Wind Tre Group
Consolidated interim financial statements as of and for the three-month period ended
March 31, 2018
REVIEW REPORT ON CONSOLIDATED INTERIM FINANCIAL STATEMENTS
To the Board of Directors of Wind Tre SpA
Foreword
We have reviewed the accompanying consolidated interim financial statements of Wind Tre SpA and its subsidiaries (the Wind Tre Group) as of 31 March 2018, comprising the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and related notes. The directors of Wind Tre SpA are responsible for the preparation of the consolidated interim financial statements in accordance with International Accounting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these consolidated interim financial statements based on our review.
Scope of review
We conducted our work in accordance with the International Standard on Review Engagement 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the entity”. A review of consolidated interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a full-scope audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated interim financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial statements of the Wind Tre Group as of 31 March 2018 are not prepared, in all material respects, in accordance with International Accounting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Emphasis of matter
As an emphasis of matter, we draw your attention to the fact that transactions exist with the parent company and with other entities belonging to the CK Hutchison Holdings Ltd. and Veon Ltd. groups, the most significant of which are disclosed in the Note 23 – Related party transactions.
In our opinion the above emphasis of matters do not lead to a qualified review report.
Milan, 14 May 2018
PricewaterhouseCoopers SpA
Signed by
Andrea Alessandri (Partner)
This report has been translated into English from the Italian original solely for the convenience of international readers
2 of 2
Wind Tre Group
Report on operations
at March 31, 2018
CONTENTS
THE WIND TRE GROUP...... 3
COMPOSITION OF THE CORPORATE BODIES OF WIND TRE S.P.A...... 5
WIND TRE GROUP HIGHLIGHTS AT MARCH 31, 2018 ...... 6
THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET ...... 8
COMMERCIAL AND OPERATING PERFORMANCE ...... 10 NETWORK ...... 22
HUMAN RESOURCES ...... 25
REGULATORY FRAMEWORK AT MARCH 31, 2018 ...... 27 OUTLOOK ...... 40 GLOSSARY ...... 41
Report on operations 2 Wind Tre Group at March 31, 2018 THE WIND TRE GROUP
Wind Tre S.p.A. (hereinafter referred to as Wind Tre or the Company and together with its subsidiaries the Group or the Wind Tre Group) is a joint stock company having registered office in Via Leonardo da Vinci, 1, Trezzano sul Naviglio, Milan, Italy. Wind Tre is a leading operator in the fixed and mobile telecommunications and data services sector in Italy and is strongly oriented towards providing in mobility data communication services, internet mobile access services in broadband and broadband and ultra-broadband fixed-line services, as well as a convergent fixed-mobile offer. In addition, it accompanies its offer with a wide range of content, applications and multimedia support.
These consolidated financial statements for the period ended March 31, 2018 were approved by the Company’s Board of Directors on May 11, 2018. At the date of approval of these consolidated financial statements Wind Tre is controlled by Wind Tre Italia S.p.A. (hereinafter referred to as Wind Tre Italia) which in turn is controlled by the Luxembourg based entity VIP-CKH Luxembourg Sàrl (hereinafter referred to as VIP-CKH or the Joint Venture). VIP-CKH is a joint venture whose share capital is owned as to 50% by CK Hutchison Holdings Limited (hereinafter referred to as CK Hutchison) and by Veon Ltd. (hereinafter referred to as Veon). The Joint Venture owns and operates telecommunications businesses in Italy. CK Hutchison is a limited liability company incorporated in the Cayman Islands and registered in the Register of Companies of the Cayman Islands (no. MC-294.571) whose shares are listed on the Hong Kong stock exchange and whose principal place of business is located at 12th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Veon is incorporated under Bermuda law, domiciled in Claude Debussylaan 88, 1082 MD Amsterdam, The Netherlands and listed on NASDAQ.
On the formation of the Joint Venture at the end of 2016 the respective holding and operating companies of the telecommunications businesses in Italy of CK Hutchison and Veon, namely Wind Tre Italia and WIND Acquisition Holdings Finance S.p.A., and Wind Tre and WIND Telecomunicazioni S.p.A., and all their subsidiaries became subsidiaries of the Joint Venture, and the Joint Venture became the new parent company of the Group holding the telecommunications businesses in Italy of CK Hutchison and Veon.
