages by FASTWEB for Telecom Italia’s non-compliance with the requirement to provide unbundled access to the local network (ULL). Following settlement of these disputes, FASTWEB accordingly eliminated 50,000 customers from its customer base that had been acquired before 2008 and never activated due to provisioning troubles during the access to the Telecom Italia network. As a result of the mobile virtual operator agreement signed with 3 Italia at the end of 2007, FASTWEB started to offer its residential customers mobile phone services (voce, data and video) in September 2008, thus extending its service portfolio to make it even more complete. The partnership model adopted gives FASTWEB free rein to define and develop services as well as, thanks to the integration of the new mobile network platform with its broadband network, to capitalise on investments made and services developed in the past. The Company offers converging services to the mobile telephony market such as high-speed internet access, e-mail and the single answering machine. It independently defines its sales strategies and rates and develops its value added services.

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Marketing of these products, backed up by a very effective advertising campaign, which ensured great market awareness of the new mobile services, was mainly aimed at the Company’s customer base, with a high redemption rate in line with its expectations. In October, FASTWEB launched its new services designed for small and mid-size enterprises. The completely overhauled and extended portfolio includes new converging mobile phone and ICT product services, allowing the Company to target two new market segments, with a much higher value than that of just the SME market. The new services include a 100 Mbps ultra broadband data connection service whereby companies in areas served by FASTWEB’s optical fibre network can access Internet with fully reliable and unbeatable services. The Company is the first in Italy to introduce a service like this, thus confirming its position as technological leader in the broadband access supply market. During the year, FASTWEB became the main alternative operator to Telecom Italia for the large company/Public Administration/Wholesale market segment (Executive business unit). This was thanks to the rapid growth in revenue of roughly 39% on 2007. The Company’s share of this market is 13% compared to 9% in the previous year, up more than 40%. In addition to FASTWEB and Telecom Italia, Wind and BT Italia are the other two operators active in this segment, but they make a considerable portion of their revenue on captive customers. The Company’s extremely positive performance in 2008 was considerably boosted by all the segments in which this Business Unit operates. Both the Public Administration, with which FASTWEB is increasingly able to seize opportunities thanks to the liberalisation of this market, and the greater revenues deriving from the large companies segment confirm that the Company is steadily gaining credibility as the alternative operator to the incumbent for top level companies. Key new customers include Coin, Lidl, Coop Consorzio Nord Ovest, Alstom Power, Avio, Banca Popolare di Ragusa, Allianz, UBI Banca, and contracts have been renewed with Unicredit (and extention to Capitalia), Banca Sella, ING Direct, Credito Valtellinese, Università degli Studi di Napoli Federico II, Infocamere, Regione Sardegna, INPS, EQUITALIA, Ministero dell’Istruzione, dell’Università e della Ricerca, Poste Italiane, ANAS and Guardia di Finanza. With respect to FASTWEB’s TV business, the Group has again developed its offer with increasingly innovative and up-to-date content, confirming its position as the operator with the most complete and innovative platform currently present on the Italian television market. Via a single decoder, customers can receive national TV channels with digital quality, digital terrestrial products, the entire SKY platform, TV on- demand with rental films and thousands of family programmes. Specifically, FASTWEB’s offer was extended during the year by the following projects: ƒ a strategic agreement with Disney-ABC-ESPN Television to broadcast the most popular TV series produced by ABC Studios. The series are available on-demand to FASTWEB TV subscribers; ƒ launch of Warner TV, the new Warner Bros. entertainment channel, a new on-demand channel available to FASTWEB TV subscribers who have a wide range of the most viewed television series, films and Warner Bros. cartoons; ƒ an agreement with I-CONCERTS to produce a new channel for concerts and musical shows. The structure and graphics of all the ONtv channels (FASTWEB’s on-demand TV offer) were redesigned with an interface that allows faster access to the key programme categories using posters, trailers and information useful to select the programme such as its length and the parental control level. FASTWEB also completely renewed its promotion channels to allow the immediate identification of new releases, new series and special price content.

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Financial development

The FASTWEB Group’s income statement figures for 2008 and related comparative period have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (IASB) and endorsed by the European Commission. The table on the following page shows the Group’s performance reclassified using management accounting criteria. As required by CONSOB communication no. DEM/6064293 of 28 July 2006, the reclassified consolidated income statement included in the 2008 financial statements can be reconciled with the consolidated income statement included in the 2007 financial statements. Specifically: ƒ bank and financial service charges, which amount to € 6,421 thousand (€ 5,728 thousand in 2007), have been reclassified from “Purchases, services and other expenses” to “Net financial income and expense”. Accordingly, they are not reflected in management figures for the captions “EBITDA” and “EBIT”; ƒ EBITDA is calculated before amortisation, depreciation and disposals of non-current assets; ƒ the net balance of financial income and expense is shown and includes bank and financial service charges. To facilitate an understanding of the reclassified consolidated income statement, reference to the notes has been included for each caption. The reconciliation between the Parent’s equity and profit for the year and those of the Group is shown in the following table:

Of which Equity profit 31 December for the year 2008 €/000 €/000

FASTWEB S.p.A. 945,734 6,576

Different measurement of investments due to consolidation (35,638) (520)

derecognition of carrying amounts (70,891) 25

goodwill arising on consolidation 945 0

equity attributable to the shareholders of the Parent 34,308 (545)

Equity attributable to the shareholders of the Parent 910,096 6,056

Minority interests 0 0

Consolidated equity 910,096 6,056

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FASTWEB Group Note Variation Reclassified consolidated income statement 2008 2007 2008 - 2007 2008 €/000€/000 %

Revenue 1,832,422 1,591,412 15.1%

Revenue from the sale of goods and services 22 1,708,059 1,433,239 19.2% Other revenue and income 23 124,363 158,173 -21.4%

Operating expenses (1,284,706) (1,111,150) 15.6%

Purchases, services and other expenses 24 (995,403) (862,296) 15.4% Personnel expenses 25 (196,986) (184,685) 6.7% Accruals and impairment losses on current assets and liabilities 26 (92,317) (64,169) 43.9%

Gross operating profit (EBITDA) 547,716 480,262 14.0%

Amortisation, depreciation, impairment losses and disposals of non- 26 (413,396) (381,999) 8.2% current assets

Operating profit/(loss) (EBIT) 134,320 98,263 36.7%

Net financial income and expense 27.28 (86,323) (66,607) 29.6% Impairment losses (reversals of impairment losses) on financial assets 0 (878) -100.0%

Profit/(loss) for the year before taxation 47,997 30,778 55.9%

Current and deferred taxes 29 (41,940) (155,470) -73.0%

Group’s share of the loss for the year 6,057 (124,692)

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In the year 2008 the FASTWEB Group recorded “consolidated revenues” of € 1,708,059 thousand. The increase in revenues for each business segment with respect to the previous year is presented in the following table:

Variation 2008 2007 2008 - 2007 €/000 €/000 %

Consumer 808,087727,462 11.1% SME 228,758229,522 -0.3% Executive 671,214476,255 40.9%

Total revenues 1,708,059 1,433,239 19.2%

In January 2008, FASTWEB implemented a new organization, as more detailed in previous paragraphs, creating three Business Units – Consumer (residential and micro business), SME (small- and medium-sized enterprises), and Executive (corporation, public administration and wholesale) – each responsible for managing the entire industrial cycle from customer acquisition and activation to customer care. For comparison reasons, the prior year figures have been restated. The total customer base (including SME customers) increased from 1,313 thousand customers by 12.9% to 1,482 thousand customers. This growth is net of an extraordinary adjustment of 50 thousand customers following the agreement with Telecom Italia signed in june 2008. These customers, mainly acquired in 2007, had never been activated due to non-compliance with procedures, delays and inefficiencies in the activation process by Telecom Italia. FASTWEB’s market share of new customers is equal to 19% and the percentage of total market share exceeds 13%. Revenues of the Consumer segment increased by 11% to € 808,087 thousand mainly thanks to a strong growth of the customer base. This positive effect was partially offset with lower ARPU (average revenue per customer) and a reduced reversed interconnection rate compared to the prior year. The launch of the new mobile services in September 2008 did not have a material impact on revenues and EBITDA in 2008. The new offer ensures to the clients the complementary and converged services of FASTWEB’s fixed telephony, mobile telephony, internet services and IPTV. SME revenues amounted to € 228,758 thousand (-0.3%). A higher number of customers generated higher revenues but this was compensated by lower ARPU and lower reversed interconnection rate. FASTWEB was able to improve the market share in this segment from 6,7% to 7,4%. Since October 2008, FASTWEB offers a 100 Mbit/s data service for small and medium enterprises. In addition, mobile services were added to the SME offer starting October 2008. In the Executive segment, revenues increased by 40.9% to € 671,214 thousands. FASTWEB benefited from the revenues related to the CONSIP/CNIPA (included in public administration) contracts which were won at the end of 2006, implemented in 2007 and became fully effective in 2008. Revenues from Public Administration showed a growth of approx. 75%. In addition, revenues increased also in other customer categories like Finance or Industry by approx. 30% thanks to contracts with new customers and upselling of services to existing customers. The growth of wholesale revenue was approx. 32%, mainly coming from low margin wholesale interconnection revenues.

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“Other revenue and income” amounted to € 124,363 thousand (€ 158,173 thousand in 2007) and include mainly the following items:

Variation 2008 2007 2008 - 2007 €/000 €/000 % Release of excess provisions 21,377 44,965 -52.5% Compensation for damage 30,000 60,670 -50.6% Increase in internal work capitalised in non-current assets 31,607 33,825 -6.6% Grants related to assets 6,275 5,318 18.0% Other revenue 35,104 13,395 162.1%

Total other revenue and income 124,363 158,173 -21.4%

As described in more detail above, following an agreement signed with Telecom Italia in June 2008, in order to settle a series of minor disputes which involved both parties, FASTWEB recorded an extraordinary income of € 30,000 thousand. The release of excess provisions of € 21,377 thousand (€ 44.965 thousand) includes € 10.569 thousand for accruals booked in prior years income to cover the risk about litigation with the incumbent operator and € 7,908 thousand for accruals booked in prior years for a potential repayment of contributions received for the purchase of digital recorders. During the course of 2008, an investigation by the European Commission and the Ministry for Communications came to the conclusion that the contributions were received lawfully, thereby definitely excluding any repayment. Total “operating expenses”, netted of accruals and impairment losses on current assets and liabilities, amounted to € 1,192,389 thousand (€ 1,046,981 thousand, plus 13.9%). A breakdown of the main elements is shown in the following table (for a more detailed breakdown see notes to the financial statements):

Variation 2008 2007 2008 - 2007 €/000 €/000 %

Cost of services 697.777 579.593 20.4% Purchases of goods 23,758 8,667 174.1% Other expenses 273,868 274,036 -0.1% Personnel expenses 196,986 184,685 6.7%

Total 1.192.389 1.046.981 13.9%

The most relevant increases were in “Interconnection traffic costs, internet band cost, mobile and value added services” (from € 333,094 thousand to € 421,897 thousand) and “commissions and contributions to agents and dealers” (from € 75,594 thousand to € 86,413 thousand). These increases are directly related to the growth of the business volumes and the further extension of the customer base. The increase of purchase of services is directly related to the growth in business volumes of the core telecommunications business. Other expenses mainly includes “network leases and rental costs” for the use of telecommunications infrastructure, including cable pipelines, optical fibre and points of presence. The increase from € 206,508 thousand to € 226,868 thousand is due to the activation of new unbundling and bitstream lines provided by Telecom Italia. “Personnel expenses” increased by 6.7% to € 196,986 thousand due to salary increases and higher pension costs. Number of employees at the year end is 3.408 with a decrease of 9 units from the previous year.

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“Accruals and impairment losses on current assets and liabilities” amounted to € 92,317 thousand (€ 64,169 thousand). The company applied in 2008 a more prudent approach to calculate the percentage of the bad debt reserve, mainly for receivables aged more than one year. The impact of this adjustment was a charge of € 24,612 thousand. In addition, old accounts receivable related to customers churned before 2007 have been turned out not to be collectible anymore and therefore had to be booked as a loss for an amount of € 12,546 thousands. In 2008, the group achieved an EBITDA of € 547,716 thousand which is an increase of 14% compared to the prior year (EBITDA of € 480,262 thousand). These numbers include the following material extraordinary items: included in other revenue and income there are € 30,000 thousand for damages from Telecom Italia and € 7,908 thousand of previous years’ provisions released. In 2007, EBITDA included € 60,670 thousand related to compensation from Telecom Italia and € 14,360 thousand in operating expenses related to the PTO of Swisscom in May 2007. “Amortization, depreciation, impairment losses and disposals of non current assets” increased by 8.2 % to € 413,396 thousand. This caption includes € 28,114 thousand relating to the write-off of certain investments in connection with the activiation of customers who had cancelled their contracts. During 2008, the Group reconciled the carrying values with the assets present in the technical network systems, in particular the user access equipment lent to customers in order to recognise the correct useful life. These analyses resulted in a higher write-off of € 17,431 thousand. Compared to the prior year, “operating profit (EBIT)” increased by 36,7% to € 134,320 thousand thanks to the improved performance on EBITDA level. “Net financial expense” includes mainly financial expenses paid to the parent company, Swisscom Italia S.r.l. It increased by 29.6 % to € 79,902 thousand because of a new loan agreement of € 246,040 thousand. This loan relates to the conversion of the payable in May 2008 due to Swisscom Italia S.r.l. for the distribution of its share of reserves. “Current and deferred taxes” amounted of € 41,940 thousand (€ 155,470 thousand) and include impairment losses on deferred tax assets on tax loss carry forward of € 8,036 thousand (€ 106,124 thousand). The group recorded a “net profit” of € 6,057 thousand compared to a net loss of € 124,692 thousand for 2007.

Financial postition

31 December 31 December 2008 2007 €/000 €/000

Non current assets 2,534,392 2,539,385

Current assets 830,297 809,474

Total assets 3,364,689 3,348,859

Net equity 910,096 904,766

Non current liabilities 1,569,100 1,320,596

Current liabilities 885,493 1,123,497

Total liabilities and net equity 3,364,689 3,348,859

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The figures for current and non current assets set out in the table above have remained relatively stable. The growth in non current liabilities is due to the conversion of the amount payable to the parent company into a loan following the distribution of reserves. This transaction also explains the increase in the Company’s net financial indebtedness as set out in note 21 in the explanatory notes to which reference should be made. During the period “net financial indebtedness” increased by € 191,916 thousand from € 1,265,395 thousand to € 1,457,311 thousand. Reference should be made to the expanatory notes to the financial statements for details of the breakdown. The loans granted by the parent company amounted to € 1,484,682 thousand and increased during the period following the conversion of the payable for distribution of reserves in May 2008. Thanks to an improved operating performance and the reduction of capital expenditures, FASTWEB was able to generate a positive net cash flow of € 55,110 thousand compared to a negative cash flow of € 128,215 thousand in 2007.

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Network infrastructure and technology

From the date it was founded in Milan in 1999, FASTWEB has invested over € 3,6 billion in a new-generation fiber network spanning more than 26,000 km. and covering 50% of the Italian population. Today, TLC operators all over the world are promising NGNs, the super-fast next-generation networks integrating voice, data, video and advanced services. At FASTWEB, the NGN is already a reality: by implementing the IP protocol on its alternative fiber network, FASTWEB provides a triple play offer of voice, data/Internet and video services, available simultaneously on a single connection, for residential and business clients. A worldwide first at the time of its launch in 2001, today FASTWEB TV offers thousands of titles on analog channels, theme channels, SKY satellite channels, free DTT channels, video-on-demand and interactive services. FASTWEB TV has been available on ADSL since 2003 and is considered “an IPTV model for all world TLC operators” (WSJ, September 7, 2006). At the end of 2006, FASTWEB launched the first universal decoder for all current analog and digital TV content, as well as support for High Definition content. With its flexible network architecture, FASTWEB is ready to meet the technological challenges of the future: new advances in digital TV, fixed/mobile integration thanks to an agreement with £ Italia (virtual mobile operator and quadruple play) for an innovative offer in terms of content and services. “Capital expenditure” for the year amounted to € 437,617 thousand of which € 333,014 thousand were related to property, plant and equipment and € 104,603 thousand to intangible assets. Compared to 2007, capital expenditures were reduced by € 103,093 thousand. Approximately 50 % of the capital expenditures are directly related to the growth of the customer base. In addition, FASTWEB continuously improves the network and IT infrastructure and develops new services and functionalities for residential and business customers.

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Legislative context

Telecommunications regulations and legislation undergo continuous change. The convergence of media put in place by market players offering integrated voice, data, internet and video services requires constantly updated and changing legislation. There have been legislative and regulatory changes with specific respect to the sectors in which the FASTWEB Group operates, telecommunications and radio and television, which are described in detail below, to give a better understanding of their effects on the market. During 2008, the Communications Regulatory Authority (“AGCOM” or the “Authority”) and the Antitrust Authority (“AGCM”) set out their decisions on specific matters, which constituted a significant step in the opening of the communications market to competition. The main measures taken are described below.

1 New competition rules implementing market analyses The new Electronic Communications Code (Legislative decree no. 259 of 1 August 2003) was enacted, implementing the EU directives contained in the “Telecom package” of April 2002 and introducing an overall redefinition of communications legislation. The decree sets forth a series of measures aimed at ensuring the complete opening of the communications market to competition, making AGCOM responsible for specifically defining the most suitable rules to apply in achieving this objective. The new Electronic Communications Code is applicable only to those markets in which competition is insufficient. To this end, AGCOM has been given responsibility to analyse the individual markets that comprise the electronic communications system and define the most suitable measures to promote competition in the segments where operators hold dominant positions. In November 2007, the European Commission issued a new Recommendation decreasing the number of relevant markets from the previous 18 to seven. It also established that, where the Authority has identified dominant positions during its first round of investigations into the markets, a further study should be undertaken (even when the market is excluded from the new list of seven) in order to assess whether to impose new remedies or amend the existing ones. During the second half of 2007 and the first half of 2008, AGCOM recommenced its second round of investigations on 12 of the 20 markets covered by the first round. Specifically, it started new market analyses for markets 3, 4, 5, 6, 7, 8, 9 and 10 of the list of the 2002 Community Recommendation. The Authority commenced the second round for markets 1, 2, 11, 12, 15 and 16 during the second half of 2007 and this investigation is still ongoing. In July 2008, AGCOM stopped all analyses in order to assess Telecom Italia’s commitments. They were recommenced after the Authority approved such commitments with its resolution no. 718/08/CONS of December 2008.

2 Analysis of market 12: migration between operators AGCOM issued a measure related to “Amendments and integrations to resolution no. 4/06/CONS: Activation, migration and termination of access services” with resolution no. 274/07/CONS. This substitutes articles 17, 18, 19 and 20 of resolution no. 4/06/CONS (Market 11: unbundled access) and makes certain key changes to the system applied until then for the management of migration. Its objective is to facilitate migration of end customers among alternative operators without having to go through Telecom Italia S.p.A. (“Telecom Italia”). These procedures are applicable to all intermediate access services which involve the migration of end customers among different operators and creates a consistent reference point for all types of services: ULL, Shared Access, wholesale line rental (WLR) and Bitstream. The operators’ technical workshop, aimed at deciding procedures and specific techniques to implement AGCOM’s instructions as per resolution no. 274/07/CONS and roll out the migration procedures from 26 May 2008, completed its activities during the first half of 2008. In June 2008, the operators finalised a master agreement for the implementation of the new procedures, which are now fully operational.

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3 Analysis of market 12: Telecom Italia’s reference offer for bitstream services AGCOM approved resolution no. 249/07/CONS (“Bitstream services offer implementation”) on 29 May 2007. This resolution introduces new guidelines for Telecom Italia’s offer of wholesale broadband services provided to other operators. Telecom Italia subsequently published its Reference Offer for bitstream service products on 13 June 2007 which was reviewed by AGCOM. These products are more flexible and offer a wider range of services and wholesale service configurations compared to the previous wholesale ADSL products, which were basically the same as Telecom Italia’s commercial retail products, but on a wholesale level. This was based on the concept of guaranteeing replicability to all operators with financial conditions based on application of a retail minus method (with a minus factor of 30%). Resolution no. 249/07/CONS provided for a move towards cost-based policies and the obligation for Telecom Italia to present a specific cost accounting system for the bitstream service before 31 July 2007. It also introduced application of an additional cost for alternative operators when the telephone line is used for broadband services. The retail minus method will continue to be used for this contribution considering Telecom Italia’s residential rate with a minus factor of 20%. AGCOM concluded its preliminary evaluation of Telecom Italia’s 2007 Reference Offer for bitstream services with respect to the technical and administrative aspects (resolution no. 115/07/CONS) and the financial aspects (resolution no. 133/07/CONS), including the improvements to the Offer originally made by Telecom Italia in both cases. In February 2008, Telecom Italia published a new Reference Offer for bitstream services for 2008. AGCOM commenced a preliminary evaluation of this Offer which it has yet to conclude. Telecom Italia announced that it will only publish its Reference Offer for 2009 after the Authority has communicated its decision about the 2008 Offer.

4 Market 15: commencement of new market analyses and public discussion AGCOM commenced a new procedure for the “Identification and analysis of the access market and collection of calls in the public mobile telephone networks” with resolution no. 168/07/CONS. This analysis will reassess the competition conditions in the mobile network access market and focus on the landline-mobile converging services. Should critical market issues arise, also related to dominant positions, AGCOM may impose remedies to ensure the greater opening of this market by landline operators such as FASTWEB, that do not have radio link frequencies, which allow the signing of MVNO agreements and the providing of converging services. In July 2008, AGCOM presented a draft regulatory report for public discussion in order to assess whether the conditions for continuing with an ex-ante regulation for the market exist. Based on the guidelines set out in the European Commission’s recommendation, in order to identify a relevant market, the Authority must carry out the “three criteria test”. AGCOM deemed that two of the three criteria were met for market 15 (existence of an entry barrier and requirement for ex-ante regulation). With respect to the third criterion (future competition opportunities), AGCOM felt that it did not have sufficient information and commenced the related public discussion, which was completed in September 2008. On 19 December 2008, AGCOM informed the European Commission of its final proposal which was not modified with respect to the draft made available for the public discussion. Therefore, it intends to adopt the final measure.

5 Market 16: results of new market analyses and application of price controls to H3G With resolution no. 3/06/CONS, for each mobile network in Italy, regardless of the technology used (GSM or UMTS), AGCOM has identified a single domestic market and four domestic operators, TIM S.p.A. (“TIM”), Vodafone Omnitel N.V. (“Vodafone”), Wind Telecomunicazioni S.p.A. (“Wind”) and H3G S.p.A. (“H3G”), as dominant for termination on their networks.

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AGCOM has imposed termination price controls on TIM, Vodafone and Wind, using a planned rate reduction system for the period from 2006 to 2008. This system provides for a 13% cut each year for TIM and Vodafone and a 16% reduction each year for Wind, before inflation. This means that from 1 July 2007, the rate for these operators was 9.97 Euro cents per minute for TIM and Vodafone. At the same date, Wind’s rate became 10.1 Euro cents per minute. Subsequent reductions were made on 1 July 2008. AGCOM had also decided to evaluate the application of price controls on H3G as well by 31 July 2006. On 28 June 2007, AGCOM subjected HSG to a price control mechanism, effective from 1 March 2008, and sent the related regulatory report to the European Commission. With resolution no. 628/07/CONS, AGCOM approved the final measure which confirmed all the measures imposed on H3G by resolution no. 03/06/CONS (access, transparency and non-discrimination obligations) but required the operator to control its termination prices and implement a regulatory accounting system. AGCOM also resolved that the maximum price for the termination service for voice calls on H3G’s network from 1 March 2008 would be decreased from 18.76 Euro cents per minute to 16.26 Euro cents per minute. H3G is also obliged to prepare a regulatory accounting system at historical cost, current cost and future increasing cost. In June 2008, AGCOM adopted resolution no. 304/08/CONS whereby a draft regulatory report related to the application of the obligations under article 50 of the Electronic Communications Code to H3G was made available for public discussion. This draft report included application of a termination rate of 13 Euro cents per minute from 1 September 2008. The final version confirmed this rate but postponed application until November 2008. The Authority recommenced the analysis of market 16 with respect to termination on mobile networks and started a public discussion on 17 June 2008 about the draft report providing for a decrease in rates from 1 July 2009 to 1 July 2011 as shown in the following table:

Proposed glide path From 1 July 2008 (from 1 September 2008 for H3G) From 1 July 2009 From 1 July 2010 From 1 July 2011 Telecom Italia 8.85 7.7 6.6 5.9 Vodafone 8.85 7.7 6.6 5.9 Wind 9.51 8.7 7.2 5.9 H3G 13.00 11.0 9.0 7.0

The public discussion ended on 17 July 2008. AGCOM approved the measure in November 2008, including a 10% reduction before 2011 in the originally proposed rates and adding a 4.5 Euro cents per minute objective for all mobile operators.

From 1 July 2008 (from 1 November 2008 for H3G) From 1 July 2009 From 1 July 2010 From 1 July 2011 From 1 July 2012 Telecom Italia 8.85 7.7 6.6 5.3 4.5 Vodafone 8.85 7.7 6.6 5.3 4.5 Wind 9.51 8.7 7.2 5.3 4.5 H3G 13.00 11.0 9.0 6.3 4.5

AGCOM also committed itself to reviewing the above rates during 2009 after introduction of a new cost model based on the guidelines to be given in the European Recommendation to be published in early 2009.

6 Approval of the regulation on procedures for the assignment of frequency concessions for WiMax services AGCOM approved the regulation that sets the procedure for the assignment of concessions by the Communications Minister for 3.5 GHz band frequencies for broadband wireless access (BWA), including WiMax, on 9 May 2007. Its objective is to define assignment guidelines and criteria to allow the issue of licences for WiMax technology services whereby operators have a new way of providing broadband services to end users.