Following the above mentioned transaction WIND Acquisition Holdings Finance S.p.A. and WIND Telecomunicazioni S.p.A. were merged into Wind Tre Italia and Wind Tre respectively. The approval for the transaction obtained from the European Commission, which led to the formation of the Joint Venture, required the implementation of a number of remedies which included the signing of certain agreements with Iliad, a French telecom operator, aiming to allow Iliad to enter the Italian market. These agreements have resulted in the commitment of the Wind Tre Group to sell frequencies (€450 million) and sites to Iliad in the period 2017 – 2019 as well as to sign certain temporary agreements which enable Iliad to operate telecommunications services in the Italian market while it is creating its own network. From an accounting perspective the frequencies and sites that are expected to be transferred to Iliad by December 31, 2018 are presented and measured at each closing date as required by IFRS 5 and discussed in the General Accounting Policies section. Conversely accelerated depreciation has been charged on the sites that are expected to be transferred after December 31, 2018 and will still be utilized by the Group through that date, in order to represent their new expected limited useful lives.
As a result of these agreements at the end of the 2016 the carrying amount of the assets to be sold was reviewed in terms of impairment or by revising their useful lives. These assessments have been updated in the financial statements at March 31, 2018 and are discussed in the explanatory notes.
Report on operations 3 Wind Tre Group at March 31, 2018 The following diagram sets out the structure of the Wind Tre Group at March 31, 2018.
As required by the European Commission as a mandatory condition for approving the merger between WIND Telecomunicazioni S.p.A. and H3G S.p.A. which took place at the end of 2016, Iliad, the fourth infrastructure mobile operator, is expected to enter the market during 2018. For more information on this transaction reference should be made to the Wind Tre Group Notes to the Consolidated Financial Statements as at December 31, 2016 and 2017.
The subsidiary Wind Tre is investing to strengthen its fixed and mobile networks, thereby accelerating the process of network integration. Trieste and Agrigento are the first two Italian cities to benefit from the new consolidated Wind Tre network which guarantees high performance for coverage, quality of service and connection speed and ensures a better user experience; Bologna, Alessandria and Milan have been added in 2018. The consolidation of the mobile network is expected to be completed by the end of 2019.
Report on operations 4 Wind Tre Group at March 31, 2018 COMPOSITION OF THE CORPORATE BODIES OF WIND TRE S.P.A.
Board of Directors (1)
Chairman Christian Nicolas Roger Salbaing
Directors Jeffrey Alan Hedberg, Managing Director
Kjell Morten Johnsen
Board of Statutory Auditors (2)
Chairman Giancarlo Russo Corvace
Standing auditor Marcello Romano
Standing auditor Luca Occhetta
Substitute auditor Roberto Colussi
Substitute auditor Maurizio Paternò di Montecupo
(1) The shareholders’ meeting of the Company held on November 5, 2016 appointed the Board of Directors for a term expiring on the date of the shareholders’ meeting that approves the Company’s financial statements for the year ending December 31, 2018. On June 22, 2017 the shareholders’ meeting of the Company appointed Mr. Jeffrey Alan Hedberg as a board member to replace the Managing Director, Mr. Maximo Ibarra, who had resigned. At the same date the Board of Directors of the Company appointed Mr. Hedberg as Managing Director of the Company and granted him powers to manage the Company. The Managing Director will hold office until the term of the current Board of Directors expires.
(2) The shareholders’ meeting of the Company held on November 5, 2016 appointed the Board of Statutory Auditors for a term expiring on the date of the shareholders’ meeting that approves the Company’s financial statements for the year ending December 31, 2018.
Report on operations 5 Wind Tre Group at March 31, 2018 WIND TRE GROUP HIGHLIGHTS AT MARCH 31, 2018
Below are the main indicators of the Wind Tre Group at March 31, 2018 with a comparison with the corresponding period in 2017.
Operational data At March 31, At March 31, 2018 2017
Mobile customers (millions of SIM Cards) 29.2 30.9 Mobile ARPU (euro/month) 10.8 11.0 Fixed-line customers (millions of lines) 2.7 2.7 Fixed-line ARPU (euro/month) 27.0 28.1 Mobile network coverage(1) 99.9% 99.9% Employees (headcount) 7,076 8,981 (1) As a percentage of the Italian population.
(millions of euro) 2018 2017
Income statement 3 months 3 months Revenue(1) 1,410 1,548 EBITDA(2) 484 458 Operating loss (69) (320) Net finance expense (79) (144) Loss for the period attributable to the owners of the Group (153) (496)
(1) The figures for the period ended March 31, 2017 have been disclosed differently/reclassified to ensure comparability with the figures for the period ended March 31, 2018 (2) Operating loss before depreciation and amortization, reversal of impairment losses/impairment losses on non-current assets and gains/losses on disposal of non-current assets
(millions of euro) At March 31, At December 31,
Statement of financial position 2018 2017 Total assets 17,151 17,637 Equity attributable to owners of the Group 1,477 1,644 non-controlling interests - - Total liabilities 15,674 15,993 Net debt 10,323 10,318
Total revenue in the three months ended March 31, 2018 amounted to €1,410 million, decreasing by 9%.
This was mainly due to a reduction in service revenues, especially in the mobile segment, and a contraction in revenues from the sale of mobile telephone handsets.
EBITDA amounted to €484 million in the first three months of 2018, an increase of €26 million compared to the corresponding period of 2017, while there was an operating loss of €69 million, a decrease of €251 million over the first three months of 2017.
Net finance expense for the first three months of 2018 amounted to €79 million, a decrease of €65 million over the first three months of 2017.
Report on operations 6 Wind Tre Group at March 31, 2018 There was a loss for the period of €153 million for the first three months of 2018 compared to a loss of €496 million for the first three months of 2017.
Net debt totaled €10,323 million at March 31, 2018, an increase of €5 million over December 31, 2017. The following table sets out the components of net debt at March 31, 2018 and the changes which have occurred since December 31, 2017.
(millions of euros) At March 31, At December 31, Change 2018 2017
Non-current financial liabilities Bonds 7,205 7,247 (42) Loans from parent companies 1,777 1,764 13 Banks loans 2,962 2,960 2 Derivatives 121 57 64 Total non-current financial liabilities 12,065 12,028 37
Current financial liabilities Bonds 99 39 60 Banks loans 25 10 15 Total current financial liabilities 124 49 75
TOTAL GROSS DEBT (A) 12,189 12,077 112
Non-current financial assets Derivatives (1) (7) 6 Financial receivables (1,122) (1,119) (3) Total non-current financial assets (1,123) (1,126) 3
Current financial assets Financial receivables (42) (21) (21) Total current financial assets (42) (21) (21)
Cash and cash equivalents (701) (612) (89) TOTAL FINANCIAL ASSETS (B) (1,866) (1,759) (107)
NET DEBT (A+B) 10,323 10,318 5
Net debt does not include trade payables, other liabilities, other payables and guarantee deposits (included in financial liabilities) of €4 million at March 31, 2018 and of €3 million at December 31, 2017.
Report on operations 7 Wind Tre Group at March 31, 2018 THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET
Industry overview
Italy is Europe’s fourth largest telecommunications services market by revenue. The estimated value of the Italian mobile market for 2018 is approximately €13 billion, slight decreasing over the past two years due to competitive pressure increase.
In the first quarter of 2018 mobile network operators continued to develop their offers for voice and data services, with packages increasingly concentrating on data traffic dedicated to private customers, for whom certain innovative services are now being added in addition to unlimited minutes and the various discounts. The new offers are increasingly differentiated by type of user and sales channel, with several promotions geared towards winback and competitors’ customers. The competitive arena will probably see Iliad take to the field by the summer of 2018 (the operator is currently extending its authorizations for network coverage). Navigation in mobility on the 4G network is the cornerstone of the offers of operators who are aiming at quality, navigation speed and network coverage as the basic features required not only to get the most out of telecommunications services but also to obtain an increasingly broad range of multi- media services. In this context testing of the 4G+ and 5G networks also continues to be at center of the main communications strategies of the leading operators. In the first quarter of 2018 operators announced the availability of new smartphone models in their product portfolios, proposing purchase also by means of an initial single contribution. In addition the range of products offered in bundles continues to widen, to the point of even including automated home equipment in one or two cases. In the first three months of the year, major operators are mainly attempting to attract the business market with communications activities in which companies are proposed as partners in 5G and IoT testing. The major operators’ offer to the Consumer market developed by seeking to win over new customers, with tariffs including increasingly extensive bundles of voice-data traffic, triple and quadruple play services, winback initiatives and initiatives to retain acquired customers, in particular by way of discounts and gifts connected with certain festive occasions. In the offers of the leading operators innovative services acquired greater importance in the Consumer world. In the first quarter of 2018 the fixed telecommunication services network continued to evolve with quadruple play offers focused on fixed and mobile convergent services, to which were added video streaming digital contents for Consumer profiles and solutions supporting business process digitalization, with particular focus on SMEs. All operators continue to propose fiber optic profiles in the extension of the ultra-broadband network by way of direct investments and partnerships. At the beginning of March, following AGCOM’s provisions, the leading operators reformulated their offer renewals, moving from a four-week to a monthly frequency and announcing that further reformulations will be made in subsequent months as a result of AGCOM’s end of March provision. The quarter was characterized by promotional initiatives for the Consumer market, with high-speed voice-data bundles, discounted fees and activation and offers including calls to mobile phones, navigation services from mobile phones and Wi-Fi modems. The promotions of offers for Business customers were essentially addressed to small professionals and SMEs, with convergent offers, security services and cloud.