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The regulation provides for the assignment of three concessions for each geographical area equal to at least 2x21 MhZ. In order to encourage proper competition for the providing of radio access, one of the concessions will be reserved for new operators that do not have the additional frequency resources that allow the supply of services comparable to broadband wireless access services. The geographical areas are defined as regional groupings composed of between two to four regions, except for island regions. The third concession for the newcomers will have a regional geographical base aimed at encouraging the providing of services in line with local requirements. They will all have a renewable term of 15 years. Assignment of the frequencies will be based on a point system, one for each concession, considering the amount offered using a system of multiples. The Ministry will set the minimum tender amount for each geographical area and each frequency concession. It will be possible to present a bid for more than one geographical area for each of the three up to including the whole of Italy. The invitation to tender establishes that presentation is subject to compliance with technical and commercial criteria. The regulation establishes minimum cover obligations to be reached with 30 months from the granting of the concessions. It also provides for effective use obligations of the frequencies within the same time period in order to avoid foreclosures by the operators that are awarded the concessions. The Communications Ministry published the invitation to tender for the definition of the timing and methods of how to assign the licences for the WiMax services. The preliminary stage commenced in December 2007 for the presentation of their expressions of interest by the operators. The bids were presented and opened in a public meeting in January 2008 and the stage in which the bids are modified to be more competitive started on 13 February 2008. The tender procedure allowed the assignment of 35 concessions of WiMax frequencies in the 3.4-3.6 GHz band (3.5 GHZ band) to 11 operators. It was called over nine days with 48 sessions leading to a final amount bid of € 136,337,000 (+176% on the starting price), the highest price paid for a WiMax tender called to date in the European Union.

7 Procedures and rules for the assignment and use of 900 to 2100 MHz frequency bands by electronic communication systems On 7 October 2008, AGCOM published resolution no. 541/08/CONS which set out the procedures and rules for the assignment of the new UMTS frequencies. This measure is part of the EU procedure to complete the process for the withdrawal of the GSM directive for the 900 and 1800 MHz bands during 2009 and the Commission’s decision, taken in 2007, about the flexible use of these bands, including for UMTS systems. This decision will become applicable concurrently with the withdrawal of the GSM directive. Therefore, the resolution firstly governs the assignment of 15 MHz of the 2100 MHz band in three blocks of 5 MHz each, which belonged to the operator IPSE 2000 and have only recented returned to the Ministry following the outcome of the related litigation. The Authority intends to call a traditional tender with bids open to competitive improvements. It is also open to new UMTS operators and the minimum bid is € 800 million, equal to the minimum for the additional frequencies in the 2000 UMTS tender. Should no bids be made, the Authority may accept smaller bids as long as they are at least equal to the reserve of approximately € 101 million per concession. New operators that win a frequency concession will be required to guarantee cover of the entire country, within 30 and 60 months, respectively, from the date of receipt thereof. The resolution also establishes that a single concession of 5 MH in the 900 MHz band will be assigned by means of a tender reserved for a new possible UMTS operator and H3G. Once again, the Authority has set a minimum bid price (below which the concession will not be assigned) of approximately € 101 thousand. This figure will be used also if only one bid is received.

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Finally, the Authority has programmed the rationalisation of the frequencies in the 900 MHz band, currently used by Telecom Italia, Vodafone and Wind to provide GSM services. After this rationalisation, these operators may modify their technologies on the frequencies favouring UMTS (refarming), thus exploiting the better propagation characteristics of the 900 MHz frequencies compared to those currently used for the third generation service. FASTWEB has challenged resolution no. 541/08/CONS with the Lazio Regional Administrative Court, claiming that it has been damaged by new competition. A date for the hearing has yet to be set.

8 Resolution no. 251/08/CONS and revision of article 40 of resolution no. 417/06/CONS (Market 9) about reverse termination services on alternative operator networks AGCOM identified FASTWEB and other alternative operators as operators with significant market power in the termination market in its Resolution no. 417/06/CONS. The termination service price is fixed for notified alternative operators using fair and reasonable criteria. The resolution stated that the termination service price for voice calls on an alternative operator network could not exceed 1.54 Euro cents per minute up to 30 June 2007. The maximum price was 1.32 Euro cents per minute for the following 12 months. It then started to decrease and will do so steadily over the next four years from 1.11 to 0.88, to 0.69 to 0.55 (Euro cents per minute). The alternative operators can ask the Authority to authorise a higher termination price when this is justified by their costs. The Authority is required to take a documented and binding decision as soon as possible approving (and changing when necessary) the proposed price of the alternative operator, to be effective from the request presentation date. FASTWEB availed of this possibility and presented a request to the Authority in August 2006, supported by technical and economic reasons, for application of a termination price of 3.27 Euro cents a minute until 30 June 2007 and a second request for the period from 1 July 2007 until 30 June 2008 for a higher termination price than that established by the Authority (2.80 Euro cents per minute). In December 2007, the Authority completed the procedure for the preliminary work for the extension process procedures for the period from August 2006 to July 2007 and the analysis of the cost accounting of four operators (FASTWEB, BT Italia, Tiscali and Tele 2), allocating a termination rate of 2.60 Euro cents per minute to FASTWEB. BT and Tiscali have been allowed termination rates of 2.28 Euro cents per minute and 2.24 Euro cents per minute, respectively, while Tele 2 has not been given any extension. This ruling’s aim is to encourage competition and fully recognise the investments and costs incurred by the newcomers as part of AGCOM’s current policy to promote alternative infrastructure and broadband development, encouraging innovative services and more competitive prices for the customers. AGCOM has set up an internal team to design an accounting model to be used to determine termination costs for notified alternative operators as per article 40.11 of resolution no. 417/06/CONS. This model’s objectives are to assess the maximum termination levels set by AGCOM for cases when the operators have not presented extension requests. The maximum levels were based on the delayed reciprocity concept applied to the interconnection rates proposed by Telecom Italia in 1998. In January 2008, AGCOM’s resolution no. 26/08/CONS provided for commencement of a public discussion, a proposed revision of certain aspects of article 40 of resolution no. 417/06/CONS, the proposed use of a theoretical cost model of an efficient operator in order to review the maximum termination rates for notified operators and determine methods to reduce rates by operators that obtained the extension as per resolution no. 692/97/CONS. The proposed model provided a termination rate cut for all operators depending on their degree of infrastructuration in order that all rates are aligned by 2010, estimated to be 0.57 Euro cents per minute for each transit. On 14 May 2008, AGCOM adopted resolution no. 251/08/CONS which defined the following glide path for the alternative operators’ termination rates on the fixed network:

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2007/2010 termination rates

Other FASTWEB Wind BT Italia Tiscali Tele2 Eutelia operators

1 July 2007 2.01 1.90 1.78 1.76 1.45 1.25 1.25 1 July 2008 1.53 1.44 1.38 1.36 1.15 1.02 1.02 1 July 2009 1.05 1.01 0.97 0.97 0.86 0.80 0.80 1 July 2010 0.57 0.57 0.57 0.57 0.57 0.57 0.57

FASTWEB has challenged resolution no. 251/08/CONS, holding that AGCOM’s decision does not allow it to fully recoup its costs and investments.

9 Access network separation and development of Next Generation Access Networks (NGAN) AGCOM commenced a public discussion on 2 May 2007 on regulatory issues related to the fixed access network structure and prospects for the new generation broadband networks. This had a timeframe of 60 days (until 4 July 2007) and the interested parties could make their contributions in this period. Its scope was to carry out a strategic assessment of the regulatory options for changes in the public telecommunications landline network with respect to access to end customers. AGCOM noted that there are still critical issues with respect to development of competition in the access network notwithstanding the positive results achieved thanks to certain regulatory instruments, especially related to unbundling. This implies that a more in-depth assessment should be carried out to evaluate whether to introduce new regulatory instruments such as the unbundling of the access network in order to ensure real fair treatment and non-discrimination of wholesale services provided by Telecom Italia to all the operators, including its retail division. This issue is of even more importance given the transition to the NGANs, where the bottleneck situation with respect to the access network could worsen. The objective of the discussion is to receive comments from all the stakeholders to assess the most suitable regulatory steps to be taken to manage the transition to the NGANs, while ensuring that the competition, non-discrimination and equal treatment criteria are maintained for all market operators and investment is encouraged. The instruments being considered by AGCOM include access to civil works that are difficult to duplicate (cables and piling equipment) supply of sub loop unbundling (ie, a more infrastrutured unbundling level), provision of optical fibre or pairs starting from the local exchange, supply of wholesale broadband (bitstream) and the supply of backhauling services (ie, connections of distribution boxes to local exchanges). AGCOM stated that it intends to conclude the regulatory process commenced with the public discussion. Accordingly, in December 2007, it commenced a procedure for the revision and possible integration of the regulatory measures aimed at promoting real competition on the landline network access markets. This is because the Authority has recognised that there continue to be critical structural issues that impede fair competition in these markets. The measure provides for the assessment of other actions, including measures to ensure functional separation. Telecom Italia was to present its commitments pursuant to the Bersani law immediately. Such commitments must be suitable to ensure that the supply of wholesale landline access services takes place with the effective and efficient separation of access network activities from the rest of its business activities. They must also guarantee equal treatment for the alternative operators and their sales departments with respect to the wholesale access supplies.

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In December 2007, AGCOM commenced a new market investigation with resolution no. 626/07/CONS for the access retail markets (markets 1 and 2 of European recommendation of 2002) and wholesale markets (markets 11 and 12 of European recommendation of 2002). In June 2008, Telecom Italia delivered a document to AGCOM setting out its commitments pursuant to Law no. 248/2006 related to certain regulatory proceedings and, specifically, that for the access network, commenced with the aforesaid resolution. Such commitments relate to, inter alia, certain sanctioning proceedings which included competition issues. The Authority’s assessment of these commitments was based on procedures established by resolution no. 131/08/CONS. In July 2008, the Authority commenced the public discussion stage which lasted two months and was concluded in September 2008. It subsequently requested Telecom Italia make certain changes to its first proposed commitments. On 11 December 2008, AGCOM approved Telecom Italia’s modified commitments with resolution no. 718/08/CONS and they became effective from 1 January 2009. Following adoption of resolution no. 718/08/CONS, AGCOM recommenced the market investigations that had been halted in July 2008 in order to facilitate its evaluation of Telecom Italia’s commitments.

10 TLC quality and service lists In August 2007, AGCOM adopted resolution no. 418/07/CONS “Transparent telephone bills, selective call blocking and user protection”. This resolution integrates Ministerial decree no. 145/2006 (the “Landolfi” decree) for the selective blocking of calls from both landlines and mobiles, customer access to extra price services and introduction of new charges to be borne by operators for the permanent blocking of calls, the customer protection ceiling mechanism and breakdown of extra price services in the telephone bills, or even separate bills. The decree also introduced an anti-fraud committee made up of the operators and chaired by AGCOM. Resolution no. 126/07/CONS introduced new measures to protect customers and facilitate their understanding of the price conditions of telephony services and how to choose from among the different offers. These measures are aimed at improving service quality. Resolution no. 514/07/CONS “Measures for subsidised financial conditions, reserved for certain customer categories, for telephone services available to the public” covers subsidised offers for the internet from fixed positions for blind users and a free monthly SMS package for deaf mobile phone users. With respect to consumer protection, the Bersani decree introduced measures for the determination of withdrawal costs and the possible transfer or return of unused credit on SIM/USIM cards or prepaid cards for Pay TV. In order to settle the litigation, AGCOM adopted resolution no. 173/07/CONS (amended by resolution no. 95/08/CONS “Regulation for the settlement of litigation among electronic communications operators and users”), which introduced the possibility to resolve disputes before the CO.RE.COM (regional arm of AGCOM) and the chambers of commerce and also by procedures directly and jointly agreed by the operators and consumer associations that have previously adopted a Reconciliation regulation and a Memorandum of Understanding. In December 2008, Fastweb signed a Memorandum of Understanding and will activate the procedure to settle disputes by mid 2009.

11 Mobile number portability AGCOM commenced a procedure to revise the regulations covering mobile number portability with, firstly, resolution no. 126/07/CIR of 5 December 2007 and, secondly, a public discussion on 1 August 2008 (resolution no. 68/08/CIR). This was finalised on 23 December 2008 with publication of resolution no. 78/08/CIR. After much work by sector operators and AGCOM management, this resolution overhauled the entire regulatory context and the technical-procedural aspects of how to transfer mobile numbers among operators. It was extremely urgent and necessary given the entry of new mobile virtual network operators (MVNO/ESP) into the market in order to provide them with the basic tools necessary to succeed in a market that had seen little competition up until then. AGCOM’s measures were designed in order to: 1. make the process more transparent (virtual operators will be visible both within the process and in communications with third parties);

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2. ensure equal treatment for the MVOs and virtual operators; 3. limit delaying tactics for MNP procedures; 4. facilitate greater transparency about rates for end customers. These measures should lead to cancellation of costs for MNP activities, reduction in time involved to three business days for both standard procedures and ad hoc projects, inclusion of suitable penalties for abuse or non-compliance, definition of execution capacity guaranteed for all operators and the decrease in reasons for refusals to streamline the process. AGCOM plans to cancel costs for number portability in the near future (previously € 10.02). The other measures, which will require a review of the framework agreement signed by the operators, should be in place by June 2009.

12 Credit transferability With respect to the requirements of the Bersani decree (Law decree no. 7 of 31 January 2007, converted after amendments into Law no. 40 of 2 April 2007), AGCOM obliged all mobile operators to implement the credit transfer service along with mobile number portability. It issued resolutions no. 353/08/CONS and no. 416/07/CONS ordering operators active on the market to implement this service by May 2009. The operators commenced a round table conference and met regularly with AGCOM to define a master agreement which coveres the technical and regulatory methods for the correct implementation of the activities necessary to ensure credit transferability for customers (timing, interfaces, fines, credit methods, etc.). Their work is in procgress but nearing completion.

13 New national numbering plan AGCOM set out the new numbering plan for the telecommunications sector in its resolution no. 26/08/CIR of 14 May 2008, published on its website and communicated to operators on 18 July 2008. The main new issues introduced by the plan relate to a more scrupulous monitoring of the numbers, to which extra price services can be provided (two new codes have been introduced: 894 and 895), and the introduction of new maximum price ceilings for each code. There will be a significant reduction in the maximum prices applicable to services paid on a lump sum basis. The methods of providing these extra price services (SMS, MMS and data transmission) will be more carefully regulated for numbers in decade 4 for which the maximum applicable price ceilings have been extended, including access by the mobile network.

14 Interconnection and unbundled access With resolution no. 27/08/CIR, AGCOM approved the measure for approval of Telecom Italia’s Reference Offer for the collection, termination and transfer of calls in the public landline telephone network (markets 8, 9 and 10) for 2008. Telecom Italia published its new Reference Offers for the interconnection, unbundled access and WLR services valid from 1 January 2008 at the end of October 2007. These offers were subjected to evaluations and possible changes by AGCOM, after completion of the preliminary procedures, which started in February 2008. In June 2008, AGCOM published resolution no. 41/08/CIR which completes its evaluation of Telecom Italia’s Offer for markets 8, 9 and 10. It also finalised its preliminary investigation of the Offer for the 2008 WLR services although this has not yet been published. AGCOM approved Telecom Italia’s Reference Offer for unbundled access services with resolution no. 91/08/CIR in October 2008 with amendments which partly decreased the originally proposed increases in one-off prices (eg, activation fees) and energy/air-conditioning services. FASTWEB has appealed against this resolution before the regional administrative court, disputing the increases approved by AGCOM.

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On 23 October 2008, Telecom Italia published its draft 2009 Reference Offer with a 23% increase in the monthly rental price for the copper pair from € 7.64 in 2008 to € 9.39. AGCOM commenced a public discussion on 24 October 2008 which ended on 24 November followed by the start of a discussion about a draft regulatory report on 16 December, which was also notified to the European Commission. This draft measure limits the monthly rental price to € 8.55 a month from 1 March 2009. The related public discussion ended on 23 January 2009. On the same day, the Commission sent AGCOM its comments on the draft regulatory report highlighting the importance of the proposed increase. AGCOM should consider the comments received during the public discussion and from the European Commission when adopting its final measure.

15 Anti-trust procedure 15.1 Unfair commercial practices Directive 2005/29 introduces a new measure governing unfair commercial practices among companies and consumers and amends the previous measure for unlawful misleading and competitive advertising. This EU directive was enacted in Italy with two different regulations which made it applicable from 1 January 2008: ƒ Legislative decree no. 145/2007, which covers misleading and comparative advertising, the effects of which are only seen in B2B relationships and protects professionals from misleading advertising and its unfair implications; ƒ Legislative decree no. 146/2007, which amends articles 18 to 27 of the Consumer Code (Legislative decree no. 206/2005) that introduced the concept of unfair commercial practices for B2C relationships. The new regulations give additional powers to AGCM, which may: ƒ act of its own motion; ƒ it may access all relevant documentation, carry out inspections and obtain copies of company documents and avail of the tax police’s (Guardia di Finanza) services to carry out its investigative duties, thanks to its greater investigative powers; ƒ in urgent cases, approve the temporary suspension of the advertisement or commercial practice; ƒ should the violation be demonstrated, upon conclusion of the procedure, AGCM may: a) prevent continuation; order the publication, prepared and paid for by the professional, of the resolution, also as an abstract or an adjusting statement (corrective advertising); b) impose a money fine. During 2008, the Antitrust Authority imposed fines on telecommunications operators of more than € 8 million. FASTWEB was one of those operators less affected with only two proceedings, concluded with fines of € 225 thousand.

15.2 Antitrust proceeding A375 - Abuse of confidential commercial information by Telecom Italia With its resolution of 11 December 2008, the Antitrust Authority closed the proceeding against Telecom Italia into the alleged abuse of its incumbent position in the residential and non-residential voice telephony services market and in the retail broadband internet access services market. The proceeding covered a number of anti-competitive practices consisting of: (i) abuse by Telecom Italia of data related to competitors’ customers, taken from the network and wholesale divisions’ databases related to the supply of services to competitors; (ii) proposition of selective offers to its customers migrating or migrated to competitors; (iii) providing of incentives to the sales agents for win-back practices; (iv) retention actions denigrating other operators.

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The proceeding was closed without ascertaining the infraction, and without imposing any fine, given the commitments presented by Telecom Italia and, specifically: a) Commitments related to the use of information about its or other operators’ customers. The commitment to engage an independent third party to check the procedure used to draw up marketing lists of users to be contracted to propose landline telephone or data services; the third party will also check that the lists of customers to be contacted come from Telecom Italia’s database of current customers or from other sources that can be used in accordance with the Privacy Law and are not those of the network and wholesale divisions related to the supply of services to competitors. b) Commitments related to the win-back or retention of customers migrated or migrating to other operators. Telecom Italia agrees: (i) not to provide services to customers that migrated to other operators in the previous four months, except in the case of spontaneous and unsolicited requests made by customers; (ii) to make its commercial promotions available to everyone, without discriminating between its own and other operators’ customers and to ensure that any improved conditions will be automatically applied to all Telecom customers that agree to the promotion for all promotions without them having to make a specific request therefor. c) Commitments related to agents’ incentives and denigration. Telecom Italia will continue to have identical incentive policies for its sales network for both the winning of other operators’ customers and the activation of new systems. It will also strengthen the ban on denigrating competitors. A toll-free number will be set up for customers wishing to report aggressive offers from agents. The preliminary investigation was commenced after a number of claims were presented by Fastweb and Wind about Telecom Italia’s aggressive sales policy for selected customers migrated or migrating to the competitors. This policy consisted of the use of confidential information held by Telecom as the long-standing owner of the network.

15.3 Proceeding A 398 – Outstanding bills of previous customers With its measure of 21 August 2008, the Antitrust Authority closed the proceeding commenced against Telecom Italia about its management of customers that take over other customers’ contracts when such positions have payments in arrears. Accordingly, Telecom can no longer make a new activation conditional upon payment of outstanding bills of another customer. The proceeding was closed after Telecom Italia presented commitments including, inter alia, that (i) the activation of a new line can only be conditional upon payment of outstanding bills in the case of the same debtor (and not parties with personal or work ties to the debtor); (ii) the general contract terms (following modification) specify that the new contract holder has the same legal position as the previous contract holder, taking over all its receivables and payables deriving from the contractual relationship, including any payables for services already provided; (iii) the possibility for the company to tie the provision of capital guarantees to activation of the telephone line is eliminated for those that are in a financial position such that would prejudice payment of the service because they are, for example, bankrupt or have had cheques dishonoured.

16 Audio-visual and content There have been changes in the regulations and legislation governing the radio and television sector in which e.BisMedia operates which are worthy of mention to better understand their effects on the market.

16.1 Remote video recording systems Article 5.2-ter of Legislative decree no. 248 of 31 December 2007, converted into law on 27 February 2008 (“Decreto milleproroghe”) which amended article 71-septies of Law no. 633 of 22 April 1941 (Copyright law), extended the range of equipment that can be used by individuals to make private copies of copyrighted works, explicitly authorising the use of remote videorecording equipment as well as that already covered by the regulation (video recorders, multi-functional equipment, analogue support, digital support, hard disks, etc.). During 2009, the Ministry for Cultural Assets shall identify the criteria to quantify the fees that suppliers of equipment and copying services shall pay to the authors in a specific decree.

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The new regulations explicitly provide users with the possibility to use state-of-the-art video recording equipment to watch programmes broadcast which they have not seen.

16.2 Approval of the ranking of operators that will have access to 40% of the transmission capacity on the digital terrestrial television platform of RAI, R.T.I. and Telecom Italia Media With resolution no. 449/08/CONS, AGCOM approved the ranking for assignment of 40% of the transmission capacity on the digital terrestrial networks of RAI, R.T.I. and Telecom Italia Media Broadcasting, obliged to sell capacity under a previous measure to new audio-visual operators. The measure for the assignment of transmission capacity to new operators, which will shortly be able to transmit on digital terrestrial frequencies, expands the number of television programmes available on the digital terrestrial networks and encourages the competitive and multi-operator development of the television sector. The decision to include a digital terrestrial tuner in the decoders supplied to e.Bismedia’s IPTV customers means that the introduction of new visible channels automatically leads to a wider range of viewing for them.

16.3 New regulations for the sale of sporting event rights Legislative decree no. 9 of 9 January 2008 enacted Law no. 106 of 19 July 2007 aimed at ensuring transparency and efficiency in the audio-visual rights market of professional team sports events. This will have a positive effect on the broadcasting of premium TV events, such as football matches. The decree’s objective is to increase competition in this important broadcasting sector and to provide the football world with greater certainty as it garners most of its resources from the sale of TV rights. The decree sets out ad hoc rules for the new media which should facilitate the acquisition of rights for sporting and football events by the new IPTV platforms, thus fostering their development. The most important concepts are the limitation to exclusiveness rights for the rebroadcasting of sporting events on the new platforms (such as IPTV) and the substantial ban on purchasing such television rights by operators that do not intend to use them.

16.4 Approval of the draft regulation about programming and investment obligations promoting European and independent producers’ works With resolution no. 448/08/CONS, AGCOM made the draft regulation available to the public about programming and investment obligations promoting European and independent producers’ works, adopted pursuant to articles 6 and 44 of Legislative decree no. 177 of 31 July 2005. The market operators were then to comment on this draft. It sets out obligations to promote and broadcast European audio-visual works on digital television networks in line with the development of the new networks. The decree establishes that, with respect to investments in audio-visual works by operators using new platforms, attainment of the investment percentage in European works set by the regulation is to be gradual, in line with the effective development of digital television services provided on the different platforms. The obligation to promote and, above all, to air European works on the new television networks should significantly facilitate the matching of audio-visual content offered by the copyright holders with the request for programmes by the new platforms.

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16.5 Preliminary investigation of the content producers in the electronic communications sector With resolution no. 626/08/CONS, AGCOM commenced a preliminary investigation into the complex aspects of the digital technology content market in the electronic communications sector and, specifically, aspects about the market’s structure and related value chain, business models, exclusive rights management, copyright management, potential development of supply and demand, competition among the different distribution platforms and other market issues. AGCOM thus intends to acquire information and documentation about the production and distribution of content in the electronic communications sector in order to carry out a complete analysis of the market, its strengths and weaknesses and the possible need to implement measures to encourage its growth.

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Related party transactions

In accordance with the requirements of the Code of Conduct, the Board of Directors has adopted specific guidelines which establish the methods to be used to approve and carry out transactions with related parties. These include detailed disclosure requirements about the relationship and transaction, especially if a director is involved in the transaction, either directly or on behalf of third parties. Transactions carried out by FASTWEB with related parties, which, as defined by IAS 24, include subsidiaries, the ultimate indirect parent Swisscom AG and its subsidiaries, FASTWEB's directors and key managers, their close relatives or companies controlled by them, comply with principles of transparency and substantial and procedural correctness. These transactions do not qualify as atypical or unusual as they are part of the Group’s normal business activities. In the case of a transaction with a director or a director's close relative or with a company controlled, jointly controlled or subject to significant influence by a director, the director provides the information as per article 2391 of the Italian Civil Code and any other clarifications necessary. Should the nature, amount or specific characteristics of a transaction so require, the Board of Directors draws on the assistance of independent experts. When not agreed at standard conditions or those specified by law, the transactions nevertheless take place at market conditions. The transactions that took place between the parent FASTWEB and e.BisMedia at the end of the year are detailed below: ƒ mandate contract by means of which e.BisMedia, in accordance with art. 1704 of the Italian civil code, confers powers to FASTWEB to stipulate in e.BisMedia’s name and on her behalf contracts for the supply and provision of the e.BisMedia commercial offer. Moreover, this contract assigns responsibility to FASTWEB to invoice amounts for e.BisMedia services. It also includes performance of the following services on behalf of e.BisMedia: a) invoicing to customers; b) management of customer payments and situation; c) debt collection; d) customer management; ƒ agreement for the provision of services relating principally to access to the customer base and use of the technological infrastructure network and staff services (e.g. legal and administrative services); ƒ a cash pooling agreement signed for the centralised management of liquid funds put in place at group level. Transactions with Swisscom Italia relate mainly to loan agreements expiring on 30 June 2012. Approximately 60% is at a fixed interest rate while the remaining portion is at a floating rate equal to EURIBOR plus a spread. They do not require commissions to be paid or guarantees given. Disclosure about related party transactions is given in the consolidated financial statements schedules and in the explanatory notes to the consolidated financial statements of the FASTWEB Group and the separate financial statements of FASTWEB S.p.A. FASTWEB has joined the national consolidated tax scheme of its parent Swisscom Italia S.r.l. for the three years from 2008 to 2010 pursuant to articles 117 to 129 of the Consolidated Income Tax Act.

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Corporate governance report

Corporate governance structure The corporate governance structure of FASTWEB S.p.A. (“FASTWEB” or the “Company”), that is, that set of conduct and standards adopted to ensure the efficient and transparent working of its corporate governance bodies and controls, is based on the principles and application criteria, in line with international practice, included in the Code of Conduct (the “Code”) drawn up by the Corporate Governance Committee of Borsa Italiana S.p.A. in March 2006. The Company’s corporate governance structure is based on the traditional organisational model, including a Shareholders Meeting, a Board of Directors (assisted by advisory committees for internal control, remuneration and Comitato Direttivo) and a Board of Statutory Auditors. The independent audit activities are entrusted to a specialised firm included in the Consob (the Italian Commission for Listed Companies and the Stock Exchange) register, appointed specifically by the Shareholders Meeting upon reasoned proposal made by the Board of Statutory Auditors.