Report on operations 8 Wind Tre Group at March 31, 2018 Mobile telecommunications
The Italian mobile telephone market is the fourth largest European market by revenue after the United Kingdom, Germany and France. There were three infrastructure operators in Italy which offer mobile telephone services to the approximately 82 million SIMs registered at March 31, 2018, equal to a penetration rate of approximately 136% of the Italian population. The penetration figure is distorted by the widespread use of more than one SIM card by many customers. It is estimated that about 86% of the customer base (SIM Human) uses prepaid cards.1 Excluding MVNOs, at March 31, 2018 Wind Tre had an estimated market share of 35.4% while Telecom Italia and Vodafone had 37.6% and 27.0%.
Fixed telephone services market
Voice The Italian fixed-line telephone services market is the fourth largest by value in Europe after the United Kingdom, Germany and France. Telecom Italia dominates this market even though it was liberalized in 1988. In addition to Telecom Italia and Wind Tre, the main players are Fastweb, Vodafone, Tiscali and BT Italia.
Internet At March 31, 2018 access to broadband internet had reached a penetration of 80% of all fixed lines in Italy (excluding FWA accesses). Broadband services have grown rapidly in the country over the past few years to reach approximately 15.9 million connections, equal to 26% of the Italian population. Despite the recent rise in broadband Italy still lags behind the other European countries. In March 2018, coverage of the ultra broadband networks (above 30 Mbps) in Italy was approximately 75% of the population with around 2,700 urban centers enabled for the new services. As of today Open Fiber has signed wholesale service supply agreements with 9 operators and the FTTH network is currently available in 18 municipalities). Cabling work is currently in progress so that commercialization may also begin in another 80 cities. The overall program for ultra-broadband envisages the development of the network in six years in over 270 Italian cities for approximately nine and a half million property units served.
On March 29, 2018 Sky Italia and Open Fiber announced that they had signed an agreement to launch a TV service via fiber starting in the summer of 2019, with the aim of speeding up the long-term growth of fiber and pay-TV.
In March 2018, TIM’s board of directors announced the formal start of the procedure for notifying AGCOM of the plan for the voluntary separation of the fixed access network. The project envisages the creation of a separate legal entity (Netco) wholly owned by TIM which will be the owner of the access network (from the exchange to the customer’s home) and of all the infrastructure (buildings, electronic equipment and IT systems), and having the necessary personnel to provide wholesale services independently.
1 Data from AGCOM (Communications Observatory – 4Q 2017)
Report on operations 9 Wind Tre Group at March 31, 2018 COMMERCIAL AND OPERATING PERFORMANCE
Mobile
At March 31, 2018, Wind Tre had 29 million mobile telephone customers, a decrease over March 31, 2017, and a market share (calculated by excluding MVNO operators) of 35.4%.
The following table shows the main indicators in the mobile market.
2018 2017 Mobile Change 3 months 3 months Customer base (millions of SIM Cards) (1) 29.2 30.9 (5.5)% Revenue (millions of euro) (2) 1,100.3 1,233.5 (10.8)% Voice traffic (billions of minutes) (3) 25.0 24.7 1.2% ARPU (euro/month) 10.8 11.0 (1.8)% % ARPU Data/Total ARPU 52.8% 51.2% (1) Total Customer Base: Voice + Data; excluding M2M (2) Include TLC Revenues + CPE Revenues. The figures for the period ended Mach 31, 2017 have been disclosed differently/reclassified to ensure comparability with the figures for the period ended March 31, 2018 (3) Voice Traffic Outgoing + Incoming off net + Incoming from ITZ
Consumer offer The WIND brand The WIND brand is present on the telecommunications market with a positioning that ensures a response to the needs of the whole family through a wide range of offers that propose the historical values of clarity, transparency and simplicity. WIND as always looks after its customers, following changes in their habits, with an average usage of mobile GIGA that continues to increase. WIND concentrates on the transparency and generosity of its offer: All Inclusive Unlimited and Noi Tutti Unlimited have the “SMS My Wind” and “hotspot” services included. Customers can access the notification service to see who has been trying to reach them and can share the GIGAs in their offers with other devices in Wi-Fi at no extra cost. The distinctive feature of the WIND offer continues to be “Unlimited Internet”: customers can continue to use the main social networks and navigate at a speed of 128 kbps once the full-speed GIGAs available with their offer have been used up; there is no block on navigation and unlimited internet. The first quarter of 2018 continued to be characterized by a significant focus on the contents of offers: All Inclusive Unlimited which remains the flagship offer with unlimited minutes, 500 SMSs and 5 full speed GIGAs to satisfy all customers’ needs with a complete and competitive offer, and thanks to the launch of Wind Plus with the possibility of doubling the All Inclusive offer. WIND’s rechargeable internet world continued to follow its customers’ connectivity needs with solutions for navigating in mobility with denominations of 5, 10, 20 and 30 GIGAs. WIND carried on placing a great deal of emphasis on the use of video: it continued its partnership with Sky in the Giga Max Now TV offer which combines the data component (20 GIGAs available), the best TV series and Sky’s great shows. WIND continues to cover M2M (machine to machine), the SMS growth sector, more extensively and has moved even closer to families and the IoT (“Internet of Things”) world with the WIND Smart Security offer, the SIM for the IoT and safe home environment with unique features: an extended expiry date for the SIM, an annual charge and monthly bundles studied precisely for the use of SIMs in automated home equipment.
Report on operations 10 Wind Tre Group at March 31, 2018 In addition, WIND continued to preside over the digital channels, addressing “full digital” customers with dedicated offers only available online such as the “All Inclusive Unlimited Online Edition” and the “Celebration” offers in limited edition. In addition, the best smartphones and tablets are available in all WIND stores. Through WIND’s e-commerce website customers can buy rechargeable SIMs with exclusive offers with the convenience of receiving everything at home.
WIND continues to work from the standpoint of Community Marketing, reinforcing the concept of “closeness” to its non-Italian customers with offers and communication dedicated to the most popular feast days and events of the individual communities. More specifically, the Call Your Country Celebration offers for Romania, the Ukraine and Moldavia were launched for Christmas (Catholic and Orthodox) and were available until January 21. Subsequently, up to April 3, Call Your Country Celebration offers for China and India could be subscribed for the Chinese New Year and the Holi Festival. These promotions offered a large bundle of GIGAs available with national and international minutes and data included. In parallel with the Call Your Country Celebration offer the flagship Call Your Country Super offer was strengthened with the possibility of doubling the national and international minutes and GIGAs. Starting from the January canvass fees for subscription offers are billed on a calendar month basis for residential customers and professionals with no extra cost for new activations. The possibility of adding up to 3 SIMs for the family or co-workers remains with the dedicated offer providing 500 minutes, 500 SMSs and 2 GIGAs, available in the Family and Company versions, a smart device from the Home & Life range included with Telefono Incluso and exclusive discounts for top smartphones.