Management and coordination In its meeting of 28 February 2008, the Company’s Board of Directors determined that the Company is managed and directed by the ultimate indirect parent Swisscom AG pursuant to article 2497 and following articles of the Italian Civil Code and that Company should adopt the necessary steps to comply with disclosure and company requirements arising from this situation on a timely basis. Thanks to the presence on the Board of the Company’s founder, Silvio Scaglia, three independent directors with proven experience and standing, one of which was already a director before the takeover bid, and the CEO Stefano Parisi, the Board has also determined that its composition is suitable to ensure adequate conditions to operate independently and to pursue its primary objective of creating value for Shareholders.

Board of Directors Composition Article 10.1 of the articles of association establishes that the Company is directed by a Board consisting of from three to 15 members, with a term of office of three years and whom can be re-appointed. The current Board of Directors, appointed by the Shareholders in their meeting of 19 June 2007, is made up of 11 members, none of whom are from the minority shareholders’ list given that the regulation for voting lists for appointment of Boards of Directors was not yet applicable at the time of the appointment. The Board of Directors will expire with the Shareholders meeting approving the 2009 financial statements. Carsten Schloter is Chairman, Ulrich Dietiker is Deputy Chairman and Stefano Parisi is the Chief Executive Officer (CEO) and has been the General Manager since November 2004. The other members of the Board are Andrea Broggini, Alberto Giussani, Lisa Lamanna Mertk, Manilo Marocco, Daniel Ritz, Silvio Scaglia, Urs Schäppi and Peter Staub. The executive directors are the Chairman, Carsten Schloter, the Deputy Chairman, Ulrich Dietiker, and the CEO, Stefano Parisi. The Board of Directors conferred on them the proxies described in more detail later in this report in its meeting of 19 June 2007. Urs Schäppi and Daniel Ritz are also executive directors and are members of the executive committee of the ultimate indirect parent SWISSCOM AG. Although they do not have proxies for FASTWEB, they are actively involved in, and have a significant influence over its management. In its meeting of 25 February 2009, the Board resolved that the number, responsibilities and powers of the non-executive Directors are such to ensure their significant influence on the Board’s resolutions. Furthermore, it also again assessed that each director meets the integrity requirements established for control bodies according to the the Justice Ministry Decree no. 162, 30 March 2000.

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The non-executive Directors, Andrea Broggini, Alberto Giussani and Manilo Marocco meet the independence requirements as set out in the Consolidated Finance Act and the Code. The Board of Directors again found that they meet such requirements in its meeting of 25 February 2009. During the meeting, the Board of Statutory Auditors checked the correct application of the assessment criteria and procedures adopted by the Board of Directors to assess independence. The Board of Directors appointed Alberto Giussani as Lead Independent Director. This entails acting as a reference point and coordinating the non-executive and, especially, the independent Directors. Mr. Giussani has the power to call, independently or upon the request of other directors, meetings of the independent or non-executive Directors to discuss issues held to be of interest for the working of the Board of Directors or the Company. On 10 February 2009, an Independent Directors’ executive session was held, during which the three independent Directors positively evaluated the activities of the executive directors on significant transactions for the Company and the Group (“FASTWEB Group”) during 2008. The independent directors also checked that the documentation prepared for the board meetings is adequate and provided to the Directors on a timely basis. In addition, they deemed there to be a climate of active cooperation between the executive and non executive directors. In order to carry out their roles effectively and to have an adequate understanding of the related responsibilities and duties, the directors participate in projects aimed at increasing such understanding, taking also periodically part to internal meetings of the Company’s management. In the meeting of 25 February 2009, the Board of Directors determined that the number of positions held by the Company’s Directors as directors or statutory auditors in other companies listed on regulated markets, financial companies, banks, insurance companies or companies of significant size, is compatible with the proper execution of their duties as Directors of the Company. It did not deem it necessary to adopt general criteria about the maximum number of positions that may be held in other companies, given the valuable contribution provided to the Company by Directors who hold positions in other companies and their regular attendance at the Company’s board meetings. In its meeting of 7 August 2008, the Board also approved the size, composition and working of the Board itself and its committees. These findings were also reviewed by the Internal Control Committee and the Board of Statutory Auditors. The assessment process was commenced by the Directors in their meeting of 28 February 2008 given that they had only been in office since 19 June 2007. The Shareholders have not authorised in advance any waivers to the ban on competition required by article 2390 of the Italian Civil Code as there are no organisational characteristics that would require them. A list of the positions held by the Directors in other companies listed on regulated markets (including abroad), financial companies, banks, insurance companies or other companies of significant size is given below:

Director Position held

Andrea Broggini Fondiaria-SAI S.p.A., (listed), Director Banca Euromobiliare (Suisse) S.A., Director Federazione delle Cooperative Migros, Director Migros Beteiligungen AG, Director KNORR-BREMSE Systeme für Schienenfahrzeuge GmbH, Director March Limited, Director Swisscom AG, replacing the CEO Ulrich Dietiker Swisscom IT Services AG, Chairman of the Board of Directors Zuckermühle Rupperswil AG, Director Sanitas – Healthcare, Director and Chairman of the Audit Committee Wincasa – Healthcare, Director and Chairman of the Audit Committee

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Alberto Giussani Credito Artigiano S.p.A., Director SEAT S.p.A., Director MEDIASET S.p.A., Chairman of the Board of Statutory Auditors Daniel Ritz Swisscom IT Services AG, Director

Silvio Scaglia SMS Finance – Luxembourg, Director

Urs Schäppi BV Group, Berne, Director Swisscom AG, (listed), CEO Carsten Schloter Swisscom (Schweiz) AG, CEO

Appointment Pursuant to article 10 of the articles of association, the Directors are appointed from lists in order to ensure that at least one director is taken from the minority shareholders’ list. Those shareholders that, individually or in a grouping with other shareholders, represent at least one fortieth of the share capital or another percentage set by the ruling legislation may present lists. The lists, together with the information required by the ruling legislation (including detailed information of the personal and professional backgrounds of the candidates), are lodged at the Company’s registered office, with Borsa Italiana S.p.A. and posted on the Company’s website at least ten days before the date of the Shareholders’ meeting in which the Directors are to be appointed. If during the course of the financial year one or more Directors cease to hold office as Director, the Board of Directors’ Meeting shall proceed in accordance with article 2386 Italian civil code, guaranteeing compliance with the applicable requirements, including the independence requirements. If the terminated director was drawn from the Minority List, the replacement shall be made by appointing a person drawn, in accordance with the progressive order, from the same list that the terminated director was drawn from and who is still eligible and prepared to accept the office. Where the terminated Director is an independent Director, the replacement shall occur, to the extent possible, by way of appointment of the first independent director in the list from which the terminated director was drawn. The articles of association and the regulations set out in article 144-ter and following articles of the Issuer Regulation (Regolamento Emittenti), may also be consulted for further information. While the articles of association valid at the time of appointment of the current Board of Directors did not expressly provide for this, the list of candidates presented by the majority shareholder Swisscom Italia S.r.l., together with their curricula vitae, was posted on the Company’s website during the ten days before the date of the shareholders’ meeting (19 June 2007). Given the possibility for the minority shareholders to appoint a Director by means of a list system and the presence of a majority shareholder that shall perform a preliminary selection of the candidates to be included in its list, the Board of Directors has not deemed it necessary to set up an Appointment Committee (as allowed for by article 6 of the Code) as candidates can be proposed by shareholders using the list system.

Meetings The Board meets at least quarterly or more frequently in line with management requirements. It has the widest powers except regarding matters pertaining to the Shareholders by law. Six meetings were held at regular intervals in 2008, for an average length of roughly two hours each, and were regularly attended by the Directors as well as members of the Board of Statutory Auditors, as detailed in the summary attached hereto as Annex 1. Just one meeting has been held in 2009, that of 25 February. The Directors are provided with supporting documentation, in due time before meetings, that illustrates the topics to be addressed and the information necessary for the Board to knowledgeably discuss the issues at hand.

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The Company publishes an annual calendar at the beginning of each year, as required by the Regulation of the markets organised and managed by the Italian Stock Exchange, setting out, inter alia, the dates of board meetings for the approval of the interim results of operations and for the meeting of the Shareholders to approve the financial statements. Also in 2009, the Company has opted to publish its draft financial statements and half year report on a timely basis in order to avoid preparing a 2008 fourth quarter and 2009 second quarter report. In its meeting of 25 February 2009, the Board of Directors approved the 2009 budget. It also compared the results shown in the draft of Group’s consolidated financial statements with those forecast in the 2008 budget. The Directors’ Report, approved by the Board of Directors held on 25 February 2009, and attached to the draft financial statements and to the consolidated financial statements of FASTWEB, sets out the Directors’ assessment on the Company’s and Group’s general performances.

Roles and duties In addition to the duties set by law and articles of association, the Board of Directors: ƒ examines and approves the Company’s and Group’s strategic, business and financial plans, the Company’s corporate governance system and the Group’s structure; ƒ checks the adequacy of the Company’s organisational, administrative and accounting structure as put in place by the CEO, with respect to the internal controls and management of conflicts of interest; ƒ assigns and revokes Directors’ proxies, establishing the limits thereof and the manner in which they are to be exercised; ƒ establishes the CEOs’ remuneration, after reviewing the relevant committee’s proposals and consulting the Board of Statutory Auditors; ƒ assesses the Company’s general performance considering the information provided by the CEO at least every quarter and comparing actual figures to forecasts; ƒ reviews and approves in advance transactions of the Company and its subsidiaries when these are of considerable strategic, financial or economic importance for the Company, focusing on potential conflicts of interest and transactions with related parties; ƒ annually reviews the size, composition and working of the Board and committees. The Chairman, Deputy Chairman and CEO have all the necessary powers to act as the company’s legal representatives with third parties and before the court. With the renewal of the Board, the CEO was given ordinary and extraordinary management powers, with the specific provision that: (i) for issues related to the Comitato Direttivo (see later), the related activities are to be approved by it in advance; (ii) for strategically important or significant decisions and initiatives such as, for example: a) commercial strategies, strategic plans and budgets; b) the key elements of the organisational structure; c) accounting policies, controls and financial planning; d) standards that ensure full compliance with the law and regulations; e) investments and purchase of goods and services for more than € 30 million; f) significant investments, joint ventures and agreements involving more then € 10 million; g) loans of more than € 30 million (the CEO has individual signatory powers for amounts up to € 10 million and joint powers with the Chairman or Deputy Chairman for amounts up to € 30 million); and h) issues about personnel management when such personnel hold key roles and remuneration practices for top management, responsibility therefor continues to lie with the Board of Directors. The Board of Directors does not delegate the powers for the following transactions when amounts that exceed the limits set out below are involved: ƒ the issue of guarantees on company assets for amounts exceeding € 30 million. The CEO has individual signatory powers for amounts up to € 15 million and joint powers with the Chairman or Deputy Chairman for amounts up to € 30 million;

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ƒ acquisition or sale of properties for individual amounts up to € 10 million; the CEO may authorise transactions under this ceiling; ƒ bank contracts for amounts exceeding € 30 million; the CEO may authorise transactions under this ceiling; ƒ deeds related to investments in other companies and loans to such companies involving amounts exceeding € 10 million. The CEO has individual signatory powers for amounts up to € 3 million and joint powers with the Chairman or Deputy Chairman for amounts up to € 10 million; ƒ deeds to acquire, lease or sell companies for amounts exceeding € 10 million. The CEO has individual signatory powers for amounts up to € 3 million and joint powers with the Chairman or Deputy Chairman for amounts up to € 10 million. The articles of association establish that the Board of Directors and the Board of Statutory Auditors shall be informed by the relevant parties (at least quarterly) about the Company’s performance, outlook, activities carried out as part of their duties and the key transactions performed by the Company or its subsidiaries. The General Manager has all the necessary powers for management of the Company’s commercial activities.

Comitato Direttivo In 2004, drawing on article 15 of the articles of association, the Board of Directors of FASTWEB formally created an advisory committee, for the most part made up of managers who are not on the Board of Directors. The Comitato Direttivo, as it was named, is engaged in providing advice and making proposals to the Company’s Board of Directors and coordinating the most important managerial decisions. It coordinates rather than manages the Group’s different internal operating departments, also by reviewing all strategic decisions regarding its future development and transactions that have a significant impact on the balance sheet and income statement. Specifically, the Comitato Direttivo examines and expresses its prior opinion on the following as resolved by the Board in its meeting of 19 June 2007: documentation and figures for the draft annual financial statements, half year report, quarterly reports; documentation and underlying assumptions for strategic, business and financial plans; documentation and assumptions made for the annual budget and actual figures as well as the related checks, recalculations and monthly tests of performance, also at regional level; ordinary and extraordinary finance transactions and agreements of strategic importance, including mergers and/or acquisitions. The Committee generally meets monthly and always when it needs to prepare for an upcoming Board meeting. It reports to the Board of Directors on its activities every three months. The Comitato Direttivo is currently composed of FASTWEB’s CEO, Chief Operating Officer, Chief Financial Officer, Head of Network & Systems, Head of Human Resources, Head of Legal and Regulatory Affairs, Head of the Consumer Business Unit, Head of the Small Medium Enterprise Business Unit, Head of the Executive Business unit, Head of Strategies & Business Development and the Head of External and Institutional Relations.

Remuneration Committee The Board of Directors set up the present Remuneration Committee on 19 June 2007 and approved its regulations. Its members are Andrea Broggini (Chairman), Alberto Giussani and Manilo Marocco. Minutes of the meetings are drawn up. The meetings may be attended by non-members depending on the matters on the agenda. Such persons may include the Chairman of the Board of Directors, the Head of Legal and Regulatory Affairs, as secretary to the meetings, and any other persons that the Committee wishes to invite. It has the powers pursuant to article 5.C.1.e) of the Code. When proposals are prepared to be presented to the Board for their remuneration, the Directors do not attend the meetings. Specifically, the Committee’s duties comprise: (i) submitting proposals to the Board of Directors with regard to the remuneration of the CEOs and other Directors holding key positions; (ii) periodically reviewing the remuneration criteria for key managers; (iii) ensuring their application and making general recommendations to the Board of Directors.

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A significant portion of the CEO’s and top managers’ remuneration is dependent on the achievement of results under the current system. Remuneration of the non-executive Directors is not tied to the Company’s attainment of specific results but depends on their commitments and their participation in committee work. The Committee met twice in 2008 and also on 25 February 2009. On 28 February 2008, the Board adopted a new incentive plan for the CEO of the Company and key managers of FASTWEB GROUP upon the recommendation of the Remuneration Committee. This new plan provides for the payment to the beneficiaries of a variable cash incentive upon achievement of, and based on, annual cash flow and revenue objectives set each year by the Board assisted by the Remuneration Committee for each year from 2008 and 2011.

The Internal Control Committee and the Internal Control System During 2008 and the first two months of 2009, the Company continued to develop its system of internal controls aimed at safeguarding the Company’s assets, the efficiency and effectiveness of its operations, the reliability of financial reporting and compliance with current legislation. The Company also continued the procedures to consolidate its risk assessment processes, aimed at including operating and financial integrated control processes. The Board of Directors is responsible for internal control. It regularly checks the functioning of the system, sets guidelines and assesses its adequacy considering the Group’s characteristics. The Board ensures the key business risks are adequately identified, managed and monitored and also carries out the other activities required of it by the Code. The Internal Control Committee, comprising non-executive and independent Directors, assists the Board in these responsibilities. The Board of Directors set up the present Internal Control Committee on 19 June 2007 appointing the independent Directors Manilo Marocco (Chairman), Andrea Broggini and Alberto Giussani as members and approving its regulation. Minutes of its meetings are written up. Non-members may also attend meetings depending on the matters on the agenda, such as, the CEO as the executive Director in charge of the internal controls, the Person in charge of the Internal Control and the Chief Financial Officer, as well as other persons that the Committee wishes to invite. The Committee has the powers specified in article 5.C.1.e) of the Code. As FASTWEB is controlled by a (foreign) listed company, the Internal Control Committee members are all independent Directors. Pursuant to article 8.P.4 of the Code, the Board of Directors found that the Director Manilo Marocco, member of the Internal Control Committee, is a Financial Expert. The duties carried out by the Committee include: ƒ evaluating the correct application of accounting policies and their consistency for the preparation of the consolidated financial statements, together with the manager in charge of financial reporting; ƒ issuing opinions on specific aspects, when requested to do so by the CEO, related to identification of key internal risks and the design, building and management of the internal controls; ƒ reviewing the work plan prepared by the Internal Control Supervisor and related periodic reports; ƒ assessing the engagement letters presented by the independent auditors, their audit plan and findings described in their reports; ƒ monitoring the effectiveness of the audit; ƒ performing other additional duties assigned by the Board of Directors; ƒ reporting to the Board at least every six months, during presentation of the annual and interim financial statements, on its work and the adequacy of the internal controls; ƒ assisting the Board of Directors to (a) define guidelines for the internal controls so that the key risks for the Issuer and its subsidiaries are correctly identified, and adequately measured, managed and monitored; (b) decide criteria for the management of such risks in line with a sound and appropriate management policy; (c) assess at least annually the adequacy, effectiveness and efficiency of the internal controls; and (d) describe the key elements of the internal controls in the corporate governance report and give an opinion on its overall adequacy.

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The Board of Directors also appointed the CEO Stefano Parisi as the executive Director in charge of monitoring the working of the internal controls, with the duties and powers set out in the Code. It accepted the proposal made by the CEO and appointed Luca Merzi, the Internal Audit Manager, as the Person in charge of the Internal Control. This position does not have responsibility for any operating functions nor does it report to the operating heads. It carries out the functions and has the powers assigned by the Code. The remuneration of the Person in charge of the Internal Control is set in line with the company policies. During 2008, the Person in charge of the Internal Control carried out the auditing activities approved by the Board of Directors and reported periodically to the Internal Control Committee and to the Board of Statutory Auditors. Presentations were also made to the Internal Control Committee on the activities performed by the Supervisory Body in relation to the Organisation, management and control model as per Legislative decree no. 231/2001 (see below) during the year. The Internal Audit Unit reports to the Internal Control Committee. The Committee met four times during 2008. In 2009 the Committee met on 10 and 25 February. During the meeting held on 10 February, the independent audit firm illustrated its audit upon the Company, while the CFO illustrated the actions carried out in 2008 and the ones planned in 2009 aimed at the enhancement of some areas of the internal control system as well as compliance with Law 262/05 compliance. During the meeting held on 25 February, the Commiittee expressed its favourable opinion on the adequacy, efficiency and effectiveness of the internal control system in 2008. The meetings were attended, apart from the members of the Committee, as shown in the table attached as Annex 1, by the Person in charge of the Internal Control, the Chairman of the Board of Statutory Auditors, the CFO and the Head of Audit of Swisscom, and the partner of the independent auditors in certain meetings, upon invitation, as well as its members (see Annex 1). The key critical areas of the internal controls and related remedial actions undertaken by the Company were presented during these meetings. The Internal Control Committee contributed to the implementation of the corporate governance tools and took part in the analysis, definition and updating thereof. It was involved in the implementation of the conduct principles governing transactions with related parties (see below). It monitored the work performed by the Persono in charge of the Internal Control and the Internal Audit department to check the adequacy and efficiency of the internal controls. With respect to the internal audit activities, it reviewed the periodic reports on the audit findings and status of the remedial actions as well as conclusion of the procedures carried out in 2008 upon the closing of the audit. In its meeting of 25 February 2009, the Committee examined and approved the programmed activities and audit plan prepared by the Person in charge of the Internal Control with the Internal Audit Unit for 2009. The Committee reported to the Board of Directors on its activities during the Board meetings of 28 February and 7 August 2008. During 2008, the Company continued to update and check the administrative and accounting procedures applied to prepare the financial statements as required by Law no. 262/2005. The Board of Directors found the Company’s internal controls (the key elements of which are presented in this report) to be adequate and efficient in its meeting of 25 February 2009, thanks also to the aforesaid activities.

Organisation, management and control model (Legislative decree no. 231/01) The conduct rules included in the Model are updated continuously and integrate and strengthen the internal controls through the preparation of operating protocols and ongoing training and communications initiatives at all company levels. The Company adopted its Code of Ethics and Organisation, management and control model (the “Model”) with the approval of its Board of Directors in 2004. These monitor the administrative liability of companies to prevent the committing of certain crimes. Given the amendments made to Legislative decree no. 231/2001 and the recommendations of the relevant doctrine and jurisprudence, the Model was updated on 6 May 2008 by the Board of Directors. It is constantly monitored by the Supervisory Body, consisting of the Chairman of the Internal Control Committee, the Internal Audit Head and a criminal lawyer, an esteemed professional specialized in Legislative Decree no. 231/01 matters - who provided some occasional consultancies to the Company - appointed by the Board of Directors on 25 February 2009. This Model is implemented effectively and on a continuous basis.

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FASTWEB is a member of Confindustria and, thus, based its Model on the trade association’s guidelines. The Model covers public administration crimes, corporate crimes, crimes against the individual, market abuse crimes, health and safety in the workplace crimes and money-laundering crimes. The Model will be revised again in 2009 to include crimes related to computer crime (Law no. 48 of 18 March 2008 - “Ratification and execution of the Council of Europe’s Convention on Cybercrime, held in Budapest on 23 November 2001, and measures aligning internal legislation”).

Protection of confidential data, market abuse and internal dealing The Chairman and the CEO supervise disclosure to the market and the relevant authorities of events that occur during FASTWEB’s and its subsidiaries’ operations. Specifically designated offices (Corporate Affairs, External and Institutional Relations and Investor Relations) are responsible for the disclosure of documents and information, specifically privileged information. Employees, Directors and Statutory Auditors are bound to keep confidential the documents and information acquired in performing their work. The Board of Directors has adopted rules for the management of confidential information, especially privileged information, as required by current regulations. Given the legal provisions and regulations about market abuse and internal dealing, FASTWEB has introduced the Insider Register, required by article 152-bis and following articles of the Issuer Regulation and has adopted a procedure (or code) for communications on internal dealing. This has been updated to include the requirements of article 114, paragraph 7 of the Consolidated Finance Act and article 152-sexies and following articles of the Issuer Regulation. The code was recently amended again by the Board of Directors on 4 November 2008 and is available on the Company’s Web site. As required by the guidelines issued by Consob, the Company has adopted a method based on the principles of prudence and transparency whereby the circulation of confidential information about specific transactions identified by category can be monitored from the start. It created a Compliance Officer position, held by the Director of Legal and Regulatory Affairs who is required to ensure compliance with the relevant legislation, the updating of the internal procedures and correct keeping of the register. The Group has identified the Directors, Statutory Auditors and General Managers of FASTWEB, the members of the Comitato Direttivo and those persons who have more than a 10% investment in the Company as relevant persons.

Relationships with institutional investors and other Shareholders The Company has a specific Investor Relations Department. It has a manager responsible for encouraging dialogue with Shareholders and institutional investors. As part of its duties and on the relevant issues, it works alongside the Finance, Administration and Controlling and Legal and Regulatory Affairs Departments (the latter being in charge of handling relationships with Consob and the Stock Exchange) and the External and Institutional Relations Department (responsible for handling relationships with the media), with the supervision of top management and the support of structures involved in the various processes on a case-by- case basis. All Shareholders are provided with information on the Company and its expected future developments during the Shareholders’ meetings. Specifically, the Board of Directors reports on its activities carried out and scheduled in accordance with the regulations about privileged information. It prepares and publishes the report as per article 3 of Ministerial decree no. 437 of 5 November 1998, and presents it during the Shareholders’ meetings. This report includes details of the proposals about the matters on the agenda in order to ensure that the Shareholders are adequately informed thereof and can take informed decisions during the meeting. The Directors also present their report which analyses the Company’s position and performance, with specific mention of costs, revenue and investments at the meeting called to approve the annual financial statements. At present, there is no need to implement a regulation for the Shareholders’ meetings as the provisions of the law and the articles of association are deemed sufficient for the regular and effective conduct of the meeting. Documents and information are available on the www.fastweb.it website (Company Information section) for Shareholders and institutional investors. Specific mention is made of the procedures for participation at meetings and the exercise of voting rights. The documents about the matters on the agenda, including the list of candidate directors and statutory auditors together with their personal and professional backgrounds, are also posted.

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Related party transactions and Directors’ interests With the approval of the Internal Control Committee, the Board of Directors has adopted special guidelines that establish how to approve and carry out transactions with related parties. These guidelines include detailed disclosure obligations about the nature of the relationship and the transaction, especially if one of the Directors has an interest directly or on behalf of third parties. This procedure was updated by the Board in its meeting of 28 February 2008 after consulting the Internal Control Committee. Transactions undertaken by FASTWEB with related parties, as defined by IAS 24, which include the subsidiaries, the ultimate indirect parent Swisscom AG and its subsidiaries as well as Directors and key managers of FASTWEB, their close family members or companies controlled by them, comply with the criteria and requirements of transparency and the substantial and procedural correctness. Atypical and unusual intragroup transactions, transactions that do not take place at standard conditions and transactions for amounts exceeding € 5 million are assessed and approved by the Board of Directors. The ceiling is set at € 3.5 million for other transactions with related parties that are not typical or usual transactions or that do not take place at standard conditions. This ceiling is decreased to € 500,000 in special cases as set out by the guidelines1. When the Board of Directors has to approve a transaction with related parties, it receives adequate information on: i) the nature of the relationship; ii) how the transaction will be carried out; iii) the conditions, financial and other, of the transaction; iv) the assessment procedure; and v) the interests, underlying reasons and possible risks for the company involved. The Directors with the relevant proxies collect and file the same information for transactions with related parties that do not have to be approved in advance by the Board of Directors, also by type or group of transactions. Moreover, when the relationship is with a Director or a close family member of a Director or with a subsidiary, jointly controlled entity or entity subject to the considerable influence of a Director, the Director provides the information required by article 2391 of the Italian Civil Code and any additional clarifications that may be requested. The Board of Directors has not deemed it necessary to fix obligations for abstaining from or absenting from discussions or resolutions by Directors with interests in the transactions under discussion. Should the nature, amount or specific characteristics of a transaction so require, the Board of Directors draws on the assistance of independent experts.

Board of Statutory Auditors The Shareholders’ meeting held on 1 April 2008 appointed the new Board of Statutory Auditors composed of Michele Siri (Chairman), Pierluigi Galbussera and Patrizia Occhiuto (Standing Statutory Auditors), Mauro Bontempelli and Vieri Chimenti (Substitute Statutory Auditors). None of these were appointed from the minority shareholders’ list as no such list was presented. The professional background of the Statutory Auditors are available on the Company’s Web page. The Board of Statutory Auditors’ term of office expires with the approval of the financial statements as at 31 December 2010. Statutory Auditors are appointed from lists presented by the Shareholders to ensure that the minority shareholders can candidate a Standing or a Substitute Statutory Auditor. Those shareholders that, individually or in a grouping with other shareholders, represent at least one fortieth of the share capital or another percentage set by the ruling legislation may present lists. This percentage was set at 2% by Consob for the election of new Boards of Statutory Auditors. The lists, together with the information required by the ruling legislation (including detailed information of the personal and professional backgrounds of the candidates), are lodged at the Company’s registered office at least 15 days before the date of the Shareholders’ meeting in which the Statutory Auditors are to be appointed and at least ten days with Borsa Italiana S.p.A. and on the Company’s website.

1The ceiling is also decreased to € 500,000 when the related party is (i) a key manager of FASTWEB or one of its subsidiaries; (ii) a close family member of a party that directly or indirectly controls FASTWEB, is controlled by it, is subject to joint control with FASTWEB, exercises significant influence over FASTWEB, jointly controls FASTWEB, or of a key manager with FASTWEB or one of its parents; (iii) a subsidiary, subject to joint control or significant influence by a key manager of FASTWEB or its parent or one of the parties listed in point (ii) above, or such parties directly or indirectly hold a significant portion of the voting rights; and (iv) a pension fund for FASTWEB employees or any other related entity.

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The articles of association and the regulations set out in article 144-ter and following articles of the Issuer Regulation, as well as the disclosures to be lodged pursuant to the law and the articles of association at the time of the Board’s renewal, may also be consulted for further information. A list of the Statutory Auditors’ other appointments in listed companies is given below:

Statutory Auditor Position held

Michele Siri (Chairman) CNP Unicredit Vita S.p.A., Chairman of the Board of Statutory Auditors Capitali Assicurazioni S.p.A., Chairman of the Board of Statutory Auditors Crédit Agricole Vita S.p.A., Director Crédit Agricole Insurance S.p.A., Director Patrizia Occhiuto (Standing Statutory Auditor) Gestione Partecipazioni S.p.A., Standing Statutory Auditor Eurotec S.r.l., Standing Statutory Auditor Compagnia Immobiliare Azionaria - CIA S.p.A., Pierluigi Galbussera (Standing Statutory Auditor) Standing Statutory Auditor

The Board of Statutory Auditors met eight times during 2008 with the attendance of all the standing statutory auditors, as shown in the table attached as Annex 2. It met once in 2009, on 10 February. As required by article 10.C.5 of the Code, since its appointment, the Board of Statutory Auditors has positively ascertained the independence of the independent auditors, checking both compliance with the current regulations and the nature and scope of the non-audit services provided to the Issuer and its subsidiaries by the independent auditors themselves and entities of its group. When a Statutory Auditor has an interest in a transaction either directly or on behalf of third parties, he/she informs the other Statutory Auditors and the Chairman of the Board of Directors on a timely basis providing complete information about the nature, conditions, origin and scope of the interest.

Independent audit firm The Shareholders’ meeting held on 1 April 2008, based on the reasoned proposal of the (previous) Board of Statutory Auditors, engaged PriceWaterhouseCoopers S.p.A. to audit the Company’s separate and consolidated financial statements for the years from 2008 to 2016 and to perform reviews of the half year reports for the same period.

Manager in charge of financial reporting During the meeting of 19 June 2007 and as required by the new relevant articles of association clause, the Board of Directors appointed a manager to be in charge of financial reporting. Up until 10 August 2007 and in order to complete the 2007 half year report, this position was held by the then Chief Financial Officer and Chief Operating Officer, Alberto Calcagno. After this date and in line with developments in this new function, the current Chief Financial Officer Mario Rossi is the manager in charge of financial reporting. This manager carries out the duties set by article 154-bis of the Consolidated Finance Act and has been given the necessary powers to do so by the Board of Directors. The manager must have at least three consecutive years of experience of management duties in the administration and/or finance and/or control areas of the Company or with leading companies or state bodies or public administration operating in the credit, financial, insurance and industrial sectors.

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TABLE 1: BOARD OF DIRECTORS AND COMMITTEES IN 2008

Remuneration Committee

Board of Directors Internal Control Committee

No. of % of % of participation non- other % of participation at Office Member executive participation at ** at Committee ** executive offices Committee meetings BoD meetings meetings independent held * Chairman CARSTEN X 100% 2 SCHLOTER CEO STEFANO PARISI X 100% -

ULRICH DIETIKER X 100% 3 Deputy Chairman Director ANDREA X 100% 6 X 100% X 100% BROGGINI X Director ALBERTO X 100% 3 X 100% X 100% GIUSSANI X Director LISA X 100% - LAMANNA Director MANILO MAROCCO X X 83% - X 75% X 50% Director DANIEL X 83% 1 RITZ Director SILVIO X 33% 1 SCAGLIA Director URS X 83% 1 SCHAEPPI Director PETER X 100% - STAUB Meetings held in 2008: Board of Directors: 6; Internal Control Committee: 4; Remuneration Committee: 2.

NOTES * The number of offices held in other companies listed on regulated markets, including abroad, in financial companies, banks, insurance companies or other companies of significant size, as Director or Statutory Auditor is given in this column. In the earlier paragraph on the composition of the Board of Directors, the offices held are described in full. ** An “x” in this column indicates whether the committee member is also on the Board of Directors, part of the Internal Control Committee and Remuneration Committee.

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TABLE 2: BOARD OF STATUTORY AUDITORS IN 2008

% presence at Board meetings No. of Member Office other offices held*

Chairman from 1 April 2008 MICHELE SIRI 100% from 1 April 2008 4

Standing Statutory Auditor PIERLUIGI GALBUSSERA 87.5% 2

Standing Statutory Auditor from 1 April 2008 PATRIZIA OCCHIUTO 80% from 1 April 2008 2

Chairman until 1 April 2008 VITTORIO TERRENGHI 100% from 1 April 2008 2

Standing Statutory Auditor until 1 April 2008 GIUSEPPE DEIURE 67% until 1 April 2008 - No. of meetings held during the year: 8 The quorum required for the presentation of lists by minority Shareholders for the election of one or more standing members (as per art. 148 Consolidated Finance Act) is 2%.

NOTES * The number offices held in other companies listed on regulated markets, also abroad, in financial companies, banks insurance companies or other companies of relevant size, as director or statutory auditor by the interested party is given in this column. In the earlier paragraph “Board of Statutory Auditors”, the offices held are described in full.

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TABLE 3: OTHER GUIDELINES OF THE CODE OF CONDUCT Summary of reasons for non- YES NO compliance with Code guidelines Proxy system and related party transactions Has the Board of Directors assigned proxies defining the: a) limits X b) operating method X Requirement to report to the Board at c) frequency of the information? X least once a quarter established by the articles of association

Does the Board of Directors have the power to review and approve transactions of key economic X and financial importance (including transactions with related parties)?

Has the Board of Directors defined guidelines and criteria to identify “significant” transactions? X Are the above guidelines and criteria described in X the report? Has the Board of Directors created specific procedures for the review and approval of related X party transactions? Are the procedures for approval of related party X transactions described in the report? Procedures for the most recent appointments

of Directors and Statutory Auditors Were the lists for the appointment of Directors Although not provided for by the X presented at least ten days in advance? articles of association, during the election of the current Board, the curricula vitae and exhaustive Was complete information given with the information about the candidates were candidate lists? X lodged at the Company’s registered

office before the meeting.

Were the candidate lists provided with statements X of independence of the candidates? Were the lists for the appointment of Statutory X Auditors presented at least ten days in advance? Was complete information given with the X candidate lists? Shareholders’ meetings The Company does not have Meeting Rules as it holds that the ordinary Has the Company approved Meeting Rules? X powers given to the meeting Chairman by the articles of association suffice. Are the Rules attached to the report (or are indications given about where they can be - - obtained/downloaded)? Internal Controls Has the Company appointed an Internal Control X Supervisor? Is the Supervisor independent in hierarchical X terms of the operating managers?

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Business unit in charge of internal control Internal Audit Department (pursuant to articles 8.C.6 and 7 of the Code) Manager in charge of financial reporting

Has the company appointed a manager in X charge of financial reporting? Investor relations Does the Company have an Investor Relations

Head? X Paolo Lesbo Business unit and references tel: 02.45454308 (address/telephone/fax/e-mail) for the Investor fax: 02.45454311 Relations Head e.mail: [email protected]

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Directors’, Statutory Auditors’ and General Managers’ remuneration As required by article 78 of Consob regulation no. 11971 of 14 May 1999, the table shows the remuneration paid to the Directors, Statutory Auditors, general manger and managers with key positions during the period in which they held such offices for any reason and in any form, also by subsidiaries.

POSITION REMUNERATION

Name Position Term of Expiration Remuneration Non- Bonuses and Other office of term (*) for position in monetary other the reporting benefits (**) incentives company

Carsten Chairman 1/1- 31/12/2009 € 20,000(1) Schloter 31/12/2008 Ulrich Dietiker Deputy 1/1- 31/12/2009 € 20,000(1) Chairman 31/12/2008 Stefano Parisi CEO 1/1- 31/12/2009 € 550,000(2) € 860,300(3) 31/12/2008 General manager 1/1- € 11,000 € 1,171,200(4) € 252,000(5) 31/12/2008 Andrea Director 1/1- 31/12/2009 € 100,000(6) Broggini 31/12/2008 Alberto Director 1/1- 31/12/2009 € 100,000(7) Giussani 31/12/2008 Lisa Lamanna Director 1/1- 31/12/2009 € 20,000(1) Merkt 31/12/2008 Manilo Director 1/1- 31/12/2009 € 100,000(8) Marocco 31/12/2008 Daniel Ritz Director 1/1- 31/12/2009 € 20,000(1) 31/12/2008 Silvio Scaglia Director 1/1- 31/12/2009 € 20,000 31/12/2008 Urs Shaeppi Director 1/1- 31/12/2009 € 20,000(1) 31/12/2008 Peter Staub Director 1/1- 31/12/2009 € 20,000(1) 31/12/2008

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POSITION REMUNERATION

Name Position Term of Expiration Remuneration Non- Bonuses and Other office of term (*) for position in monetary other the reporting benefits (**) incentives company

Michele Siri Chairman of 01/04- 31/12/2010 € 45,000 the Board of 31/12/2008 Statutory Auditors Pierluigi Standing 1/1- 31/12/2010 € 40,000 Galbussera Statutory 31/12/2008 Auditor Patrizia Standing 01/04- 31/12/2010 € 30,000 Occhiuto Statutory 31/12/2008 Auditor Vittorio Chairman of 01/01- € 15,000 € 7,500(9) Terrenghi the Board of 01/04/2008 Statutory Auditors Giuseppe Standing 01/01- € 10,000 € 5,000(10) Deiure Statutory 01/04/2008 Auditor Key management € 88,600 € 4,186,400(12) € 3,046,10013) (11)

(*) The mandate expires with the Shareholders’ meeting held to approve the financial statements of the year shown (**) The “Non-monetary benefits” column refers to contributions paid for insurance, healthcare and supplementary pension fund (1) The fee is not received by the party in question. (2) The amount includes the remuneration for the position and the fees pursuant to article 2389.3 of the Italian Civil Code (3) The amount includes the variable part as per article 2389.3 of the Italian Civil Code tied to 2007 performance objectives (4) The amount includes (i) the variable part of the employee salary tied to 2007 performance objectives; and (ii) a variable component as part of the incentive plan approved by the Company (5) The amount refers to employees’ gross salaries (6) The amount includes fees received as Chairman of the Remuneration Committee and as member of the Internal Control Committee (7) The amount includes fees received as a member of (i) the Remuneration Committee; and (ii) the Internal Control Committee (8) The amount includes fees received as Chairman of the Internal Control Committee and member of the Remuneration Committee (9) The amount includes fees received as Chairman of the Board of Statutory Auditors of e.Bismedia S.p.A. (10) The amount includes fees received as Standing Statutory Auditor of e.Bismedia S.p.A. (11) During 2008, key managers were: Chief Operating Officer, Chief Financial Officer, Head of Human Resources, Head of Legal and Regulatory Affairs, Head of Consumer Business Unit, Head of Small & Medium Enterprise Business Unit, Head of Executive Business Unit, Head of Network & Systems Business Unit, Head of External and Institutional Relations and Head of Strategies. The Remuneration Committee sets the remuneration of these managers (12) The amount includes (i) the variable part of the employee salary tied to the 2007 performance objectives; (ii) a variable component as part of the incentive plan approved by the Company; and (iii) an extra bonus (13) The amount includes the gross employee salary

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Risk management

The main risks to which the Group is exposed in the normal course of business relate to the legislative context and competition in the telecommunications market as explained below.

Competition The reasons for the greater competition on the consumer market are primarily related to the market liberalisation mechanisms introduced by the regulatory authorities, such as the recent measures for the OLO- OLO process aimed at making the migration of customers among operators easier by shortening migration times and discouraging retention activities. Another factor that will encourage competition is the entry of a new player (Vodafone) onto the broadband landline telecommunications market. This operator has a strong brand identity and considerable financial resources available to invest in products/services and communications. The main consequences of these events for the Group are: ƒ more rapidly decreasing prices of services, particularly on the telephony market; ƒ possible further sales reduction and higher commercial network costs, partly due to the companies' need to protect themselves against the threat of losing customers to competition; ƒ a further reduction in traffic in the landline-to-mobile calls due to the difference in rates favouring mobile- to-mobile traffic guaranteed by the current asymmetric interconnection system; ƒ a more volatile customer base leading to increased pressure on prices and the tendency to migrate to other operators. The greatest risks affecting the corporate market could relate to the renegotiation of contracts when they expire. Given the competition, it could be necessary to offer new services at the same cost, which would affect profit margins and the amount of the investments needed to retain the customers. The Group has taken steps to cover these potential risks aimed at making its processes more efficient so as to cut costs and improve service quality. Furthermore, the ongoing enhancement of its product portfolio has the scope of increasing sales, maintaining revenue growth forecasts and improving its profit margins.

Legislative context The current focus is on the prices of the access services provided by the incumbent operator. As described in more detail in the section on the legislative context, Telecom Italia published its Reference Offer for 2009 in October 2008, increasing its prices for the unbundled access service to the local network by roughly 23%. AGCOM commenced a public discussion of this Offer, followed by a discussion of the proposed measure, which concluded on 23 January 2009. The European Commission also commented on the issue, highlighting that the proposed price increase could have serious effects and proposing a limit to these increases and postponement of their application. AGCOM is expected to issue its final measure before the end of June 2009.

Financial risk management The Group’s risk management policies aim at identifying and analysing the risks to which it is exposed, at setting appropriate limits and controls and monitoring the risks and compliance with such limits. The Group regularly reviews these policies and the related systems in order to incorporate any changes in the market conditions and Group’s operations. It intends to create a disciplined and constructive control system through training courses, the issue of standards and management procedures whereby its employees are aware of their roles and responsibilities. The FASTWEB Group is exposed to credit risk, liquidity risk and market risk arising from the use of financial instruments:

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In the explanatory notes gives information about the Group’s exposure to each of the risks listed above, its objectives, policies and risk management processes, risk assessment methods.

Pending litigation With reference to the proceedings initiated by the Rome Public Prosecutor in 2006 against certain premium and internet content access service providers that use the services of Italian telephone operators against payment, and as a result of which the VAT claims presented by the Parent in the last two years have been suspended even though they are unrelated to these proceedings, the Parent is unaware of any further developments or important new findings that would make it possible to estimate the related contingencies.

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Other information

Management and coordination Pursuant to article 2497 and following articles of the Italian Civil Code, FASTWEB is managed and directed by Swisscom AG which is the main shareholder with 82.08% of FASTWEB’s shares and has 6 executive directors on the Board. Swisscom AG is also controls Swisscom Italia indirectly. The effects of the management and coordination activities will result in consolidating the Group’s competitive advantage in the telecommunications sector and taking advantage of further technological and commercial opportunities, specifically those in relation to converging services, including the possible implementation of the virtual mobile network operator model. This will allow the Group to further extend its own services portfolio.

Inhibitory conditions to the listing of companies subject to the management and coordination by other companies (article 37 of CONSOB’s Resolution no. 16191/07 – Market Regulations) Article 37, paragraph 1 of CONSOB’s Resolution no. 16191/07 (Market Regulations), regarding conditions which inhibit the listing of companies managed and controlled by other companies, stipulates that “The shares of subsidiaries subject to management and coordination by another company may not be admitted to trading on an Italian regulated market where such companies: a) have not fulfilled publication obligations pursuant to article 2497-bis of the Italian Civil Code; b) do not have independent decision-making powers in relations with customers and suppliers; c) have a centralised treasury, with the company exercising sole control or another company of the group, that does not satisfy the interests of the company. The satisfaction of interests of the company shall be confirmed by the board of directors by an analytically justified statement and verified by the board of statutory auditors; d) do not have sufficient numbers of independent directors to guarantee significant weight being given to their opinion in decisions of the board of directors. For the evaluation of independence and adequacy in number terms of the aforementioned directors, reference shall be made to the general criteria established by the management companies of regulated markets, taking into account best practices as governed by codes of conduct prepared by said companies or by industrial associations”. On 25 February 2009 the Board of Directors attested that FASTWEB met the requirements listed in paragraph 1 of article 37 of the CONSOB Resolution no. 16191/07 for admission of the shares of companies managed and controlled by another company to trading on an Italian regulated market as: a) it has fulfilled publication obligations pursuant to article 2497-bis of the Italian Civil Code; b) it has independent decision- making powers in relations with customers and suppliers; c) it does not have a centralised treasury with SWISSCOM AG; d) the Board of Directors has 11 members, three of whom meet the independence criteria in accordance with art. 3 of the Code and art. 148, paragraph 3 of the Consolidated Finance Act.

Research and development During 2008, the Group continued its research and development activities. Specifically, these concerned the development of platforms essential to manage new services and functionalities for customers and to develop platforms necessary to support the services the Group will provide to the local and central Public Administration entities after winning the related tender. The expenses incurred for the realisation of these projects also include the personnel expense of internal technicians. As regards the expenses for technical consultancy, these comprise the design and application development activities carried out by third parties. These consultants are professionally qualified and have the specific technical expertise required for the development projects. In addition, they have the appropriate scientific equipment and professionally skilled personnel. Research expenditure is taken to the income statement when incurred.

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Investments held by members of the Board of Directors and Board of Statutory Auditors, the general manager and key managers Pursuant to article 79 of CONSOB Resolution no. 11971 of 14 May 1999, none of the directors, statutory auditors, general manager or key managers have investments in the Issuer.

Personal Data Protection Code With regard to the requirements of D.L. 196/03, the Personal Data Protection Code, actions have been initiated in order to assess the system of protecting the information covered by this law within the Group companies. Certain specific audits have also been carried. The results show that the requirements of the law for the protection of personal data managed by the companies are being essentially met, including the preparation of the Personal Data Protection Document.

List of secondary offices Milan – Via Stilicone, Via Valcava and Viale Fulvio Testi Rome – Corso Vittorio Emanuele and Via Mentore Maggini Bologna - Via Paolo Nanni Costa Padua - Via Longhin Turin - Via Veronese Genoa - Piazzale dei Traghetti Iqbal Masih Naples - Isola B5 Torre Francesco Bari - Via Imbriani and Piazza Aldo Moro Catania – Viale Africa Sesto Fiorentino - Via Gramsci Pescara - Corso Umberto Palermo - Viale Della Regione Siciliana

List of investments

Consolidated on a line-by-line basis % held Name Registered offices Share capital Direct Indirect Total

e.BisMedia S.p.A. Milan 15,312,054 100% 0% 100%

Stated using the equity method % held Name Registered offices Consortium fund Direct Indirect Total

QXN Milan 500,000 60% 0% 60%

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Subsequent events

No other events took place after the balance sheet date that would require adjustments or additional disclosures in these consolidated financial statements.

Outlook

2009 should be another year of solid growth with improvements in all the key operating parameters. The Company operating targets for 2009 are: revenue growth of approximately 5%, industrial EBITDA growth of approximately 8%, positive net result, positive free cashflow on a full year basis (EBITDA-Capex equal to approximately 140 million euro) and an 11% decrease in the capex/sales ratio. 2009 guidance is stated before any impact of the ULL rates revision by Agcom that is still pending. In 2009, FASTWEB’s strategy is to use its competitive advantages being innovation, technology and quality to consolidate its leadership position as the main alternative broadband operator to Telecom Italia across all market segments. Its key objectives are: ƒ to maintain its excellent customer service in the Consumer segment and, thus, its price premium and market share; ƒ to focus on the SME market by expanding the scope of the related business unit to include professionals and mid-size enterprises and by vigorously marketing its product brand with specially designed campaigns; ƒ to steadily build up its product portfolio for the Executive segment to achieve the forecast large growth in market share and revenue; ƒ to optimise and develop its mobile services to make the quad-play products more competitive and complete.

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The Board of Directors’ proposal to the Shareholders’ meeting

Dear Shareholders, You are presented with this report and the related draft financial statements as at and for the year ended 31 December 2008 for your approval. Your Company’s financial statements at 31 December 2008 close with a profit of € 6,576,835. We invite you to: ƒ approve the Directors’ Report; ƒ approve the financial statements as at and for the year ended 31 December 2008 as a whole as well as the individual captions; ƒ carry forward the profit for the year of € 6,576,835.

FASTWEB S.p.A. Chief Executive Officer (signed on the original)

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(Translation from the Italian original which remains the definitive version)

FASTWEB Group Consolidated financial statements as at and for the year ended 31 December 2008

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Consolidated balance sheet as at 31 December 2008

Note 31 December 31 December Variation 2008 2007 2008 - 2007 ASSETS €/000 €/000 €/000

Non-current assets Property, plant and equipment 1 1,865,747 1,853,610 12,137 Goodwill 2 267,807 267,807 0 Other intangible assets 3 175,375 159,681 15,694 Investments stated using the equity method 4 300 763 (463) Investments in other companies 4 286 286 0 Other financial assets 5 2,288 1,990 298 Deferred tax assets 6 222,333 254,173 (31,840) Other non-current assets 7 256 1,075 * (819)

Total non-current assets 2,534,392 2,539,385 (4,993)

Current assets Inventories 8 7,142 4,798 2,344 Trade receivables 9 566,512 555,923 * 10,589 Trade receivables - related parties 9 1,423 1,829 (406) Current tax assets 10 20,566 20,191 375 Other receivables 11 118,399 156,735 * (38,336) Cash and cash equivalents 21 115,620 69,398 46,222 Current financial assets - related parties 21 635 600 35

Total current assets 830,297 809,474 20,823

TOTAL ASSETS 3,364,689 3,348,859 15,830

* 2007 amount changed due to reclassifications, refer to note 1

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31 December 31 December Variation 2008 2007 2008 - 2007 NET EQUITY €/000 €/000 €/000

Share capital 12 41,344 41,344 0 Share premium reserve 12 909,783 909,783 0 Legal reserve 12 8,269 8,269 0 Other reserves 13 90,133 90,860 (727) Losses carried forward (145,490) (20,798) (124,692) Profit (loss) for the year 6,057 (124,692) 130,749

Net equity attributable to shareholders of the parent 910,096 904,766 5,330

Minority interests 0 0 0

TOTAL NET EQUITY 910,096 904,766 5,330

LIABILITIES

Non-current liabilities Financial liabilities 21 17,934 20,324 (2,390) Financial liabilities - related parties 21 1,484,682 1,238,613 246,069 Post-employment benefits 14 18,955 17,886 1,069 Provisions for risks and charges 15 2,129 2,175 (46) Other non-current liabilities 16 45,400 41,598 * 3,802

Total non-current liabilities 1,569,100 1,320,596 248,504

Current liabilities Financial liabilities 21 70,950 76,456 (5,506) Provisions for risks and charges 17 23,173 59,333 (36,160) Trade payables 18 545,539 546,683 * (1,144) Trade payables - related parties 18 45,718 15,342 30,376 Current tax liabilities 19 7,348 19,533 (12,185) Other current liabilities 20 192,765 160,110 * 32,655 Other current liabilities - related parties 20 0 246,040 (246,040)

Total current liabilities 885,493 1,123,497 (238,004)

TOTAL LIABILITIES 2,454,593 2,444,093 (10,500)

TOTAL NET EQUITY AND LIABILITIES 3,364,689 3,348,859 15,830

* 2007 amount changed due to reclassifications, refer to note 1

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Consolidated income statement for the year ended 31 December 2008

Note Variation 2008 2007 2008 - 2007 €/000 €/000 €/000 Revenue Revenue from the sale of goods and services 22 1,708,059 1,433,239 274,820 Other revenue and income 23 124,363 158,173 (33,810)

Total revenue 1,832,422 1,591,412 241,010

Operating expenses Purchases, services and other expenses 24 (1,001,824) (868,024) (133,800) Personnel expenses 25 (196,986) (184,685) (12,301) Amortisation, depreciation, accruals, impairment losses and 26 (505,713) (446,168) (59,545) disposals of non-current assets

Total operating expenses (1,704,523) (1,498,877) (205,646)

OPERATING PROFIT 127,899 92,535 35,364

Financial expense 27 (8,591) (47,571) 38,980 Financial expense - related parties 27 (80,784) (29,956) (50,828) Financial income 28 9,438 16,625 (7,187) Financial income - related parties 28 35 23 12 Impairment losses (reversals of impairment losses) on financial 0 (878) 878 assets measured using the equity method

PROFIT FOR THE YEAR BEFORE TAXATION 47,997 30,778 17,219

Current and deferred taxes 29 (41,940) (155,470) 113,530

PROFIT (LOSS) FOR THE YEAR 6,057 (124,692) 130,749

Profit (loss) for the year attributable to minority interests 0 0 0

PROFIT (LOSS) FOR THE YEAR ATTRIBUTABLE TO THE 6,057 (124,692) 130,749 SHAREHOLDERS OF THE PARENT

Basic earnings (loss) per share (€) 0,08 (1,57) 1,64

Diluted earnings (loss) per share (€) 0,08 (1,57) 1,64

Average number of shares 79,508,095 79,508,095 0

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Consolidated statement of income and expense recognised in the financial statements

2008 2007 €/000 €/000

Cash flow hedges:

- Change in the fair value of IRS hedges 0 145

- Change in the fair value of exchange rate hedges (727) (117)

Income and expense recognised directly in equity (727) 28

Profit (loss) for the year 6,057 (124,692)

Total income and expense recognised during the year 5,330 (124,664)

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Consolidated statement of cash flows for the year ended 31 December 2008

Note Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

A) Net cash and cash equivalents at the end of the previous year 65,510 52,158 13,352

B) Cash flows from operating activities 491,969 413,064 78,905

Cash flows before changes in working capital 424,053 385,489 38,564 Profit (loss) for the year 6,057 (124,692) 130,749 Adjustments for: Amortisation and depreciation 26 361,327 355,444 5,883 Amortised cost of capitalised financial expense 0 1,639 (1,639) Gains on investments 28 (593) 0 (593) Impairment losses (reversals of impairment losses) on non-current assets 26 45,545 25,485 20,060 Impairment losses (reversals of impairment losses) on financial assets 0 878 (878) stated using the equity method Losses (gains) on the disposal of non-current assets 26 2,914 1,069 1,845 Net change in provisions for risks and charges 15. 17 (36,206) (26,307) (9,899) Net change in post-employment benefits 14 1,069 (3,497) 4,566 Current and deferred taxes 29 41,940 155,470 (113,530)

Changes in working capital: 69,916 27,575 42,341

(Increase) decrease in inventories 8 (2,344) (1,610) (734) (Increase) decrease in trade receivables 9 (10,589) (132,735) 122,146 (Increase) decrease in trade receivables - related parties 9 406 (1,111) 1,517 (Increase) decrease in other assets 6.11 38,779 38,759 20 Increase (decrease) in trade payables 18 (1,144) 95,368 (96,512) Increase) decrease in trade payables - related parties 18 30,376 15,342 15,034 Increase (decrease) in other current liabilities 16.20 36,457 26,336 10,121 Increase (decrease) in current tax liabilities 19 (701) (3,150) 2,449 Income taxes paid 19 (21,324) (9,624) (11,700)

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Note Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

C) Cash flows from investing activities (436,859) (541,279) 104,420

Capital expenditure: (437,946) (544,483) 106.537 >Other intangible assets 3 (104,603) (96,879) (7.724) >Property, plant and equipment 1 (333,045) (447,035) 113.990 >Investments and other non-current financial assets 4, 5 (298) (569) 271 Disposals: 1,087 3,204 (2.117) >Property, plant and equipment 1 31 3,204 (3.173) >Investments and other non-current financial assets 4 1,056 0 1.056

D) Cash flows from financing activities (5,005) 141,567 (146,572)

(Increase) decrease in current financial assets - related parties 21 0 (600) 600

Increase (decrease) in non-current financial liabilities - related parties 21 246,040 1,238,613 (992.573)

Increase (decrease) in non-current bank loans 21 (2,295) (1,040,762) 1.038.467 Net financial expense 27, 28 80,518 61,958 18.560 Interest paid 27 (7,847) (47,436) 39.589 Interest paid - related parties 27 (80,755) (29,956) (50.799) Interest received 28 8,078 15,434 (7.356) Increase (decrease) in other non-current payables 21 (1,718) (1,409) (309) (Increase) decrease in taxes recognised in equity 13 (259) (597) 338 Distribution of reserves and dividends (246,040) (53,706) (192.334) Income and expense recognised directly in equity 13 (727) 28 (755)

E) Net cash flows for the year (B + C + D) 50,105 13,352 36,753

G) Net financial position at year end (A + E) 115,615 65,510 50,105

Cash and cash equivalents at year end

Cash and cash equivalents and bank deposits 115,620 69,398 46.222 Bank borrowings (5) (3,888) 3.883

Total net cash and cash equivalents 115,615 65,510 50,105

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Explanatory notes to the consolidated financial statements

FASTWEB S.p.A. (“FASTWEB” or the “Company” or the “Parent”) has its registered offices in Milan, Italy. FASTWEB is Italy’s main alternative broadband landline telecommunications service provider. It is also active on the mobile phone market thanks to an innovative agreement as a mobile virtual network operator (MVNO). Since its incorporation in Milan in 1999, FASTWEB has invested more than € 3.6 billion to create a next generation optical fibre network which is now more than 26,000 kilometres long. It is currently present in over 160 urban districts. Thanks to its all-IP network, with access in optical fibre and xDSL technology, FASTWEB has achieved convergence between telephony (landline and mobile) and internet, offering a vast range of broadband-based services, including IPTV. In March 2000, FASTWEB was listed on Borsa Italiana’s Nuovo Mercato and is now one of the top 40 companies on that market, with inclusion in Standard & Poor’s new index. Reference should be made to the Directors’ Report for information on the Group’s activities, business segments, performance and subsequent events. Since May 2007 the FASTWEB Group has been controlled by Swisscom Italia S.r.l., in turn indirectly controlled by Swisscom AG. Pursuant to article 2497-bis of the Italian Civil Code, it should be noted that the Company is managed and coordinated by Swisscom AG.

1 Preparation criteria

The consolidated financial statements as at and for the year ended 31 December 2008 have been prepared on a going concern basis and in line with IAS/IFRS international accounting principles issued by the International Accounting Standards Board (IASB) and endorsed by the European Commission. IAS/IFRS refers to International Financial Reporting Standards (IFRS) and revised International Accounting Standards (IAS), as well as intepretations issued by the International Financial Reporting Interpretations Committe (IFRIC). These financial statements have been prepared in Euro, this being the economy’s currency where the Company operates and the Company’s operating currency. They are comprise the Balance Sheet, the Income Statement, the Statement of Cashflows, the Statement of income and expense recognised in the financial statements and the Explanatory notes where amounts are expressed in thousands of Euros. Pursuant to the provisions of Legislative decree no. 58/98 and applicable regulations, the Group has not prepared a consolidated quarterly report for the fourth quarter of 2008 as drafts of the separate and consolidated financial statements will be made available to the public within 90 days of year end. In line with the consolidated financial schedules included in the annual financial statements as at and for the year ended 31 December 2007 and the interim financial statements as at and for the half year ended 30 June 2008, the Group has decided to present its financial position at 31 December 2008 and results of operations for the year then ended as follows: ƒ balance sheet: under IFRS, assets and liabilities are classified either as current and non-current or based on their liquidity. The Group has decided to adopt the current/non-current presentation format; ƒ income statement: IAS 1 requires that items be classified either based on their nature or function. The Group has decided to adopt the format where items are classified by nature; ƒ statement of changes in equity: IAS 1 requires that this schedule illustrate the change during the period in each individual equity caption or, alternatively, the nature of the income and expense recognised in the financial statements. The Group has decided to apply the latter type of schedule, and includes a reconciliation of the opening and closing balances of each caption in the notes;

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ƒ statement of cash flows: IAS 7 requires that the statement of cash flows set out cash flows during the period classified by operating, investing and financing activities. Cash flows from operating activities can be presented using the direct or indirect method. The Group has decided to use the indirect method. The consolidated financial statements as at and for the year ended 31 December 2008 are based on the general historical cost principle, with the exception of the derivative financial instruments, which are carried at fair value. The accounting policies used to draw up the consolidated financial statements, as well as the contents and changes in each caption are described below. When necessary for a better understanding, the corresponding figures have been restated. The reclassified amounts relating to the previous year are summrised in the following table.

Caption in the 2007 financial statements Amount

Trade receivables due after more than one year: from 'Trade receivables' to 'Other non current assets' 1,074,576

Guarantee deposits received from customers: from 'Other current liabilities' to 'Other non currect liabilities' 19,727,500

Short term portion of other non current liabilities: from 'Other non current liabilities' to 'Other current liabilities' 5,691,685

Credit notes receivable: from 'Other current assets' to 'Trade payables' 22,707,545

Credit notes to be issued: from 'Other current liabilities' to 'Trade receivables' 7,189,118

The accounting policies have been applied consistently throughout all Group companies. Reference should be made to previous reports for information on earlier years, available on the website www.company.fastweb.it/. The Board of Directors approved the publication of these consolidated financial statements on 25 February 2009.

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2 Consolidation policies

The financial statements of the companies included in the consolidation scope, prepared under the Group’s IFRS-compliant policies, have been used for consolidation purposes. Subsidiaries are consolidated on a line-by-line basis from the date when the Parent takes control and until such control ceases to exist. This method of consolidation involves the elimination of the carrying amount of the investments in each subsidiary against the amount of equity at the time of acquisition. The acquisition is recognised at cost, which is measured at the fair value of the assets acquired, the shares issued or the liabilities taken on at the acquisition date as well as any costs directly attributable to the acquisition. Any positive difference between the acquisition cost and the fair value of the assets and liabilities of the subsidiary acquired is accounted for as goodwill. Companies are considered to be subsidiaries when the Parent either directly or indirectly through its subsidiaries holds the majority of voting rights. The financial statements are included in the consolidated financial statements from the time the Parent begins to exercise control until such time as control ceases. The financial statements of those companies consolidated on a line-by-line basis, modified where necessary to bring them into line with the Group’s accounting policies, have been used for consolidation purposes. Receivables, payables, revenue and expenses, any unrealised gains and losses, as well as guarantees, commitments and risks related to transactions between consolidated companies are eliminated. Fastweb Finance S.p.A. was excluded from the consolidation scope on 31 July 2008 following its liquidation. The new consolidation scope at 31 December 2008 is summarised below.

Holding % Holding % Registered Business 31 December 31 December offices activity 2008 2007 %%

FASTWEB S.p.A. Parent Parent Milan Telecommunications e.BisMedia S.p.A. 100 100 Milan Media & B2C

FASTWEB Finance S.p.A. 0 100 Milan Dormant

Investments in associated companies are initially recognised at cost and subsequently consolidated using the equity method with respect to the portion attributable to the shareholders of the Parent. The profit (loss) of the associate after the date of acquisition is taken to the income statement in proportion to the portion owned by the Group. Changes in equity are recognised in consolidated equity. The carrying amount of the investment is increased or decreased to take account of the overall changes that took place after the date of acquisition. The Parent holds 60% of QXN, a consortium limited by shares, (“QXN”) equal to the portion of the tender it won for the provision of services to the National Public Sector IT Centre (“CNIPA”). It was set up in June 2006 to provide Italy’s Public Administration with an interconnection network infrastructure named Qualified eXchange Network within the public connection system (SPC). This network guarantees secure, high-quality communication services between all SPC providers. The investment in QXN was not consolidated at 31 December 2008 because it is immaterial with respect to the Group’s financial position and results of operations. Accordingly, this investment was measured using the equity method.

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3 Segment reporting

Since its set up, FASTWEB has positioned itself in the broadband services sector, creating alternative new generation transmission networks to the traditional telephone network covering the main Italian cities and outer city areas. FASTWEB’s competitive edge is based on an innovative technological solution using extensively the Internet Protocol (IP) for the integrated management of voice, data and video with optical fibre and xDSL systems. This solution enabled the Company to achieve two objectives at once: provide customers with an unprecedented and almost unlimited band in Italy and be extremely efficient in investments in infrastructures. Thanks to this platform, the Company reunited several functions which used to be separate and provided the opportunity to develop innovative services with a high added value, by using just one connection. FASTWEB provides a wide range of services to all the segments of its market (small, mid-size and large companies, firms, shops and residential customers): from telephony services and broadband internet connection to the most sophisticated videocommunication applications (videoconference for companies and videotelephony for families), virtual private networks (VPN), audio and video streaming, telework, telemonitoring, digital and interactive TV and Video on Demand. Most expenditures and investments do not relate to either a certain geographical or business segment. Although the sales offer is different for the different types of customers, there are no specific and identifiable risks and benefits for either business segment. Similarly, expenditures and investments cannot be reasonably allocated, except through arbitrary allocations which would not improve reporting, considering the telecommunications sector as a whole. Likewise, at present, geographical segments cannot be identified, as the Group operates exclusively on the Italian market with the same offer throughout Italy. In this context, the Directors do not believe that reporting by geographical or business segment would facilitate a better understanding of the business results, or improve the reporting of risks and profitability. As commented upon in paragraph 3 “Accounting principles and policies”, in relation to the amendments in the IAS/IFRS accounting principles which have not yet come into effect, it should be noted that the directors will define the content of the segment information based on an internal report as permitted by IFRS 8, which is applicable from 2008.

4 Accounting principles and policies

Unless stated otherwise in the measurement criteria detailed below, these financial statements have been prepared in compliance with the general historic cost principle. The most significant accounting principles and policies adopted in the preparation of these financial statements are detailed below. These principles and policies are consistent with those applied to the financial statements as at and for the year ended 31 December 2007 except for the change in the criteria used to measure certain items of property, plant and equipment. Based on the technical assessments carried out by management, the useful life of some assets related to the activation of telecommunication services for customers has been recalculated to reflect their correct useful life. The impact of the change in accounting estimates about the useful life of these categories of assets is shown on a prospective basis beginning from 2008, as required by IAS 8. The effects of this change on the carrying amount of non-current assets and equity at 31 December 2008 and the profit for the year, and for future years, are described in the notes to the specific captions.

Property, plant and equipment Property, plant and equipment are stated at purchase or production cost, including directly attributable costs or costs required to make an asset available for use, net of depreciation and accumulated impairment losses.

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The cost of internally-produced assets includes the cost of the materials used, direct labour and an appropriate portion of general production expenditures. Costs incurred after purchase are only capitalised if they increase the future economic benefits that the asset will generate. All other costs are expensed when incurred. Costs to replace identifiable components of assets are recognised under balance sheet assets and the residual carrying amount of the replaced component is expensed. Ordinary maintenance and repair costs are expensed in the year in which they are incurred. Financial expense related to the purchase of such assets is recognised in the income statement unless it is directly attributable to the purchase, construction or production of an asset that justifies its capitalisation. Assets under construction are included in the caption “Assets under construction” until they are completed, after which they are reclassified to “Property, plant and equipment” and are depreciated. Depreciation is recognised starting from the month in which the asset becomes available for use or is potentially able to provide the economic benefits associated therewith, on a systematic basis, whereby the assets are depreciated over their useful lives or, in the event of disposal, until their final month of use. For assets disposed of during the year, depreciation is calculated for the period in which the asset was available for use. The assets are eliminated from the balance sheet when the significant risks and benefits of ownership are transferred to third parties. With regard to capitalised activation costs, these are eliminated when the relating customer communicates the cancellation of his service contract. The estimated useful lives of property, plant and equipment have not changed are shown below: Useful life years Civil buildings (excluding appurtenance land) 33 Plant and machinery: Cable pipelines, excavations 40 Optical fibre 20 Building connections 20 Network and access infrastructures 12-5 Information technology infrastructures 3 Electronic telephone systems 5 Specific and generic plant 8-5 Other assets: Furniture and electric and electronic office machines 8-3 Vehicles 5 Radiotelephones 5 Customer equipment 5 Customer connection costs 6 Other assets 5

The estimated useful lives of the tangible fixed assets have not changed during the course of the year except for the customer connection costs. This caption includes the initial costs of a varying nature: for example, the cost of connecting customers to the network and activation contributions paid to Telecom Italia). They are incurred following customer acquisition in order to grant them access to the infrastructure and enable them to use the telecommunication services offered by the company. As from 2008, on the basis of a technical assessment carried out by management, the useful life of these types of costs has been revised downwards from 7 to 6 years. The effect of this change in the accounting estimates relating to the useful lives of this category of investments has been reflected using the prospective method, in accordance with the provisions of IAS 8 at paragraph 36. Reference should be made to note 1 for the amount. Appurtenance land related to buildings owned by the Group or acquired under finance leases is stated separately and is not depreciated. The indefeasible rights of use of infrastructures, classified under property, plant and equipment because they are purchased with indefeasible rights of use, are depreciated starting from the date on which they are available for use over the shorter of the term of the contract and estimated useful life and are accounted for in accordance with IAS 17.

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Forgivable grants related to assets referring to property, plant and equipment are recognised at the time the disbursing body gives formal approval. They are recognised in the income statement over the depreciation period of the related assets Leasehold improvements are classified under property, plant and equipment depending on the nature of the asset to which they refer. The depreciation period is based on the lower of the asset’s remaining useful life and the residual duration of the lease contract of the principal asset. Residual amount, useful life and the depreciation methods are reviewed at the end of each year. Should an item of property, plant or equipment be made up of various components with different useful lives, such components are accounted for separately.

Finance leases Assets acquired under finance leases, where substantially all the risks and rewards of ownership of the leased assets are transferred to the lessee, are capitalised at the inception date of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at inception, and net of accumulated depreciation and impairment losses, with the related financial payable as a balancing entry. The cost of the lease payment is separated into interest, which is expensed, and principal, which is recognised as a reduction in the financial payable and depreciated as in the following paragraphs. Assets of which the Group is reasonably certain of acquiring ownership at the end of the lease are depreciated over the asset’s estimated useful life. If, when the finance lease is agreed, the Group is not reasonably certain that it will purchase the asset, it is depreciated over the shorter of the term of the lease and the asset’s estimated useful life.

Goodwill The purchase cost method is used to recognise business combinations. In this case, the assets, liabilities and contingent liabilities acquired and that may be identified are recognised at their fair value at the date of acquisition. Any positive difference between the purchase cost and the portion attributable to the Group in the fair value of these assets and liabilities is classified as goodwill and recognised under intangible assets with indefinite useful lives. Any negative difference is recognised in the income statement at the time of acquisition. Goodwill arising on business combinations is not amortised, but is subject to regular impairment testing, as described in the following section “Impairment of property, plant and equipment and intangible assets”. These tests are carried out at least annually. Goodwill recorded in the balance sheet relates entirely to business combinations which occurred before 1 January 2004, the date of transition to IFRS. As such, this goodwill has been determined on the basis of the amounts recorded in accordance with the previous accounting policies and considering any necessary adjustments relating to intangible assets in the balance sheet of the acquiree recognised on the basis of those prior accounting policies but which did not meet the capitalisation requirements under IAS 38. Other than goodwill, there are no other intangible assets with indefinite useful lives.

Other intangible assets Intangible assets are recognised when they can be identified, are controlled by the Group and are able to produce future economic benefits. Intangible assets are recognised at purchase cost determined using the same criteria as for property, plant and equipment cited above, net of accumulated amortisation and impairment losses. Intangible assets with a finite useful life are amortised on a systematic basis over their useful life, being the estimated period over which the Group will use the assets. The recoverability of their carrying amount is assessed using the same criteria described in the previous section “Property, plant and equipment”. Amortisation commences when the asset is available for use. It is recognised monthly on a systematic basis.

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The amortisation rates applied are as follows: Useful life year Concessions and licenses 25 Network software and software projects 7 IT software and software projects 3 ISP software and software projects 5

Research expenditure is taken to the income statement when incurred. Intangible assets resulting from internal development projects are recognised only if certain criteria are met: the technical feasibility of the asset has been verified and the resources necessary to complete its development and use it are available. In addition, the cost attributable to the asset should be reliably measurable throughout the entire development process, and the asset is recognised only after the economic benefits of its use have been measured. Gains or losses arising on the disposal of intangible assets are calculated as the difference between the asset’s disposal and carrying amounts. They are recognised in profit or loss on disposal.

Impairment of property, plant and equipment and intangible assets Property, plant and equipment and intangible assets are subject to regular impairment testing. This entails estimating the asset’s recoverable amount and comparing it to its net carrying amount. If the recoverable amount is lower than the carrying amount, the latter is reduced to the recoverable amount. This constitutes an impairment loss, which is recognised in profit or loss. The recoverable amount is the higher of an asset’s fair value less costs to sell, if there is an active market, and its value in use. If there is no binding sales agreement, the fair value is estimated at the amounts expressed by an active market, by recent transactions or on the basis of the best available information indicating the amount that the company would obtain from the asset’s sale. Value in use is the present value of the estimated future cash flows expected to arise from the continuing use of an asset or cash generating unit and from its disposal at the end of its useful life. The cash flows are determined on the basis of reasonable and documented assumptions representing the best estimate of the future economic conditions that will take place over the residual useful life of the asset, giving greatest weight to external indicators. The discounting rate (pre-tax) takes into account the risk implicit in the business sector and the time value of money. Goodwill and other intangible assets with indefinite useful lives or that are not yet available for use are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. Other property, plant and equipment and intangible assets are subjected to impairment tests if changed circumstances or events indicate a possible non-recovery of the carrying amount. Testing takes place at least at each year end. With the exception of losses relating to goodwill, impairment losses are reversed when the circumstances that resulted in their recognition change or no longer exist. The carrying amount of the assets is increased to the new estimated recoverable amount, but it cannot exceed the value, net of amortisation/depreciation for the period, at which it would have been stated had the impairment loss not been recognised. The reversal of a loss is taken directly to profit or loss.

Investments Investments in associated companies are measured using the equity method by adjusting the carrying amount of the investment to the corresponding share of equity held. These adjustments are taken to profit or loss. If the Group’s interest in an associate’s losses exceeds the carrying amount of the investment recognised in the consolidated financial statements, the investment amount is reduced to zero and the additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations.

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Investments in other companies are initially recognised at cost and adjusted to fair value at the balance sheet date with a balancing entry in equity. If quotations are not available on an active market and the fair value cannot be accurately determined, they are measured at their purchase price. Periodic tests are carried out to check for impairment in these investments. If there is objective evidence that an investment is impaired, the impairment is recognised in profit or loss.

Inventories Inventories are recognised at the lower of estimated realisable value and their cost measured using the weighted average cost method. Cost includes purchase cost and all costs and directly attributable expenses incurred to bring the goods to their present location and condition. A provision for inventories is calculated to take into account obsolete and slow-moving items, considering their expected future use and realisable value. Estimated realisable value represents the estimated sales price in normal business conditions, net of estimated costs to sell.

Foreign currency receivables and payables Transactions in foreign currency are translated into Euros using the exchange rate ruling on the transaction date. Foreign currency monetary assets and liabilities are translated into Euros using the exchange rate ruling at year end. Any exchange differences arising on settlement of the transaction or on translation of the monetary assets and liabilities using year-end exchange rates are recognised in profit or loss under financial income and expense, with the exception of those deriving from hedging transactions.

Trade and other receivables and payables Trade and other receivables are recognised at amortised cost, net of the provision for doubtful debts. This provision is calculated on the basis of recovery assessments by analysing each position and the overall risk of the receivable to which it relates. Receivables of any type with a risk of non-recovery are written down when identified by the amount considered unlikely to be collected. All factored receivables that are not eligible for derecognition under IAS 39 remain in the Group’s consolidated financial statements although they have been sold from a legal point of view. Factored receivables are therefore included under assets and a financial liability of the same amount is recognised.

Financial instruments IAS 39 applies to all financial assets and liabilities and to financial instruments, except for certain categories rigidly established by the same accounting standard. The presentation in the financial statements of financial instruments is based on the requirements of IAS 32, as adjusted and integrated by the new IFRS 7. There was no offsetting between financial assets and liabilities. In particular, the financial instruments are as follows:

Cash and cash equivalents Cash and cash equivalents these include cash and short-term bank and postal deposits available on demand with an original term of three months or less.

Other financial assets Other financial assets include the held-to-maturity investments: these are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. They are recognised at amortised cost using the effective interest method, as defined above, net of any impairment losses.

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They are regularly tested for objective evidence indicating that a financial asset or group of assets may be impaired. In this event, the impairment loss is recognised in profit or loss. Financial assets that are sold are derecognised when, together with the related cash flows, there is a substantial transfer of all the risks and rewards associated with their ownership. Hedging instruments are measured using the method described in the section “Derivative financial instruments”.

Financial liabilities Financial liabilities are initially recognised at fair value plus the directly attributable transaction costs. They are subsequently measured at amortised cost. Under this criterion, all the capitalised financial expense related to the granting of loans is therefore recorded as a reduction in the payable. Any resulting differences between cost and the repayment amount are taken to the income statement over the term of the loan based on the effective interest method.

Derivative financial instruments Consistently with the Group’s strategy for the management of financial risks, and as permitted by IAS 39, derivative financial instruments are used to hedge currency risks. Accordingly, hedging derivative financial instruments in place are recognised using hedge accounting at the inception of the hedge, and, in particular, when: ƒ there is formal designation and documentation of the hedging relationship; ƒ the hedge is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship; ƒ the effectiveness of the hedge can be reliably measured and determined to have been highly effective throughout the financial reporting periods for which the hedge was designated as set out in IAS 39. The Group’s transactions come under the category of cash flow hedges as the derivatives used are designated as hedges of highly probable forecast transactions (purchase of property, plant and equipment in foreign currency). As such, the effective portion of the changes in the fair values of the derivative hedging instruments is recognised in an equity reserve and the balancing entry is taken to a balance sheet asset or liability classified in other financial assets and liabilities. Any ineffective portion of fair value of gains and losses of the hedging instrument is taken immediately to profit or loss when it arises. If the hedge of a highly probable forecast transaction leads to the subsequent recording of a non-financial asset or liability (for example, a non-current asset), the associated gain or loss is reversed from equity and included in the initial cost or another carrying amount of the non-financial asset or liability when it becomes known. With the exception of the hedge commented upon in the paragraph above, the amounts in relation to cash flow hedges are removed from equity and are taken to the income statement in the same year or years in which the forecast hedging transaction affects the income statement. When the hedging instrument reaches maturity or is sold, transferred or exercised, or no longer designated as a hedge, but is still expected to affect future cash flows or its future performance is still considered probable, the accumulated gains or losses related to the hedging instrument are maintained in equity and are treated in accordance with the standard above when the transaction is performed. Alternatively, the gains/losses may be taken to the income statement over the remaining term of the hedge at the early termination date. If it is believed that the forecast transaction will not be performed, the accumulated unrealised gains or losses are taken to profit or loss immediately.

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Employee benefits Post-employment benefits Following the changes made to the rules regarding post-employment benefits (“TFR”) defined by Law no. 296 of 27 December 2006 and the subsequent decrees and regulations (Social Security Reform) enacted in the first few months of 2007, the Group has adopted the following accounting treatment: ƒ TFR vested until 31 December 2006 is considered a defined benefit plan under IAS 19. The benefits granted to employees, in this form, paid out upon termination of employment, were recognised over the vesting period. The related liability is calculated on the basis of actuarial assumptions and the actual benefit vested and not yet paid out at the balance sheet date, applying the criteria laid down by the law. The discounting process is based on demographic and financial assumptions, using the “Projected Unit Credit Method” (“vested benefit” method) applied by qualified actuaries. This method involves calculating the average present value of the pension obligations on the basis of the employee’s service rendered up to the measurement date. In consideration of the new rules introduced by this reform, the component linked to future salary increases was excluded from the discounting calculation as from 1 January 2007. The actuarial gains and losses are taken to the income statement on an accruals basis over the period of service necessary to earn the benefits. By not applying the corridor approach, the actuarial gains and losses are all charged to the income statement in the year to which they relate; ƒ TFR accrued from 1 January 2007 is considered as a defined contribution plan and, therefore, the contributions accrued during the year have been expensed as a cost and disclosed as a liability under “Other current liabilities”, after having deducted any payments already made.