The “3” Brand During the first quarter of 2018, “3” pursued a strategy designed to confirm its name as leading operator on the market and satisfy the needs of technical customers who are attentive to innovation while at the same time strengthening its relationship of trust by providing constantly increasing transparency in its offers. Supported by a TV spot and social activity, “3” covered all the communication channels, thereby creating a high level of awareness in customers. As a means of giving the brand a new image, as well as providing the logo with a brush-up and pursuing a new communications strategy, “3” revolutionized the telco market on March 19 by launching the first offers with unlimited GIGAs, no caps and no restrictions. With the new Power offers, available in both the All-In and Free versions and activated together with 3Fiber, “3” became “unlimited”, increasingly embracing the value of generosity. To promote fixed-mobile convergence, “3” has therefore given the possibility to its 3Fiber customers to have access to the All-In Power and Free Power offers so that they can have unlimited GIGAs and minutes on their smartphones at a price blocked forever. Further confirmation of the path taken by “3” which is focused on technological innovation not as an end in itself but rather in terms of accessibility and customer care. In terms of the prepaid world, in March 2018 “3” launched its new Play 15 offer. A rechargeable offer with 900 minutes and 15 GIGAs specifically aimed at the younger segment of customers who are seeking a convenient offer, but with all that is needed to always stay connected. And by activating the online promo anyone who wants to can have 25 GIGAs and a smartphone included. For the residual credit rechargeable segment “3” abandoned its means of renewing and calculating ceilings on a weekly basis by launching three new monthly options. To encourage the activation of new Gross Add (GA) with payment method and to reinforce the lock-in effect, “3” gives customers the possibility of doubling their GIGAs by selecting All-In Prime with a contractual commitment of twenty four months and payment by credit card or bank account.
Report on operations 11 Wind Tre Group at March 31, 2018 The All-In offer range is completed by the Master version which enable the promotional price to be blocked, include GIGA BANK, “3”’s exclusive service which allows customers to accumulate the GIGAs they don’t use in a single month and use them at any other time. FREE, available in a rechargeable version, is the offer created by “3” for customers who are mad about technology and want to be constantly updated and have the latest technological discovery, with a no-worry all-inclusive offer that includes a top smartphone: customers can exchange their smartphone every 12 months for any of those available and have the Kasko service included. As regards mobile broadband “3” has extended the range of its service portfolio to cover various market segments and continued to improve its offers in order to ensure that customers have greater navigating freedom away from home. For customers who want to navigate by using the residual credit on their SIM cards “3” has exceptionally introduced Super Internet Untied with GIGA BANK to navigate anywhere with no contractual restrictions. To continue to increase the convergent offer segment (voice + mobile broadband), “3” has confirmed its “Special” offers with the Super Internet and 3Cube offers.
Voice, internet and business services offer Wind Tre Business During the first quarter of 2018 the Wind Tre Business brand continued its journey down the growth path it started with the brand’s inauguration on May 23, 2017. The three fundamental values that establish its positioning on the B2B market are the following: Trust: clarity and simplicity in offers and customer relations; Relations: customer support services and a constant presence of the sales force; Value: top quality innovative solutions and offers. Wind Tre Business provides a wide range of voice and data services to its corporate customers, to small- and medium- sized enterprises (SMEs) and to professionals (SOHO), with specific offers for each market segment. Larger companies are increasingly oriented towards prepaid offers to increase their control over their spending. Wind Tre Business proposes an offer based on the business budget with “all-inclusive” service charges: customers establish their telephone spending at a company level, identifying packages of traffic shared amongst the SIMs, thereby keeping control of the budget at a global level rather than at the level of single SIM card. Faced with the increasing interest in mobile applications (apps) designed to take certain business processes into mobility, Wind Tre Business has additionally launched Enterprise Mobility Services through strategic partnerships and vertical system integrator agreements. In June 2017, Wind Tre Business launched the new rechargeable portfolio GigaShare for the small- and medium-sized business market. The aim of this is to satisfy the rising demand for GIGAs by way of a flexible offer that can be formulated on the basis of business customers’ individual needs. GigaShare consists of two separate offers, each created with a specific target in mind: MyShare is the rechargeable offer for managers and professionals for sharing GIGAs across their devices and can be combined with the purchase of a top smartphone; SmartShare is the rechargeable offer for co-workers for sharing GIGAs across several SIM cards and can be combined with the purchase of a basic smartphone. The sharing of GIGAs enables customers to obtain efficiency, savings and flexibility. Both offers also include the Extra Giga bundle which when the shared data basket has been used up allows them to activate another one of a different denomination and continue with their work.