Provisions for risks and charges Provisions for risks are recorded when: ƒ the Group has a legal or constructive obligation to third parties; ƒ it is probable that there will be an outlay of resources to meet the obligation; ƒ a reliable estimate of the amounts of the obligation can be made. A constructive obligation is defined as an obligation arising when the Group has made other parties aware, by way of routine procedure, or by public company policy or by a sufficiently specific announcement, that it accepts the obligation in a way that it leads the third party, as a consequence, to believe that the Group will honour its obligation. Provisions for risks and charges are recognised at an amount which represents the best estimate of the amount the Group will have to pay in order to settle the obligation, or otherwise transfer it to third parties at the end of the year. When the effect of the time value of money is material and the payment dates for the obligations may be estimated reliably, the provision is discounted; the increase in the provision due to the passing of time is recognised in the income statement caption “Financial expense”. The provisions for risks and charges are updated regularly to reflect changes in cost estimates, settlement times and the discount rates.

Revenue and cost recognition Revenue, income, costs and charges are recognised net of returns, discounts, allowances and premiums. In particular: ƒ revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership of the goods have been transferred to the buyer;

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ƒ revenue from services, including that relating to telephone and data traffic, internet and internet video and prepaid card top-ups, is recognised in the income statement using the percentage of completion method at year end and, specifically, in the year in which the service is rendered and on the basis of the actual traffic. Revenue is not recognised when there is uncertainty regarding its recoverability, its associated costs or the possibility that the goods will be returned; ƒ amounts collected for connections and activations are recognised in the year in which the service is activated as they largely offset commercial and operating costs related to the acquisition of customers, recognised in profit or loss in the same year; ƒ project contributions charged for the development of particularly complex customised solutions for certain customers are recognised in the income statement to cover initial costs upon the customer’s acceptance of the project; ƒ revenue from the concession of indefeasible rights to use infrastructure are recognised upon transfer of the underlying right and, therefore, the related risks and rewards, which corresponds to acceptance by the customer; ƒ government grants related to assets for the purchase of non-current assets are accounted for when the formal approval by the granting body is received. They are taken to the income statement on an accruals basis. The fair value is recognised under non-current liabilities and progressively released to profit or loss on a straight-line basis over the useful life of the asset to which it relates; ƒ expenses are recognised when they relate to goods and services acquired or used during the year or are systematically allocated to the year when a residual useful life after year end cannot be identified; ƒ expenses directly attributable to share capital operations are recognised as a direct reduction of equity; ƒ selling costs incurred in relation to the acquisition of new customers are charged to profit or loss when incurred; ƒ financial expenses and incomes are accounted for on the basis of the effective interest method, that is using the interest rate which financially equates all flows in and out (including premuims, disagio, commissions, etc.) that make up a certain operation. The financial charges are never recorded among assets.

Income tax Income taxes include all taxation calculated on the taxable income recorded by the Group companies, applying the tax rates in force at the date of preparation of this report. With the exception of taxation related to captions credited or charged directly to equity, income tax is expensed in profit or loss. Other forms of taxation not related to earnings, such as property and capital taxes, are included under operating expenses (“Purchases, services and other expenses”). Deferred taxes are calculated on the basis of the timing differences between the company’s book value of assets and liabilities and their tax value. The deferred tax assets and liabilities are calculated applying the rate in force at moment the temporary differences will reverse. Deferred tax assets are recorded to the extent that the existence of taxable income is considered probable, both in the years where the relating temporary differences are expected to reverse, and for an amount at least equal to the amount of the differences that they will reverse against. Deferred tax assets are recognised under non-current assets only when it is probable that there will be sufficient future taxable income to ensure their recovery. Deferred tax assets are reviewed at each year end to ascertain their recoverability. When their recoverability is no longer probable, they are taken to profit or loss. Current taxes for the year are calculated using the expected effective tax rate at year end.

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Dividends Dividends are recognised when the shareholders’ right arises to receive the payment, normally corresponding to the shareholders’ resolution to distribute a dividend. The distribution of dividends to company shareholders is recorded as a liability in the period in which its distribution is approved by the Shareholders’ meeting.

Earnings/(loss) per share The basic earnings/(loss) per share are calculated on the profit/(loss) for the year, weighted by the number of ordinary shares outstanding during the year. The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in circulation assuming the conversion into ordinary shares of all the assigned options with a diluting effect. At the edn of 2006, the Company only had one class of potentially ordinary shares with a diluting effect regarding the debenture loan.

Significant accounting estimates The preparation of the IFRS-compliant financial statements and related notes requires estimates and assumptions to be made by management that which have an effect on the asset and liabilitiy values in the financial statements and on the information relating to potential assets and liabilities at the date of the financial statements. Such estimates and assumptions are based on past experience and on other factors deemed to be appropriate. They have been made in order to determine the carrying amounts of assets and liabilities which are not otherwise easily deducible from other sources. They are reviewed periodically and the effects of any changes in value are taken immediately to profit or loss. However, being estimates, it should be noted that actual future results could differ from those included in the financial statements. Disclosures about the areas of greatest uncertainty when making estimates and assessments during the application of IFRS, which have a material effect on the carrying amounts, are given in the following notes: ƒ Note 1 Buildings, plant, machinery and equipment; ƒ Note 2 Goodwill; ƒ Note 6 Deferred tax assets; ƒ Note 9 Trade receivables; ƒ Note 14 Post-employment benefits; ƒ Notes 15 and 17 Provisions for risks and charges.

New accounting policies The IASB and IFRIC (International Financial Reporting Interpretation Committee) have issued new standards and interpretations effective from 1 January 2008 which are either not applicable or do not have significant effects for the Group. The main amendments relate to: ƒ IFRIC 11 “IFRS 2 - Group and Treasury Share Transactions” requires that share based payments where an entity receives goods or services as a consideration for equity instruments be recognised as equity- settled transactions, regardless of whether the entity decides to buy, or is required to buy, these instruments. ƒ IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” describes when economic benefits in the form of refunds from the plan or reductions in future contributions to the plans are to be considered available. It also sets out guidelines on the impact of the minimum funding requirements for such plans. It also deals with cases when such minimum funding requirements give rise to a liability.

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ƒ Amendment to IAS 39 – reclassification of one or more categories of financial instruments. The new standards and interpretations, endorsed by the Community legislature but not yet applicable and for which the Group is assessing how and when to apply them, are described below. ƒ IAS 23 “Borrowing costs” eliminates the possibility to recognise borrowing costs in profit or loss and requires that they be directly recognised in the purchase, construction or production cost of the qualifying asset. The revised IAS 23 is applicable for annual periods beginning on or after 1 January 2009. ƒ IFRS 8 “Segment reporting” introduces the concept of the “management approach” to prepare segment reporting. The standard is applicable from 1 January 2009 and requires entities to base the information given in the segment reporting on internal reports in order to make decisions about resources to be allocated to the different segments and assess its performance. ƒ IFRIC 13 “Customer Loyalty Programmes” deals with the recognition by entities that provide, or are involved in, these programmes. The interpretation refers to customer loyalty programmes when the customer has the right to credits in the form of free or discounted goods or services. It is applicable from 1 January 2009. ƒ Amendment to IFRS 2 - “Share-based payment”. This amendment is applicable from 1 January 2009. ƒ Amendment to IAS 1 “Presentation of financial statements”. This amendment is applicable from 1 January 2009. ƒ Amendment to IAS 32 “Financial instruments”, for the reclassification of certain categories of financial liabilities to equity, which also affects IAS 1. This amendment is applicable from 1 January 2009; ƒ Amendment to IFRIC 5 - This amendment sets a classification for non-current assets held for sale and is applicable from 1 January 2009. ƒ IFRIC 15 - “Agreements for the construction of real estate”. This interpretation defines the accounting for revenue from the construction of real estate. It is applicable from 1 January 2009. ƒ IFRIC 16 - “Hedges of a net investment in a foreign operation” based on the guidelines given in IAS 39 and IAS 21. This interpretation has been applicable from 1 October 2008. ƒ Amendment to IAS 16 – An asset must be shall be derecognised from the balance sheet when they are unusable and/or no future economic benefits are expected from their scrapping. This amendment is applicable from 1 January 2009. ƒ Amendment to IAS 20 - The scope of IAS 20 is to illustrate how to account for government grants and disclose government assistance. This amendment is applicable from 1 January 2009. ƒ Revision of IAS 36 - Verification at the closing date that no assets have a carrying amount greater than their recoverable amount. This amendment is applicable from 1 January 2009. The Group is assessing the potential effects of applying IFRS 8 and IAS 23 presently not reasonably estimable, while the other standards and interpretations should not affect it.

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5 Notes to the main balance sheet captions

The most significant changes in the balance sheet captions at 31 December 2008 compared to 31 December 2007 are discussed below. Amounts in brackets relate to comparative figures. Amounts are expressed in thousands of Euros.

Note 1 Property, plant and equipment At 31 December 2008, this caption amounts to € 1,865,747 thousand (€ 1,853,610 thousand). Changes in property, plant and equipment for the years 2007 and 2008 are set out in the following tables.

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2007 Opening balance Variation in the year Closing balance Historic Accumulated Net carrying Additions/ Impairment Reclassifications Depreciation Historic Accumulated Net cost depreciation amount disposals losses cost depreciation carrying (reversals amount of impairment losses) €/000 €/000€/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000 Land and buildings 69,752 (10,801) 58,951 (432) 0 0 (2,533) 68,653 (12,667) 55,986

Land 6,725 06,725 (766) 0 0 0 5,959 0 5,959 Civil buildings 23,898 (2,447) 21,451 (2,113) 0 0 (729) 21,118 (2,509) 18,609 Building improvements 6,543 (3,001) 3,542 1,573 0 0 (1,126) 8,116 (4,127) 3,989 Leased land 6,985 0 6,985 0 0 0 0 6,985 0 6,985 Leased buildings 19,015 (1,738) 17,277 0 0 0 (569) 19,015 (2,307) 16,708 Leaseholds building improvements 6,586 (3,615)2,971 874 0 0 (109) 7,460 (3,724) 3,736

Plant and machinery 2,510,967 (934,947) 1,576,020 380,776 (23,268) 77,942 (263,172) 2,926,670 (1,178,372) 1,748,298

Cable pipelines 217,953 (18,443) 199,510 21,236 0 0 (5,661) 239,189 (24,104) 215,085 Indefeasible rights of use of cable pipelines 211,309 (37,412) 173,897 16,044 0 0 (11,158) 227,353 (48,570) 178,783 Optical fibre 128,371 (18,997) 109,374 18,511 0 2,613 (6,786) 149,495 (25,783) 123,712 Indefeasible rights of use of optical fibre 120,806 (24,347) 96,459 36,560 0 0 (9,129) 157,366 (33,476) 123,890 Building connections 126,715 (24,444) 102,271 3,478 0 0 (6,449) 130,193 (30,893) 99,300 Indefeasible rights of use of drops 6,135 (1,409)4,726 31 0 0 (308) 6,166 (1,717) 4,449 Network and access infrastructures 1,498,932 (684,452) 814,480 277,873 (23,200) 95,386 (201,913) 1,837,278 (874,652) 962,626 Information technology infrastructures 145,129 (104,164) 40,965 5,909 (4) (19,966) (13,693) 126,087 (112,876) 13,211 Electronic telephone systems 28,800 (14,696) 14,104 174 (64) (91) (4,790) 25,766 (16,433) 9,333 Specific and generic plant 26,817 (6,583) 20,234 960 0 0 (3,285) 27,777 (9,868) 17,909 Other assets 61,554 (37,874) 23,680 7,853 (1,863) (7,195) (8,841) 60,314 (46,682) 13,632

Customer devices 46,625 (31,605) 15,020 4,512 (1,863) (7,195) (5,688) 42,079 (37,293) 4,786 Other assets 14,929 (6,269) 8,660 3,341 0 0 (3,153) 18,235 (9,389) 8,846

Assets under construction 49,682 0 49,682 54,566 (355) (68,201) 0 35,692 0 35,692

Assets under construction 49,682 0 49,682 54,566 (355) (68,201) 0 35,692 0 35,692

TOTAL 2,691,955 (983,622) 1,708,333 442,763 (25,486) 2,546 (274,546) 3,091,329 (1,237,721) 1,853,610

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2008 Opening balance Variation in the year Closing balance Historical Accumulated Carrying Additions/ Impairment Reclassifications Depreciation Historical Accumulated Carrying cost depreciation amount disposals losses cost depreciation amount (reversals of impairment losses) €/000 €/000€/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000 Land and buildings 68,653 (12,667) 55,986 3,758 (14) 0 (2,339) 71,618 (14,227) 57,391 Land 5,959 05,959 0 0 0 0 5,959 0 5,959 Civil buildings 21,118 (2,509) 18,609 1,278 0 0 (667) 22,396 (3,176) 19,220 Buildings - improvements 8,116 (4,127) 3,989 987 (14) 0 (963) 8,310 (4,311) 3,999 Leased land 6,985 0 6,985 0 0 0 0 6,985 0 6,985 Leased buildings 19,015 (2,307) 16,708 0 0 0 (568) 19,015 (2,875) 16,140 Buildings - leasehold 7,460 (3,724) 3,736 improvements 1,493 0 0 (141) 8,953 (3,865) 5,088

Plant and machinery 2,926,670 (1,178,372) 1,748,298 262,496 (45,053) 73,675 (263,247) 3,009,554 (1,233,385) 1,776,169 Cable pipelines 239,189 (24,104) 215,085 14,187 0 0 (6,155) 253,376 (30,259) 223,117 Indefeasible rights of use of 227,353 (48,570) 178,783 cable pipelines 1,925 0 0 (12,107) 229,278 (60,677) 168,601 Optical fibre 149,495 (25,783) 123,712 14,337 0 1,608 (7,820) 165,440 (33,603) 131,837 Indefeasible rights of use of 157,366 (33,476) 123,890 optical fibre 9,641 (1) 12,556 (11,613) 179,563 (45,090) 134,473 Building connections 130,193 (30,893) 99,300 2,054 0 0 (6,536) 132,247 (37,429) 94,818 Indefeasible rights of use of 6,166 (1,717) 4,449 drops 0 0 0 (309) 6,166 (2,026) 4,140 Network and access 1,837,278 (874,652) 962,626 infrastructures 214,770 (44,899) 59,511 (204,707) 1,860,536 (873,235) 987,301 Information technology 126,087 (112,876) 13,211 infrastructures 5,474 (2) 0 (7,418) 129,620 (118,355) 11,265 Electronic telephone systems 25,766 (16,433) 9,333 0 (17) 0 (2,642) 25,721 (19,047) 6,674 Specific and generic plant 27,777 (9,868) 17,909 108 (134) 0 (3,940) 27,607 (13,664) 13,943

Other assets 60,314 (46,682) 13,632 2,458 (1,517) 1,874 (6,832) 31,046 (21,431) 9,615 Customer devices 42,079 (37,293) 4,786 801 (1,310) 1,874 (3,794) 11,593 (9,236) 2,357 Other assets 18,235 (9,389) 8,846 1,657 (207) 0 (3,038) 19,453 (12,195) 7,258

Assets under construction 35,692 0 35,692 61,390 1,039 (75,549) 0 23,407 (835) 22,572 Assets under construction 35,692 0 35,692 61,390 1,039 (75,549) 0 23,407 (835) 22,572

TOTAL 3,091,329 (1,237,721) 1,853,610 330,102(45,545) 0 (272,418) 3,135,625(1,269,878) 1,865,747

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Investments totalled € 330,102 thousand during the year and mainly include expenses incurred to acquire IP and SDH network infrastructure, customer equipment and costs incurred for the activation of new customers. They also reflect the acquisition of indefeasible rights to use cable pipelines and optical fibre. The impairment losses, amounting to € 45,545 thousand, include an extraordinary item recorded by the Company following a reconcilation process completed during the year between the existing physical assets and their book values mainly in relation to customer premises equipment. In addition, the caption included € 28,114 thousand relating to value adjustments made to the activation costs incurred in previous years which are no longer recoverable following the cancellation of the contract by the customer. As already described in the section on accounting policies, beginning from 2008, based on the technical assessments carried out by management, the useful life of the activation costs was redefined shortening the depreciation period from 7 to 6 years. The following table shows the effects on net equity and profits (losses) for future years: Equity Profit (loss) for the year €/000 €/000

2008 2,660 2,660 2009 5,320 2,660 2010 7,980 2,660 2011 10,640 2,660 2012 9,823 (817) 2013 3,838 (5,985) 2014 0 (3,838)

The caption “Property, plant and equipment” includes capitalised personnel expenses for staff involved in building and expanding the Group’s network totalling € 123,111 thousand, € 23,194 thousand of which related to 2008. The personnel expenses capitalised in this caption may be analysed as follows:

31 December 31 December 2008 2007 €/000 €/000

Plant and machinery 123,111 99,917

Total recognised in “Property, plant and equipment” 123,111 99,917

Accumulated depreciation (63,336) (46,682) Carrying amount recognised in “Property, plant and equipment” 59,775 53,235

“Assets under construction” include the portion of network and access infrastructures which were not yet available for use at year end, in addition to optical fibre to be laid and devices not yet installed at customer premises.

Guarantees The Group’s building in Via Valcava, Milan, with a carrying amount of € 8,129 thousand (€ 8,320 thousand) at 31 December 2008, is charged with first and second level mortgages to secure the loan granted by a leading bank to finance its purchase.

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Commitments for capital expenditure The Group has commitments for purchase orders already issued to suppliers at year end of € 41,027 thousand (€ 48,446 thousand) and for forward contracts to hedge the exchange rate risk on purchases in foreign currencies of € 24,037 thousand (€ 17,299 thousand). For detail on the fair value of the financial instruments on loans mentioned in note 21.5.

Leases Note 21 gives information on the financial aspects and payment dates of the existing leases

Note 2 Goodwill The caption “Goodwill” amounts to € 267,807 thousand (€ 267,807 thousand). It did not undergo any changes during the year. Accordingly, it is composed as follows: ƒ € 261,920 thousand in relation to the allocation of goodwill arising on the merger generated by the cancellation of FastWeb S.p.A. shares following its merger into its Parent, FASTWEB (formerly e.Biscom S.p.A.). The goodwill only relates to the shares acquired against consideration, calculated on the basis of the higher amounts paid to third parties in previous years; ƒ € 4,942 thousand in relation to the allocation of goodwill arising on the merger generated by the cancellation of FASTWEB Mediterranea S.p.A. shares following its merger into FASTWEB in 2006. The goodwill is calculated on the basis of the higher amounts paid to third parties in previous years; ƒ € 945 thousand in relation to the goodwill not allocated to other assets when the subsidiaries were first consolidated. Based on the Group’s core business growth and development forecasts in the context of changes in the Italian market and the Group’s long-term strategies, the Directors decided to entirely allocate the greater price paid for the acquisition of the residual shares of the former subsidiaries to the caption “Goodwill”. Reference should be made to the section entitled “Segment reporting” of these notes for information in relation to the configuration of the Group’s operating units as a single cash-generating unit. Assets with indefinite useful lives have been tested for impairment at 31 December 2008, as required by IAS 36. The recoverable amount of goodwill has been estimated on the basis of forecast cash flows. In accordance with IAS 36, the future cash flows and their ability to fully cover the amount of goodwill recognised at 31 December 2008 were forecast as follows: ƒ cash flows were calculated on the basis of the economic and financial forecasts made by management; ƒ the time period is five years; ƒ the growth rate applied to calculate the terminal value was 1.5%; ƒ the discount rate, calculated using the Capital Asset Pricing Model criteria, was obtained on the basis of the following indicators: o the risk free return rate, calculated on the basis of the ten-year fixed-income government bonds trend; o the beta index, calculated using market and segment projections, specifically with respect to telecommunications businesses; o the cost of interest-bearing loan capital, calculated considering the forecast medium to long-term structure of the Group’s indebtedness and related average cost; o the risk premium, calculated as the difference between the average performance of the capital market and risk free return rate. Based on the elements mentioned above, the pre-tax actualisation rate used, calculated with an iterative process as set out in the Basis of conclusion BCZ85 in IAS 36, is equal to 11%.

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Finally, the outcome of the application of the resulting rate to forecast cash flows underwent a sensitivity analysis to assess the potentially adverse effects that a drop in the average profitability for each customer group or a reduction in customer numbers could have. Nothing arose from either the above “pure” assessments or those subject to the highest sensitivity analysis such to require an adjustment to the amount of goodwill recognised in the 2008 consolidated financial statements. Other than goodwill, there are no intangibile asstes with definite lives in the balance sheet.

Note 3 Other intangible assets At 31 December 2008, this caption amounts to € 175,375 thousand (€ 159,681 thousand). Changes in intangible assets for the years 2007 and 2008 are set out in the following tables.

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2007 Opening balance Variation in the year Closing balance Net Net Historic Accumulated Additions/ Historic Accumulated carrying Reclassifications Depreciation carrying cost depreciation disposals cost depreciation amount amount €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000

Concession, licences, trademarks and 902 (455) 447 0 0 (68) 902 (523) 379 similar rights

Concession and licences 902 (455) 447 0 0 (68) 902 (523) 379

Assets under development and 0 0 0 500 0 0 500 0 500 payments on account

Assets under development 0 0 0 500 0 0 500 0 500

Other intangible assets 3,642 (3,636) 6 0 0 (6) 3,642 (3,642) 0

Other intangible assets 3,642 (3,636) 6 0 0 (6) 3,642 (3,642) 0

Software and software projects 397,333 (251,540) 145,793 96,379 (2,546) (80,824) 491,015 (332,213) 158,802

Other software licences 2,595 (2,524) 71 0 (1) (70) 2,594 (2,594) 0 Network software and software projects 79,813 (42,842) 36,971 26,282 726 (8,602) 107,065 (51,688) 55,377 IT software and software projects 305,670 (197,874) 107,796 70,097 (3,271) (71,435) 372,101 (268,914) 103,187 ISP software and software projects 9,255 (8,300) 955 0 0 (717) 9,255 (9,017) 238

TOTAL 401,877 (255,631) 146,246 96,879 (2,546) (80,898) 496,059 (336,378) 159,681

86 WorldReginfo - 4a6a8456-5cb5-45bc-b8e6-7661d68792e1 FASTWEB Group 2008 Annual Report

2008 Opening balance Variation in the year Closing balance Carrying Historical Acc. Carrying Additions / Historical Acc. amount costamortisation amountdisposals Reclassifications Amortisation cost amortisation €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000

Concessions, licences, trademarks and 902 (523) 379 0 0 (65) 901 (587) 314 similar rights

Concessions and licenses 902 (523) 379 0 0 (65) 901 (587) 314

Assets under development and payments 500 0 500 0 (500) 0 0 0 0 on account

Assets under development 500 0 500 0 (500) 0 0 0 0

Other intangible assets 3,642 (3,642) 0 0 0 0 3,622 (3,622) 0

Other intangible assets 3,642 (3,642) 0 0 0 0 3,622 (3,622) 0

Software and software projects 491,015 (332,213) 158,802 104,603 500 (88,844) 594,704 (419,643) 175,061

Other software licenses 2,594 (2,594) 0 0 0 0 2,594 (2,594) 0 Network software and software projects 107,065 (51,688) 55,377 30,128 0 (12,822) 137,193 (64,510) 72,683 IT software and software projects 372,101 (268,914) 103,187 74,475 500 (75,784) 445,662 (343,284) 102,378 ISP software and software projects 9,255 (9,017) 238 0 0 (238) 9,255 (9,255) 0

TOTAL 496,059 (336,378) 159,681 104,603 0 (88,909) 599,227 (423,852) 175,375

87 WorldReginfo - 4a6a8456-5cb5-45bc-b8e6-7661d68792e1 FASTWEB Group 2008 Annual Report

The additions of the year, totalling € 104,603 thousand, mainly relate to the purchase of licenses and the development of software and applications to manage customers and new sales offers. Intangible assets include capitalised personnel expenses relating to the creation and development of IT systems and the network, as described above. These total € 67,669 thousand and include € 8,413 thousand incurred in 2008. They may be analysed as follows:

31 December 31 December 2008 2007 €/000 €/000

Software projects 66,463 58,050

Total recognised in “Intangible assets” 66,463 58,050

Accumulated amortisation (57,124) (46,547) Carrying amount recognised in “Intangible assets” 9,339 11,503

None of the Group’s intangible assets recognised in the consolidated financial statements have been pledged as collateral.

Note 4 Investments “Investments stated using the equity method” as at 31 December 2008 amount to € 300 thousand (€ 763 thousand) and entirely relate to the investment in the consortium company QXN. During the course of 2008, through its subsidiary e.BisMedia S.p.A., FASTWEB sold its investment in RaiClick during the year to third parties for € 1,056 thousand, generating a gain of € 593 thousand. The investment in QXN was measured using the equity method, which did not result in any adjustments to its carrying amount. The caption “Investments in other companies” totals € 286 thousand (€ 286 thousand) and relates to the investments in Emittente Titoli S.p.A., the Idronergia and Topix - Torino Piemonte Internet Exchange and Consel consortia, Mix S.r.l. and the consortium company Cefriel. These investments are recognised at cost as active market prices do not exist and cost represents a good assumption of fair value. The investment in the Dix.it consortium was impaired to zero at 31 December 2000 following its voluntary liquidation, unanimously approved by the venturers during the second half of 2000. The following table details the changes in the year in investments in associated companies and other companies.

88 WorldReginfo - 4a6a8456-5cb5-45bc-b8e6-7661d68792e1 FASTWEB Group 2008 Annual Report

Opening Closing Registered Holding Additions / Share Total Total Closing carrying carrying Total assets Profit (loss) offices % (disposals) capital liabilities revenue equity amount amount €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000 €/000

Associated companies 763 (463) 300

Rai Click S.p.A. Rome 40.00% 463 (463) 0 n/a n/a n/a n/a n/a n/a QXN Rome 60.00% 300 0 300 500 0 505

Other 286 0 286

Topix - Torino e Piemonte Internet Exchange Turin 9.62% 100 0 100 n/a n/a n/a n/a n/a n/a consortium Idroenergia S.c.a.r.l. Aosta 0.07% 1 0 1 n/a n/a n/a n/a n/a n/a Dix.it consortium in Milan 14.83% 0 0 0 n/a n/a n/a n/a n/a n/a liquidation Emittente Titoli S.p.A. Milan 1.95% 128 0 128 n/a n/a n/a n/a n/a n/a Mix S.r.l. Milan 1.10% 4 0 4 n/a n/a n/a n/a n/a n/a

Cefriel Milan 5.80%52 0 52 n/a n/an/a n/a n/a n/a

Consel consortium Milan 1.00% 1 0 1 n/a n/a n/a n/a n/a n/a

TOTAL 1,049 (463) 586

89 WorldReginfo - 4a6a8456-5cb5-45bc-b8e6-7661d68792e1 FASTWEB Group 2008 Annual Report

Note 5 Other financial assets This caption amounts to € 2,288 thousand at 31 December 2008 (€ 1,990 thousand) and includes guarantee deposits made for utility contracts and deposits to take part in tenders.

Note 6 Deferred tax assets Total deferred tax assets recognised in the consolidated financial statements at 31 December 2008 amount to € 222,333 thousand (€ 254,173 thousand). Deferred tax assets underwent the following changes during the year:

31 December 31 December Variation 2008 2007 2008-2007 €/000 €/000 €/000

Opening balance 254,173 397,018 (142,845) Amounts recognised in profit or loss (32,100) (142,832) 110,732 Amounts recognised in equity 260 (13) 273

Total 222,333 254,173 (31,840)

The balance and changes in deferred tax assets recognised for tax losses carried forward and for temporary differences are summarised in the following table:

Recognised in profit or loss 2008 2008 impairment 31 Recognised 31 utilisations losses December in equity in December and (reversals of 2007 2008 2008 increases impairment losses) €/000 €/000 €/000 €/000 €/000 on tax losses carried forward without a time limit 116,526 0 0 116,526 on tax losses carried forward with a time limit 100,973 (16,169) (8,036) 76,768

Total tax losses 217,499 (16,169) (8,036) 193,294 on the provision for doubtful debts 33,381 (7,311) 0 26,070 on the provision for risks 17,054 (10,682) 0 6,372 on goodwill deductible for tax purposes (13,715) 0 0 (13,715) on capex (7,462) 8,443 0 981 on personnel 6,946 2,351 0 9,297 on other temporary differences (46) 10,097 0 260 10,311

Total temporary differences 36,674 (7,896) 0 260 29,038

Total deferred tax assets 254,173 (24,065) (8,036) 260 222,332

As detailed in the table in note 29, with respect to the amounts recognised in profit or loss, the changes of the year relate to: ƒ the decrease in deferred tax assets recognised on the tax loss expiring during the year of € 16,169 thousand and taxes on temporary differences of € 7,896 thousand; ƒ write-downs of deferred tax assets of € 8,036 thousand commented on below. Amounts taken directly to equity mainly relate to the tax effect of the change in the fair value of exchange rate hedges.

90 WorldReginfo - 4a6a8456-5cb5-45bc-b8e6-7661d68792e1 FASTWEB Group 2008 Annual Report

The following table summarises the deferred tax assets and the components which led to their recognition and indicates the year they arose and the expiry date for the tax losses. It also shows the part on which deferred tax assets have been recognised at the reporting date. Tax base Tax base Deferred Deferred on which on which tax assets tax assets Tax deferred deferred recognised recognised Year loss arose (€/000) Expiry date losses tax assets tax assets at 31 at 31 were not were December December recognised recognised 2008 2007 (*) 1999 1,290 0 1,290 unlimited 355 355 2000 93,360 0 93,360 unlimited 25,663 25,663 2001 273,253 0 273,253 unlimited 75,112 75,112 2002 56,113 0 56,113 unlimited 15,397 15,397

Tax losses carried forward without a time limit 424,016 0 424,016 116,526 116,526

2003 0 0 0 2008 0 16,169 2004 135,680 19,444 116,236 2009 31,965 31,965 2005 156,300 34,719 121,581 2010 33,435 41,470 2006 (*) 45,957 4,619 41,338 2011 11,368 11,368 2007 1,698 1,698 0 2012 0 0 2008 6,030 6,030 0 2013 0 0 Tax losses carried forward with a time limit 345,665 66,510 279,155 76,768 100,973

Total tax losses 769,681 66,510 703,171 193,294 217,499

Temporary differences between tax values and 29,038 36,674 IFRS amounts

Total deferred tax assets recognised in the 222,332 254,173 consolidated financial statements

The following should be noted with respect to the deferred tax assets recognised on the above tax losses and temporary differences: ƒ the deferred tax assets and liabilities on tax losses and temporary differences at 31 December 2008 have been recognised applying the ruling tax rates, ie IRES at 27.5% and IRAP at 3.9% (ordinary rate plus regional increases); ƒ the above table shows the amount of deferred tax assets on the 2006 tax loss as the additional tax form presented in 2008 for that year in the 2007 column (*) for a consistent comparison; similarly, the deferred taxes on the temporary differences arising from this adjustment have been redetermined. An amended tax return for the 2006 fiscal year was submitted in 2008 (the main changes related to a revision of tax deductible depreciation), reducing the amount of the 2006 tax losses carried forward, booking a € 5.521 thousand lower tax asset on tax losses; as the same amount was booked as incremental tax asset on higher timing differences existing as at 31 December 2007, the total amount of tax asset booked at the end of 2007 is unchanged. ƒ as required by IAS 12 and given the modification of the forecast figures, the Group prudently recognised impairment losses on deferred tax assets recognised on the 2005 tax loss, which can be carried forward until 2010 (see note 29). ƒ the amount of the tax losses on which deferred tax assets have not been recognised is shown in the above table at € 66,510 thousand (€ 427,757 thousand), net of tax losses which expired during the year. Based on the forecasts prepared by management, the deferred tax assets recognised at 31 December 2008 are deemed to be recoverable. In analysing this caption’s recoverability based on the normal estimate process that the Directors applied in the preparation of the consolidated financial statements, in line with the impairment testing of goodwill, sensitivity analyses have been carried out on the assumptions regarding growth that form the basis of future results projections.

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Note 7 Other non current assets The caption amounts to a total of € 256 thousand at 31 December 2008(€ 1,075 thousand), and relates mainly to trade receivables due after more than one year.

Note 8 Inventories At 31 December 2008, this caption totals € 7,142 thousand (€ 4,798 thousand) and consists of equipment held for sale, net of the provision for inventories of € 1,521 thousand (unchanged).

Note 9 Trade receivables Trade receivables of € 567,935 thousand (€ 557,752 thousand) may be analysed as follows:

31 December 31 December Variation 2008 2007 2007 - 2006 €/000 €/000 €/000

Trade receivables: 566,512 555,923 10,589 - due within one year 677,345 697,437 (20,092) provision for doubtful debts (110,833) (141,514) 30,681

Related parties 1,423 1,829 (406) Total 567,935 557,752 10,183

A breakdown of trade receivables by due date is as follows: Provision for Provision for Gross doubtful debts Gross doubtful debts 2008 2008 2007 2007 €/000 €/000 €/000 €/000

Not yet due 333,776 (5,180) 332,178 (6,323) Overdue by 3 months 106,549 (4,095) 99,502 (2,070) Overdue by 6 months 52,893 (4,215) 31,118 (1,935) Overdue by 1 year 62,432 (9,807) 39,022 (5,676) More than 1 year 123,118 (87,536) 197,446 (125,510) Total 678,768(110,833) 699,266 (141,514)

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The following table shows changes in the provision for doubtful debts during the year:

31 December 31 December Variation 2008 2007 2008-2007 €/000 €/000 €/000

Opening balance 141,514 146,261 (4,747) Accruals 76,922 55,728 21,194 Utilisations (107,603) (60,475) (47,128)

Total 110,833141,514 (30,681)

The significant rise in utilisation of the provision is mainly due to a massive derecognition of receivables from residential customers whose contracts were cancelled during previous years, and consequently now deemed to be irrecoverable after repeated unsuccessful attempts of recovery using specialised companies. This derecognition has resulted in the Company being able to recover the VAT on these debts and, in addition, to write of a loss to the income statement of € 12,546 thousand. During the year, based on collection trends, the Company redefined the appropriate impairment percentage to apply to the different ranges of overdue debts and the different customer types for the bad debt provisions. This revision explains the significant increase in the accrual made from € 55,728 thousand to € 76,922 thousand for the year. The closing balance is consistent with recovery assessments made by analysing the individual receivables and related credit risk. There are no receivables due after five years. There are no receivables in currencies other than the Euro.

Note 10 Current tax assets At 31 December 2008, “Current tax assets” total € 20,566 thousand (€ 20,191 thousand) and include:

31 December 31 December Variation 2008 2007 2008-2007 €/000 €/000 €/000

IRES receivables 19,181 19,551 (370) Other tax assets 1,385 640 745

Total 20,56620,191 375

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Note 11 Other receivables The caption “Other receivables”, which amounts to € 118,399 thousand (€ 156,735 thousand), is composed as follows:

31 December 31 December Variation 2008 2007 2008-2007 €/000 €/000 €/000

VAT receivables 65,693 100,310 (34,617) Accrued income and prepaid expenses 28,630 33,957 (5,327) Other tax assets 8,557 6,141 2,416 Advances 3,333 8,819 (5,486) Other 12,186 7,508 4,678

Total 118,399 156,735 (38,336)

“VAT receivables” amount to € 65,693 thousand (€ 100,310 thousand) and include VAT reimbursement claims of € 9,655 thousand (€ 8,465 thousand) and VAT receivables factored with recourse of € 56,038 thousand (€ 58,646 thousand). With respect to the above VAT receivables factored but which continued to be recognised due to the potential risk of recourse, they were decreased by € 2,608 thousand following collection by the factor from the tax authorities of the 2002 VAT receivable factored in 2004 by the merged company Fastweb Mediterranea S.p.A. “Accrued income and prepaid expenses” comprise costs for recurring services, rental instalments for office and PoP (points of presence) facilities and contracts for the purchase of television rights pertaining to future years which suppliers invoice in advance. The caption “Other tax assets” relates mainly to receivables from government authorities for contributions recognised to customers belonging to the editorial sector as per Law no. 461/81. The caption “Other” mainly relates to the remaining receivable for the forgivable loans accrued on investments made as part of the POR Puglia - Measure 4.18 project for a total of € 8,247 thousand (€ 5,713 thousand). There are no amounts due from related parties.

Credit risk management The Group’s management of credit risk, with specific reference to trade receivables, is carried out entirely within the Parent using a standardised procedure until disactivation of the customer. The subsequent recovery measures are managed on an outsourcing basis using credit collection companies or legal firms that use agreed methods depending on the type of customer and amount of the receivable. The Group handles the recovery of large amounts internally. It does not have receivables from individual customers making up more than 10% of 2008 sales. It has different units with specialist staff to deal with its different customer categories. Management has developed and promoted a sales procedure which encourages purchases by customers using an “inertial” payment method (credit cards and direct debit schemes). This has a smaller risk of insolvency based on its past experience.

Guarantees Group policies provide for the granting of financial guarantees only to subsidiaries. At year end, the Group had given financial guarantees to the tax authorities for VAT reimbursement claims made in previous years of € 265,433 thousand (€ 265,433 thousand)

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Exposure to credit risk The carrying amount of financial assets represents the Group’s maximum exposure to credit risk. At year end, this exposure was as follows:

31 December 31 December Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Held-to-maturity investments 635 600 35 Loans and receivables 567,935 557,752 10,183 Cash and cash equivalents 115,620 69,398 46,222

Total 684,190627,750 56,440

Market values do not differ from the nominal value of receivables.

Net equity Net equity attributable to the shareholders of the Parent amounts to € 910,096 thousand (€ 904,766 thousand) as shown in the following table:

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Share Share premium Legal Other IFRS FTA Hedging Losses Profit (loss) Total capital reserve reserve reserves reserve reserve carried forward for the period/year €/000 €/000€/000 €/000 €/000 €/000€/000 €/000 €/000

Balance at 1 January 2007 41,344 1,389,411 8,269 88,073 3,612 (168) (77,790) (123,575) 1,329,176

Allocation of previous year’s loss 0 0 0 0 0 0 (123,575) 123,575 0

Coverage of losses carried forward as per Shareholders’ resolution of 23 March 2007 0 (179,883) 0 (466) (219) 0 180,568 0 0

Dividend distribution as per shareholders’ resolution of 23 March 2007 0 (299,745) 0 0 0 00 0 (299,745)

Income and expense recognised during the year 0 0 0 0 0 28 0 (124,692) (124,664)

Balance at 31 December 2007 41,344 909,783 8,269 87,607 3,393 (140) (20,798) (124,692) 904,766

Allocation of previous year’s loss 0 0 0 0 0 0 (124,692) 124,692 0

Income and expense recognised during the year 0 0 0 0 0 (727) 0 6,057 5,330

Balance at 31 December 2008 41,344 909,783 8,269 87,607 3,393 (867) (145,490) 6,057 910,096

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Note 12 Share capital, Legal reserve and Share premium reserve The share capital of the Parent at 31 December 2008, totals € 41,344,209.40 and comprises 79,508,095 ordinary shares with a nominal value of € 0.52 each. It is fully paid up. There were no changes in share capital during the year. Holders of ordinary shares have the right to receive dividends, when approved, and each share gives them one vote to be used during their meetings. Following completion of the subsidised POR Puglia 2000/2006 - Measure 4.18 project, the agreement for which was signed on 27 February 2006 for investments in Puglia, its final inspection by the Commission and issue of the definitive decree by the Puglia Regional Authorities, the previously unavailable portion of the share premium reserve (€ 25,200 thousand) was freed in 2008.

Note 13 Other reserves Changes in “Other reserves” during 2008 and 2007 are shown below:

Other IFRS FTA Hedging Total reserves reserve reserve

Tax Tax Tax Tax Gross Net Gross Net Gross Net Gross Net effect effect effect effect

(€/000) Balance at 1 January 2007 88,073 0 88,073 3,961 (349) 3,612 (429) 261 (168) 91,605 (88) 91,517

Application of hedge accounting to interest rate cash 217 (72) 145 217 (72) 145 flow hedges

Application of hedge accounting to exchange rate (176) 59 (117) (176) 59 (117) cash flow hedges

Coverage of losses as per Shareholders’ resolution of 23 (466) (466) (219) (219) (685) 0 (685) March 2007

Balance at 31 December 2007 87,607 0 87,607 3,742 (349) 3,393 (388) 248 (140) 90,961 (101) 90,860

Application of hedge accounting to exchange rate (987) 260 (727) (987) 260 (727) cash flow hedges

Balance at 31 December 2008 87,607 0 87,607 3,742 (349) 3,393 (1,375) 508 (867) 89,974 159 90,133

The hedging reserve decreased by € 726 thousand (€ 118 thousand) following fair value losses on foreign currency forward purchase contracts (US dollars) agreed to specifically hedge currency risks on payables and commitments for the supply of investment goods in US dollars At 31 December 2008, the Parent had not issued savings shares, bonus shares, or securities other than ordinary shares and convertible bonds and had not carried out any transactions on treasury shares.

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Note 14 Post-employment benefits They total € 18,955 thousand at year end (€ 17,886 thousand). Changes during the year are as follows:

31 December 31 December Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Opening balance 17.886 21.383 (3.497) Accruals for the year: 11.234 5.825 5.409 Accrual due for the year 9.263 8.797 466 Actuarial profits/losses 1.971 (28) 1.999 Effect of Pension reform 0 (2.944) 2.944

Payments to employees (2.224) (2.340) 116 Payments to pension funds (7.941) (6.982) (959)

Total 18.955 17.886 1.069

The key actuarial assumptions applied in estimating the benefits due to employees on leaving the Group are: Financial assumptions Management White collars Discount rate 4.75% p.a. 4.75% p.a. Inflation rate 3.2% p.a. 3.2% p.a. Post-employment benefits growth rate 3.9% p.a. 3.9% p.a. Salary growth rate (only for e.BisMedia) 4.5% p.a. 3% p.a. Turnover 4.5% 4.5%

Demographic assumptions Management White collars Mortality RG48 RG48 Disability INPS charts INPS charts Retirement age Attainment of AGO requirements Attainment of AGO requirements

From the application of the actuarial calculation led to a decrease in the liability of € 2,323 thousand, with € 1,971 thousand taken to profit or loss as an accrual for the year.

Note 15 Provisions for risks and charges The non-current portion of these provisions, which at 31 December 2008 amounts to € 2,129 thousand (€ 2,175 thousand), relates to “Pensions and similar provisions”. Changes during the year relate to accruals of € 600 thousand (€ 600 thousand) made to cover probable amounts payable due to the termination of agency contracts and utilisations of € 646 thousand for the settlement of such amounts which arose in previous years.

Note 16 Other non-current liabilities This caption amounts to € 45,400 thousand (€ 41,598 thousand) and comprises € 26,076 thousand relating to the portion of grants related to assets pertaining to future years, recognised in profit or loss in line with related amortisation/depreciation, € 6,401 thousand (€ 8,158 thousand) of which is deferred to more than five years, and € 19,324 thousand (€ 19,727 thousand) of guarantee deposits received from customers who have chosen to pay for their telecommunication services by way of postal order.

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Note 17 Provisions for risks and charges The current portion of the “Provisions for risks and charges”, which totals € 23,173 thousand (€ 59,333 thousand), may be analysed as follows:

31 December Accruals Utilisations 31 December 2007 2008 €/000 €/000 €/000 €/000 Sundry disputes 17,088 2,250 (5,934) 13,404 Termination rates 34,337 0 (24,568) 9,769 Government grants 7,908 0 (7,908) 0

Total provisions for risks and charges 59,333 2,250 (38,410) 23,173

Accruals of € 2,250 thousand mainly relate to estimated contingent expenses arising from third party claims in pending disputes at the balance sheet date and sundry risks for disputes of a technical nature notified by customers. Utilisations of € 38,410 thousand include € 24,568 thousand for the use of the provision set up to cover the rate difference applied to termination services with Telecom Italia, following the agreement finalised with it in June. This provision still has a balance of € 9,769 thousand to cover any remaining risks related to implementation of the agreement. Other utilisations include € 7,908 thousand of the release of accruals made in previous years for incentives related to the purchase of decoders. The remainder was used in conjunction with litigation which arose in previous years and was settled during the year. The measurement of provisions for risks and their classification in current liabilities reflect the ordinary estimate procedure that the Directors periodically and systematically apply in the preparation of both the annual and interim financial statements. They are supported by the opinions of their lawyers and external consultants specifically engaged for this purpose.

Note 18 Trade payables “Trade payables” at 31 December 2008 amount to € 591,257 thousand (€ 562,025 thousand). Payables from related parties of € 45,718 thousand refer to unpaid expense due to the ultimate parent Swisscom Italia relating to the final quarter in 2008, reference is to be made to note 21.4. Payables in foreign currencies are mainly in US dollars for a total of US$ 20,418 thousand, equal to € 14,672 thousand at closing rates. Exchange rate differences arising from the translation of payables not hedged by foreign currency forward transactions using closing rates are immaterial. The Group’s assets have not been pledged as collateral for these payables. There are no payables due after more than five years.

Note 19 Current tax liabilities These amount to € 7,348 thousand (€ 19,533 thousand) and comprise IRAP of € 1,331 thousand (€ 12,815 thousand) and withholdings made by the Group companies on employees’ salaries and consultants’ and agents’ fees, which will be paid in January 2009.

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Note 20 Other current liabilities This caption amounts to € 192,765 thousand (€ 406,150 thousand) as follows:

31 December 31 December Variation 2008 2007 2008 - 2007 €/000€/000 €/000

Payments on account 871 1.318 (447) Amounts due to social security institutions 7.618 8.905 (1.287) Amounts due to employees 46.376 36.902 9.474 VAT payables 8.729 0 8.729 Deferred income 113.708 101.724 11.984 Other current liabilities 15.463 11.261 4.202 Other current liabilities - related parties 0 246.040 (246.040)

Total 192.765 406.150 (213.385)

At 31 December 2008, “Amounts due to employees” total € 46,376 thousand (€ 36,902 thousand) and mainly include payables to personnel from all group companies for accrued holiday pay, the variable salary components which are yet to be paid and the bonus related to the long-term incentive plan reserved to the CEO and other key managers. “Deferred income” amounts to € 113,708 thousand (€ 101,724 thousand) and mainly relates to telecommunications services and video on demand subscriptions already invoiced to customers but pertaining to following years. The increase in this item is consistent with the growth in the customer base as described in note 22 to which reference should be made. At 31 December 2007, “Other current liabilities - related parties” comprised the portion of the payable arising from the distribution of reserves due to the parent Swisscom Italia (€ 246,040 thousand) which was converted into a new loan during 2008. This loan bears interest of 5,5% plus a spread and expires on 30 June 2012.

Note 21 Net financial indebtedness At 31 December 2008, the FASTWEB Group shows cash and cash equivalents of € 115,620 thousand (€ 69,398 thousand) with net financial indebtedness of € 1,457,311 thousand (€ 1,265,395 thousand). The increase in the financial indebtedness is due to the new loan taken out with the parent Swisscom Italia S.r.l. which was necessary in order to pay the distribution of reserves to the same resolved upon during the course of 2007. There are no financial payables or receivables with related parties at year end apart from those shown here and in the financial statements schedules.

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Consolidated net financial indebtedness may be analysed as follows:

Note 31 December 31 December Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Composition of net financial indebtedness

Cash 21.1 38 33 5 Short-term bank deposits 21.1 115,582 69,365 46,217 Cash and cash equivalents 115,620 69,398 46,222 Held-to-maturity investments 21.2 635 600 35 Current financial assets 635 600 35 Bank borrowings: Current account overdrafts 21.3 (5) (3,888) 3,883 Other current financial payables: Fair value of hedges in dollars 21.3 (1,196) (210) (986) Law no. 46/82 21.3 (2,514) (2,514) 0

Advances received on tax assets factored with limited recourse 21.3 (67,235) (69,844) 2,609

Current financial liabilities (70,950) (76,456) 5,506

Net short-term financial position (indebtedness) 45,305 (6,458) 51,763

Non-current payables to parent: Non-current financial payables 21.4 (1,484,682) (1,238,613) (246,069) Non-current bank loans: Land-property loan 21.4 (4,157) (4,829) 672 Other non-current payables: Finance lease payables 21.4 (13,777) (15,495) (1,718) Non-current financial liabilities (1,502,616) (1,258,937) (243,679)

Net financial indebtedness (1,457,311) (1,265,395) (191,916)

Note 21.1 Cash and cash equivalents This caption is mainly composed of bank deposits made by group companies to meet short-term cash requirements. The balance at 31 December 2008 is € 115,620 thousand (€ 69,398 thousand). Foreign currency accounts are translated at the closing rate.

Note 21.2 Current financial assets Held-to-maturity investments of € 635 thousand comprise the financial receivable due from QXN, including the related accrued interest of € 35 thousand. The loan was tacitly renewed until the end of 2009 and bears interest at an annual floating rate equal to 12- month Euribor plus a spread of 150 basis points.

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Note 21.3 Current financial liabilities Current financial liabilities of € 70,950 thousand (€ 76,456 thousand) relate to the following: ƒ utilised portions of short-term credit lines for € 5 thousand (€ 3,888 thousand) made available by leading banks; ƒ the fair value of foreign currency hedges (US dollars) of € 1,196 thousand (€ 210 thousand). The forward purchase agreements were agreed to specifically hedge currency risks on payables for the provision of investment goods in US dollars; ƒ the soft loan granted by the Ministry of Production and Business as per Law no. 46/82 of € 2,514 thousand (€ 2,514 thousand) to the subsidiary e.BisMedia; ƒ advances of € 67,235 thousand (€ 69,844 thousand) for the factoring of VAT and IRPEG receivables with recourse. For classification purposes, these liabilities come under financial liabilities not held for trading as defined by IAS 39 and they are, therefore, recognised at amortised cost.

Note 21.4 Non-current financial liabilities This caption amounts to € 1,502,616 thousand (€ 1,258,937 thousand) as follows: ƒ Payables to the ultimate parent for the loan totalling € 1,484,682 thousand (€ 1,238,613 thousand). These relate to the portions of the loan used by the Group as follows: ƒ a revolving credit line of € 175,027 thousand (€ 175,178 thousand); ƒ a long-term credit line of € 1,063,580 thousand (€ 1,063,435 thousand); ƒ a new loan agreement of € 246,075 thousand, entered into in May 2008, by converting the payable due to the parent for the distribution of its share of reserves. The loan agreements with the parent Swisscom Italia have a five-year term and stipulate: o € 630,000 thousand (equal to 42%) at a fixed rate until the expiry date; o € 421,038 thousand (equal to 29%) at a floating rate linked to the 6-month Euribor rate until 31 December 2009; o € 433,435 thousand (equal to 29%) at a floating rate linked to the 6-month Euribor rate until 31 December 2009. The loans foresee a spread based on the relationship between the net financial position and EBITDA of the Fastweb Group. They do not require commissions to be paid or guarantees given. ƒ Amounts due to banks for mortgage loans totalling € 4,157 thousand (€ 4,829 thousand) and relating to the ten-year mortgage loan, due on 30 April 2014 and bearing a floating interest rate equal to Euribor plus a spread of 150 basis points, granted by a leading bank to the Parent to purchase the building in Via Valcava, Milan, and related unpaid interest accrued at 31 December 2008, are as follows: o € 696 thousand (€ 672 thousand) due within one year; o € 3,461 thousand (€ 4,157 thousand) due after one year. ƒ Amounts due to other backers for finance leases totalling € 13,777 thousand (€ 15,495 thousand) relate to the 96-month finance lease that the Parent agreed in June 2004 with three leading banks to purchase the building located in Via Caracciolo 51, Milan. The main change during the year in non-current financial liabilities related to the agreement of an additional loan from the ultimate parent Swisscom Italia in May, which has the same characteristics as those already disbursed. They do not require commissions to be paid or guarantees given. The following table lists the contractual conditions of the Group’s interest-bearing financial liabilities measured at amortised cost:

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31 December 31 December Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Non-current liabilities Secured bank loans 4,157 4,829 (672) Unsecured loans from ultimate parent 1,484,682 1,238,613 246,069 Finance lease payables 13,777 15,495 (1,718)

Total non-current liabilities 1,502,616 1,258,937 243,679

Current liabilities 0 Unsecured loans from third parties 3,710 2,724 986 Secured loans from third parties 67,235 69,844 (2,609) Unsecured current account facilities 5 3,888 (3,883)

Total current liabilities 70,950 76,456 (5,506)

The loan terms and conditions are as follows:

2008 2007 Nominal Year ofNominal Carrying Nominal Carrying Currency interest expiry amount amount amount amount rate €/000€/000 €/000€/000

Secured bank loan Euro Euribor 3M+150 bp 2014 4,157 4,157 4,829 4,829 Secured loan from financial institutions Euro Euribor 1M+55 bp n.a. 67,235 67,235 69,844 69,844 Forward exchange rate contracts Euro 2009 24,037 1,196 17,299 210 Unsecured current account facilities Euro 5% - 14% n.a. 5 5 3,888 3,888 Unsecured loan from financial institutions Euro 3,525% 2018 2,514 2,514 2,514 2,514 Loan from ultimate parent Euro 5,623% 2012 630,000 630,163 630,000 630,095 Loan from ultimate parent Euro 5,500% 2012 421,040 421,040 0 0 Loan from ultimate parent Euro Euribor 6M+ 85 bp 2012 433,435 433,479 608,435 608,518 Finance lease payables Euro Euribor 3M+150 bp 2012 13,653 13,777 15,342 15,495

Total interest-bearing liabilities 1,596,076 1,573,566 1,352,151 1,335,393

The related minimum future payments and the present value of the finance lease payables are set out below. Minimum Minimum Present value of Present value of payments payments minimum minimum

payments payments 31 December 31 December 31 December 31 December 2008 2008 2007 2007 €/000 €/000 €/000 €/000

Amounts due within one year 2,215 2,184 2,215 2,169 Amounts due between one and five 12,783 11,710 8,859 7,831 years Amounts due after five years 0 0 8,354 6,685

Total minimum future payments 14,998 13,893 19,428 16,685

Financial expense (1,345) (1,285) (2,398) (2,228)

Principal repayable 13,653 12,608 17,030 14,457

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Note 21.5 Fair value of financial instruments As described above, the only financial instruments recognised in the consolidated financial statements and measured at fair value are those deriving from hedges of future cash flows or highly probable forecast transactions. The carrying amount of other categories of financial instruments, given their characteristics in relation to the parameters that would characterise their measurement (expiry dates, term, nature, base rates, etc.), is believed to reasonably represent their fair value. The fair value of derivative financial instruments represented by foreign exchange rate hedges consisting of forward transactions is measured by comparing the contracted forward rate with the year-end rate using equivalent expiry dates The following table shows the carrying amount of each financial asset and liability recognised in the balance sheet and their fair value:

2008 2007 Carrying Fair Carrying Fair amount value amount value €/000 €/000 €/000 €/000

Held-to-maturity investments 635 635 600 600 Loans and receivables 567,935 567,935 557,752 557,752 Cash and cash equivalents 115,620 115,620 69,398 69,398 Liability (1,196(1,196) (210) (210) Secured bank loans (4,157) (4,157) (4,829) (4,829) Finance lease payables (13,777) (13,777) (15,495) (15,495) Unsecured loan from ultimate parent (1,484,682) (1,484,682) (1,238,613) (1,238,613) Secured loans from third parties (67,235) (67,235) (69,844) (69,844) Unsecured loans from third parties (2,514) (2,514) (2,514) (2,514) Trade payables (591,257) (591,257) (562,025) (584,733) Unsecured current account facilities (5) (5) (3,888) (3,888)

Total (1,480,633) (1,480,633) (1,269,668) (1,269,668)

Gain / (unrealised loss) 0 0

Cash flows generated by operating activities in 2008 total € 491,969 thousand, while investing activities used cash flows of € 436,859 thousand, for a net use of € 55,110 thousand.

Liquidity risk management Liquidity risk is the risk that the Group finds it difficult to meet its obligations arising from financial liabilities. The Group’s cash management policy is to guarantee, as far as possible, that it always has sufficient funds to meet its obligations at their due dates, in both normal and difficult conditions, without having to incur excessive expense or risk damaging its reputation.

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The Group’s general practice is that it ensures that it has highly liquid resources available to cover the forecast operating expenses for 60 days, including those related to financial liabilities. However, it cannot provide for potential extreme circumstances which it cannot reasonably foresee. The Group has the following short-term credit lines:

Credit lines available Credit lines used

€/000 €/000 overdraft 29,100 5 currency risks 7,000 0 bills under reserve portfolio 26,500 0 commercial guarantees 334,100 121,080 foreign guarantees 1,600 0 interest rate derivatives 8,000 0

Total 406,300 121,080

The following table shows the contractual deadlines of the Group’s financial liabilities, including interest to be paid:

Carrying Contractual Due Due between Due 2008 amount cash flows within one year one to five years after five years €/000 €/000 €/000 €/000 €/000

Non-derivative financial liabilities

Secured bank loans 4,157 (4,470) (795) (2,638) (1,038) Unsecured loan from parent 1,484,682 (1,620,606) (67,807) (1,552,800) 0 Advances on receivables factored with 67,235 (67,235) 0 (67,235) 0 recourse Unsecured loans from third parties 2,514 (2,917) (627) (701) (1,590) Finance lease payables 13,777 (14,998) (1,874) (13,124) 0 Unsecured current account overdarfts 5 (5) (5) 0 0 Trade payables 591,257 (591,257) (591,257) 0 0

Derivative financial liabilities

Other forward exchange rate contracts: Outflows (1.196)(24.037) (24.037) 0 0

Total 2,162,431(2,325,526) (686,401) (1,636,497) (2,627)

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Carrying Contractual Due Due between Due 2007 amount cash flows within one year one to five years after five years €/000 €/000 €/000 €/000 €/000

Non-derivative financial liabilities

Secured bank loans 4,829 (5,258) (986) (2,414) (1,858) Unsecured loan from parent 1,238,613 (1,531,912) (65,434) (1,466,478) 0 Advances on receivables factored with recourse 69,844 (69,844) 0 (69,844) 0 Unsecured loans from third parties 2,514 (2,917) (627) (701) (1,590) Finance lease payables 15,495 (17,366) (1,842) (15,524) 0 Unsecured current account facilities 3,888 (3,888) (3,888) 0 0 Trade payables 562,025 (562,025) (562,025) 0 0

Derivative financial liabilities

Other forward exchange rate contracts: Outflows (210) (17,299) (17,299)

Total 1,896,998(2,210,509) (652,101) (1,554,960) (3,448)

Market risk The FASTWEB Group is exposed to market risk, mainly in relation to the variations in exchange rates. The exposure to changes in interest and exchange rates is covered by derivative financial instruments. The Group does not hold or issue derivative financial instruments for speculative purposes. The Group has established risk management policies and guidelines consistent with its overall business strategy, the risk level tolerated and its general approach to risk management. It has also introduced procedures to carefully monitor and supervise hedges on a timely basis. These written policies are reviewed annually and quarterly checks take place to ensure its guidelines are being followed.

Interest rate risk The risks of fluctuations in interest rates, following the acquisition of control by the Swisscom Group, are directly managed by the Parent; the new loan agreement provides for the granting of a portion of about 60% at a fixed rate. This is substantially in line with the hedging percentage set by the Group’s strategies until the early repayment of the loans disbursed by third parties. The interest rates applied to the Group’s interest-bearing financial instruments at the closing date were as follows:

31 December 31 December 2008 2007 €/000 €/000 Fixed rate financial instruments Financial liabilities (1,118,436) (699,939) Total (1,118,436) (699,939)

Floating rate financial instruments Financial assets 635 600 Financial liabilities (455,130) (635,244) Total (454,495) (634,644)

Assuming the hedges are efficient, the cash flows related to cash flow hedges will not have an effect on future profit or loss.

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Currency risk The FASTWEB Group uses certain derivative financial instruments to hedge the currency risk related to investments in technology and plant for network development. The hedges relate to future transactions deemed highly probable. As such, the hedging transactions are gauged in terms of both the amounts and due dates based on the investment plan set out for the following year and the hedge effectiveness is measured regularly. Management’s aim in agreeing these contracts is to limit the €/US$ currency risk. The instruments used are as follows:

31 December 2008 31 December 2007 Nominal amount Fair value Nominal amount Fair value €/000 €/000 €/000 €/000

Forward exchange contracts (US dollars) 24,037 (1,196) 17,299 (210)

The following table shows the Group’s exposure to currency risks based on the notional amount:

31 December 2008 31 December 2007 US$ US$

Trade receivables 0 0 Trade payables (28,125) (27,262) Gross exposure in the balance sheet (28,125) (27,262)

Forward exchange rate contracts (31,703) (25,000)

Net exposure (59,828) (52,262)

The main rates applied during the year were the following:

Average hedging Average rate spot rate 31 December 31 December 2008 2007 2008 2007

US$ 1.3701.370 1.319 1.357

Cash flow hedges The forecast cash flows tied to cash flow hedges are analysed in the following table:

31 December 2008 31 December 2007 Carrying Contractual Due Carrying Contractual Due amount cash flows within one year amount cash flows within one year €/000 €/000 €/000 €/000 €/000 €/000

Forward exchange rate contracts: Liabilities (1,196) (24,037) (24,037) (210) (17,299) (17,299)

Total (1,196) (24,037) (24,037) (210) (17,299) (17,299)

Assuming the hedges are efficient, the cash flows related to cash flow hedges will not have an effect on future profit or loss.

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6 Notes to the main income statement captions

The main income statement captions which have not been commented upon previously in these notes are set out below. Amounts in brackets relate to figures of the previous year. All amounts are expressed in thousands of Euros.

Note 22 Revenue from the sale of goods and services Revenue from the sale of goods and services amounts to € 1,708,059 thousand for 2008 (€ 1,433,239 thousand), up more than 19% on the previous year. It may be analysed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000 Revenue from the sale of goods and services:

Revenue frommonthly fees and traffic 1,206,302 257,059 1,463,361 Revenue from interconnections 91,760 98,823 (7,063)

Revenue from activations 55,642 47,060 8,582

Other revenue 97,296 81,054 16,242

Total revenue from the sale of goods and services 1,708,059 1,433,239 274,820

The increase in revenues from monthly fees and traffic is largely due to the 19.6% growth in customer numbers from 1,312 thousand at 31 December 2007 to 1,482 thousand at 31 December 2008. Despite the growth in traffic volumes following the higher customer base, the interconnection revenues have fallen by around € 7,063 thousand due to the reduction in the interconnection rates (reduced to € 2.6 cents per minute for the period August 2006-June 2007, to € 2.01 cents per minute for the period July 2007-June 2008, to € 1.54 cents per minute for the period July 2008-June 2009) in accordance with the provisions set out in AGCOM’s decision 251/08/CONS issued on 14 May 2008. The revenue mainly relates to the sales of hardware equipment. Reference should be made to the Directors’ Report for additional information on changes in the Group’s revenue.

Note 23 Other revenue and income “Other revenue and income” amount to € 124,363 thousand (€ 158,173 thousand) and include:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Increase in internal work capitalised in non-current assets 31,607 33,825 (2,218) Compensation for damage 30,000 60,670 (30,670) Release of excess provisions 21,377 44,965 (23,588) Grants related to assets 6,275 5,318 957 Cost recoveries 1,937 2,008 (71) Insurance compensation 2,680 1,692 988 Other revenue 30,487 9,695 20,792

Total other revenue and income 124,363 158,173 (33,810)

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Following the agreement with Telecom Italia entered into in June 2008, the Parent recognised € 30,000 thousand as compensation for damages and released part of the provision for risks € 10,569 thousand. The Directors’ Report gives more information on this agreement. The release of excess provisions also includes € 7,908 thousand of accruals made in previous years for the potential reimbursement of assistance received to purchase digital decoders. During the year, the European Commission and the Ministry for Telecommunications found that the Parent had received the assistance legitimately.

Note 24 Purchases, services and other expenses This caption amounts to € 1,001,824 thousand (€ 868,024 thousand), up 15%, and may be analysed as follows: Purchases of goods The caption may be analysed as follows:

2008 2007 2008 - 2007 €/000 €/000 €/000

Goods 29,960 8,660 21,300 Change in inventories (6,202) 7 (6,209)

Total 23,758 8,667 15,091

The increases mainly relate to new products such as mobile phones and personal computers offered to customers.

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Services The cost of services amounts to € 704,198 thousand (€ 585,321 thousand) and may be analysed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Services, including: Interconnection traffic costs, internet band cost, mobiles and VAS 421,897 330,094 91,803 Commissions and contributions to agents and dealers 86,413 75,594 10,819 Advertising 46,724 46,217 507 Tax, administrative and external audit fees 1,710 15,880 (14,170) Telecommunications infrastructure construction contract costs 33,994 25,883 8,111 Maintenance of network infrastructures 33,986 18,985 15,001 Maintenance of IT infrastructure (hardware and software) 8,316 12,003 (3,687) Transport, logistics and postal services 20,418 11,337 9,081 Legal and strategic consultancy 3,707 7,895 (4,188) Travelling expenses 6,520 6,015 505 Personnel related costs 7,549 6,578 971 Bank commissions and charges 6,421 5,728 693 Network electricity expenses 12,975 9,463 3,512 Office utilities 3,147 4,377 (1,230) Office cleaning, maintenance and security 1,014 2,981 (1,967) Insurance 3,708 3,010 698 Network technical consultancy 908 1,150 (242) Other selling costs 637 510 127 Other services 330 525 (195) Other consultancy 3,660 934 2,726 Statutory Auditors’ fees 164 162 2

Total services 704,198 585,321 118,877

The most significant increases relate to “Interconnection traffic costs, internet band cost, mobiles and VAS” and “Commissions and contributions to agents and dealers”. They are directly tied to the growth in business volumes and additional rise in customer numbers.

Other expenses This caption may be analysed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Use of third party assets: 260,343 248,042 12,301 Network lease and rental 226,868 206,508 20,360 Other leases and rentals 33,475 41,534 (8,059)

Taxes and duties 2,761 4,119 (1,358) Other 10,764 21,875 (11,111)

Total 273,868 274,036 (168)

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The caption “Network lease and rental” mainly comprises expenses for the use of telecommunications infrastructure, including cable pipelines, optical fibre and telecommunications joint sites (Points of Presence). The increase on the previous year is due to the activation of new unbundling and bitstream lines provided by Telecom Italia.

Note 25 Personnel expenses Personnel expenses are composed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Employee expenses: 193,914 180,173 13,741 Wages and salaries 139,664 134,207 5,457 Social security contributions 42,466 40,133 2,333 Post-employment benefits (note 14) 11,234 5,825 5,409 Other 550 8 542

Directors’ fees 1,723 2,208 (485) Contract workers’ fees 1,349 2,304 (955)

Total personnel expenses 196,986 184,685 12,301

The table below analyses FASTWEB employees in 2008 and 2007:

Average number of employees 2008 2007

Management 127 119 Junior management 372 357 White collars 2,901 2,962

Total 3,400 3,438

31 December 31 December Actual number of employees 2008 2007

Management 131 121 Junior management 385 368 White collars 2,892 2,928

Total 3,408 3,417

The average number of employees for the year is calculated as a monthly average.

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Directors’ fees for the year (already paid in part) were as follows:

Office 2008 2007 €/000 €/000

Chairman 0 339 CEO 1,410 1,550 Directors 313 319

Total 1,723 2,208

For further details, reference should be made to the Directors’ Report. There were no stock option plans in place during the year.

Note 26 Amortisation, depreciation, accruals, impairment losses and disposals of non-current assets This caption amounts to € 505,713 thousand (€ 446,168 thousand) and is composed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Amortisation of intangible assets with finite useful lives (note 3) 88,909 80,898 8,011 Depreciation of property, plant and equipment (note 1) 272,418 274,546 (2,128) Impairment losses (reversals of impairment losses) and disposals of non-current assets (note 1) 52,067 26,554 25,513 Impairment losses on current assets (note 9) 89,469 57,656 31,813 Accruals to provisions for risks and charges (note 15. 17) 2,850 6,514 (3,664)

Total 505,713 446,168 59,545

For additional information on the individual captions, reference should be made to the notes indicated in the table

Note 27 Financial expense Financial expense amounts to € 89,375 thousand (€ 77,527 thousand) and mainly comprises interest and expense on the loan granted by the parent Swisscom Italia, commented upon in the Directors’ Report. The caption at the end of the year may be analysed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Interest and financial expense (88,639) (77,393) (11,246) Interest and expense on the medium/long-term loans 0 (38,030) 38,030 Interest and expense on the medium/long-term loans - related parties (80,784) (29,956) (50,828) Interest and expense on bank loans and borrowings (284) (334) 50 Interest and expense on finance leases (913) (936) 23 Other interest and financial expense (6,658) (8,137) 1,479

Exchange rate losses (736) (134) (602) Unrealised losses (736) (134) (602)

Total (89,375) (77,527) (11,848)

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Financial expense was not capitalised during the year.

Note 28 Financial income Financial income amounts to € 9,473 thousand (€ 16,648 thousand) and may be analysed as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Gains on investments 593 22 571

Other financial income 8,147 15,457 (7,321) Interest on loans to third parties 34 23 11 Interest on tax credits 1,829 1,460 369 Interest on bank deposits and current accounts 4,746 2,179 2,567 Interest on financial assets 40 10,213 (10,173) Interest on current receivables 1,498 1,582 (84)

Exchange rate gains 733 1,169 (436) Unrealised gains 0 759 (759) Realised gains 733 410 323

Total financial income 9,473 16,648 (7,186)

The following table shows financial income and expense recognised in profit or loss or directly in net equity:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Recognised in profit or loss

Interest on held-to-maturity investments 34 23 11 Interest on bank deposits 4,746 2,179 2,567 Dividend on held-to-maturity investments 593 22 571 Exchange rate gains 733 1,169 (436) Interest on trade and other receivables 9,439 13,038 (3,599) Fair value gain on cash flow hedges transferred from equity 0 217 (217)

Total financial income 15,545 16,648 (1,103)

Interest on financial liabilities measured at amortised cost (87,726) (76,457) (11,269) Exchange rate losses (736) (134) (602) Interest and expense on finance leases (913) (936) 23 Total (89,375) (77,527) (11,848)

Total net financial expense (73,830) (60,879) (12,951)

Recognised directly in net equity Fair value of cash flow hedges transferred to profit or loss (217) 217 Effective portion of fair value gain or loss on cash flow hedges (987) 176 (1,163) Total (987) (41) (946)

Recognised in Fair value reserve 987 (41) 1,028 Total 987 (41) 1,028

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Note 29 Income taxes This caption amounts to € 41,940 thousand (€ 155,470 thousand) as follows:

Variation 2008 2007 2008 - 2007 €/000 €/000 €/000

Current taxes (9,840) (12,638) 2,798 IRAP (9,840) (12,638) 2,798

Deferred taxes (32,100) (142,832) 110,732 Deferred tax income (expense) (32,100) (142,832) 110,732

Total (41,940) (155,470) 113,530

For IRES purposes, the Parent’s tax base for the year led to use of part of the tax losses carried forward. The following table sets out the detailed calculation of the tax effects relating to the year with comparatives for the previous year.

2008 2007 IRES IRAP Total IRES IRAP Total €/000 €/000 €/000 €/000 €/000 €/000 Profit (loss) for the year before taxation 47,997 47,997 30,778 30,778 Combined profit (loss) for the year before taxation 47,997 47,997 30,778 30,778 Tax add-backs 4,771 292,093 (29,806) 266,593 Net tax base 52,768 340,090 392,858 975 297,373 298,348 including: Tax loss (6,030) 0 (6,030) (1,698) 0 (1,698) Tax base 58,798 340,090 398,888 2,673 297,373 300,046 Current taxes (16,528) (14,256) (30,784) (882) (12,638) (13,520) Utilisation of tax losses carried forward 16,169 0 16,169 882 0 882 Utilisation of tax loss without booking of tax asset in 359 359 previous years Utilisation of excess provided for in previous years 4,416 4,416 Total current taxes 0 (9,840) (9,840) 0 (12,638) (12,638)

Recognition of deferred tax assets on tax loss for the 6,030 0 6,030 467 0 467 year Utilisation of taxes on tax losses carried forward (16,169) 0 (16,169) (882) 0 (882) Impairment losses on non-recoverable portion of (6,030) 0 (6,030) (467) 0 (467) deferred tax assets on loss for the year Deferred taxes for the year on temporary differences (8,154) 1,185 (6,969) (25,587) (3,369) (28,956) Impairment losses on deferred tax assets on tax 0 0 0 (54,935) 0 (54,935) losses due to change in tax rates Impairment losses on deferred tax assets on tax (8,036) 0 (8,036) (51,189) 0 (51,189) losses carried forward from impairment testing Impairment losses on deferred tax assets on (926) 0 (926) 0 0 0 temporary differences from previous year Impairment losses on deferred tax assets on 0 0 0 (6,870) 0 (6,870) temporary differences due to change in tax rates Total deferred tax income (expense) (33,285) 1,185 (32,100) (139,463) (3,369) (142,832)

Total taxes recognised in the income statement (33,285) (8,655) (41,940) (139,463) (16,007) (155,470)

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An analysis of the differences between the theoretical and effective tax rates for the two years is given below:

Year 2008 Year 2007 €/000 % €/000 % Pretax result for the year 47,997 30,778 Taxation calculated on the basis of rates in force (13,199) 27.50% (10,157) 33.00% Deferred taxes accrued in net equity - Taxation on differences in the year: - non-deductible expenses (permanent) (2,852) 5.94% (5,280) 17.16% - other net differences (171) 0.36% 19,430 -63.13% IRAP and other tax calculated on a basis different to the pretax result (9,840) 20.50% (12,638) 41.06%

Total effective tax charge in profit and loss (26,062) 54.30% (8,645) 28.09%

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7 Commitments and contingent liabilities

Commitments and other guarantees The guarantees issued to third parties by the FASTWEB Group at 31 December 2008 amount to € 392,069 thousand (€ 494,618 thousand) and mainly comprise the following: ƒ € 265,433 thousand (€ 265,433 thousand) for sureties given to the tax authorities to guarantee the reimbursement claimed for the VAT receivables accrued during previous years; ƒ € 126,637 thousand (€ 229,185 thousand) for guarantees given by the group companies for the lease of offices and certain supply contracts.

8 Related party transactions

Related party transactions are substantially and procedurally correct. The Board of Directors pays particular attention to their valuation. The directors involved abstain from the related discussion and vote on decisions relating to related party transactions. Should the nature, amount or specific characteristics of a transaction so require, the Board of Directors draws on the assistance of independent experts. The Corporate governance report gives more information about the fees paid to Directors, Statutory Auditors and key managers. The following table summarises the Group’s main transactions with its parents, associates and other related parties and the related percentages.

Trade Trade Current financial Non-current financial Current financial receivables payables assets liabilities liabilities 31 December 2008 31 December 2008 31 December 2008 31 December 2008 31 December 2008 €/000 % €/000% €/000% €/000% €/000%

Swisscom Italia 0 0.0% 45,718 7.6% 0 0.0% 0 0.0% 1,484,682 98.8% Swisscom AG 908 0.2% 0 0.0% 0 0.0% 0 00% 0 0.0% QXN 0 0.0% 00.0% 635 100.0% 0 0.0% 00.0%

Total 908 0.2% 45,7187.6% 635 100.0% 0 0.0% 1,484,68298.8%

Revenue from Other revenue Purchases and Financial Financial the sale of goods and income services income expense 2008 2008 2008 2008 2008 €/000 % €/000% €/000% €/000% €/000%

Swisscom Italia 0 0.0% 0 0.0% 0 0.0% 0 0.0% 80,784 90.4% Swisscom AG 813 0.0% 1.757 1.4% 357 0.0% 0 0.0% 0 0.0% QXN 0 0.0% 00.0% 0 0.0% 35 0.4% 00.0%

Total 813 0.0% 1,7571.4% 357 0.0% 35 0.4% 80,78490.4%

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9 Other information

During the course of 2008, certain events confirmed the Company’s position with regard to the challenges made by FASTWEB before the Antitrust Authority and the Court of Appeal Judge on antitrust issues. On the one hand, the former agreed to close the proceedings – opened after FASTWEB presented a denunciation – against Telecom Italia (in relation unauthorised use of privileged information), following the incumbent’s commitment to guarantee to stop the contested unlawful conduct. On the other hand, again in 2008, fully recognising the validity of FASTWEB’s proof of Telecom Italia’s abusive conduct, the Milan Court of Appeal fixed the conclusion date for both parties as November 2010, when any amounts due to FASTWEB as damages and punitive sanctions are to be paid by the incumbent for the aforementioned illicit activities. No non-recurring events or other transactions took place during the year further to those already described. Moreover, there were no atypical or unusual transactions. As required by article 149-duodecies of the Issuer Regulation, the following table shows the fees of the independent auditors broken down by service provided in 2008:

2008 € FASTWEB Audit of the financial statements at 31 December 2008 395,000 Limited audit of the half year report at 30 June 2008 52,000

Total audit 447,000

Assistence in Compliance with Law 262 180,400

Other fees 77,926 e.BisMedia Audit of the financial statements at 31 December 2008 45,000 Limited audit of the half year report at 30 June 2008 8,000 Total audit 53,000

FASTWEB S.p.A. On behalf of the Board of Directors CEO Stefano Parisi

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Statement on the consolidated financial statements pursuant to article 81-ter of Consob regulation no. 11971/1999 and subsequent modifications and amendments

1. The undersigned Stefano Parisi, as Chief Executive Officer, and Mario Rossi, as manager in charge of financial reporting, state that, considering also article 154-bis.3/4 of Legislative decree no. 58 of 24 February 1998: ƒ the consolidated financial statements are adequate considering the Group’s characteristics; and ƒ the administrative and accounting procedures for the preparation of the consolidated financial statements at 31 December 2008 have been effectively applied during the year. 2. No significant issues arose. 3. In addition, that 3.1 The consolidated financial statements: a) have been prepared in accordance with prepared in accordance with International Financial Reporting Standards (IFRS) and relating interpretations published by the International Accounting Standards Board (IASB), endorsed by the Commission of European Communities with Regulation no. 1725/2003 and subsequent amendments, in compliance with Regulation no. 1606/2002 of the European Parliament and measures emanated in accordance with article 9 of Legislative Decree no. 38/2005; b) comply with the accounting records and entries; c) they give a true and fair view of FASTWEB Group’s financial position and results of operations; 3.2 the Directors’ Report includes a reliable analysis of the performance and situation of the Group, together with a description of the main risks and uncertainties to which it is exposed.

Milan, 25 February 2009

Chief Executive Officer Manager in charge of financial reporting Stefano Parisi (signed on the original) Mario Rossi (signed on the original)

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Report of the independent auditors on the consolidated financial statements of FASTWEB Group as at and for the year ended December 2008

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