Report on operations 12 Wind Tre Group at March 31, 2018 A number of changes were introduced in January 2018 to add further value to the GigaShare offer while keeping prices unchanged: On all the price lists with unlimited international calls, those with 500 SMSs have also become valid from Italy to the EU, the US and Switzerland; On the 500 minute SmartShare list, unlimited minutes towards business fixed and mobile lines have been included; On the SmartShare offer, a new Giga package has been launched for sharing 1000 GIGAs between up to 300 SIMs at a cost of €600/month. To satisfy the needs of customers frequently travelling to countries other than those in the European Union, the US and Switzerland, GigaShare provides the possibility of completing the options with the Top Mondo offers that provide voice and data traffic the main business destinations. On the other hand customers who only make occasional visits abroad can activate the weekly option Mondo which provides voice and data traffic throughout the world. The foreign offer is completed by the International Aziende option for calling abroad. An additional plus of the offer is represented by the Work&Life product line. This enriches the Wind Tre Business offer with smart products and solutions for a person’s free time. More specifically, Work & Life includes the following services: Digital Kit: free of charge vouchers for the digital transformation of a business; Smart Working: a range of products for use in the office or in mobility; Smart Life: exclusive products for free time.
The Cre@sito, Pec Smart, Mobile POS, WIND Smart Control, Windlex and Servizi 4 Mobility digital services complete the mobile offer for businesses. The Cre@sito service provides customers with the possibility of creating a website on their own through a user-friendly interface and of having a level II dominion and a mailbox. Pec Smart is a certified electronic mail service, mandatory by law for professionals and businesses, which has legal value equivalent to a registered letter with return receipt. WIND Smart Control is the innovative mobile device management solution of WIND Business created for all small and medium businesses needing to make the smartphones and tablets used by their employees safe and to configure and monitor these devices in a simple, rapid and effective way. Thanks to the partnership with 4Mobility, new services are available to provide an optimal management of working activities in mobility: organizing the day’s work in the best possible manner and recording this by way of reports, photos and videos; managing contacts and planning visits and having digital catalogues, products and documents in mobility; digitalizing and managing expense notes in the simplest way, creating and transferring them in real time. In order to extend its portfolio of offers and services dedicated to SMEs, a partnership agreement of significant importance has been entered with Microsoft in order to be able to offer customers Office 365, the productivity suite in Microsoft’s Cloud. With Office 365 businesses have all the tools at their disposal that they need to work in mobility effectively and everywhere on any device (smartphones, tablets, laptops, PCs, Macs), so that they can manage, modify and share documents in real time while operating with the utmost safety. Wind Tre Business proposes the Microsoft Office 365 services in three packages: Basic, Plus and Top to respond to the various needs of businesses, starting from €4 a month per single account. All customers acquiring GigaShare obtain for each SIM an Office 365 Business suite with a Basic profile included for 24 months, and together with a top tier smartphone a further Office 365 Business suite with a Top profile free of charge for 24 months. In addition, thanks to the above-mentioned partnership with Microsoft the Wind Tre Business CRM Dynamics Online solution for customer relationship management is available. This provides small and medium businesses with a
Report on operations 13 Wind Tre Group at March 31, 2018 powerful, intuitive and easy-to-use tool, also in mobility, to assist them in the operational management of their customers, to increase the satisfaction of these customers and to make business and sales opportunities grow. This is the first pre-packaged “plug&play” solution of Microsoft CRM Dynamics Online on the market, entirely cloud-based, with no initial investment needed and with an assisted set-up.
Again as part of the development of digital services in partnership, Wind Tre Business’s offer has been enhanced by a number of important additional solutions:
Business Analytics, the web cloud offer consisting of Real Time Monitor and Expense Manager services which implement a set of functionalities for permitting the analysis and supervision of the usage of the main telecommunications services. Real Time Monitor, the solution that permits the real time analysis and management of a business’s mobile connectivity through a simple and intuitive digital interface that enables a business to analyze the voice/SMS/data traffic generated by individual users; autonomously manage the definition of traffic ceilings; activate an automatic alerting system that triggers on reaching specific usage values; generate automatic device action on exceeding specific traffic ceilings; and make the most out of a standard and ad hoc reporting system. Expense Manager, the smart system for reporting telephone traffic which enables businesses to organize invoice information in accordance with pre-established criteria by constructing graphic reports and statistical aggregations that allow a detailed analysis of the business’s spending to be performed. Mobility Pack, the solution created for businesses that want to make the best use of their devices by providing their employees with a complete use experience in complete freedom, flexibility and security. Mobility Pack separately manages the utilization and traffic of two different use profiles: the business profile (dedicated and confidential utilization of business data and applications) and the personal profile (private utilization of data and applications), keeping business and private lives apart. Mobility Pack provides: o the separation of the business profile from the personal profile on different models of mobile devices o a cloud Enterprise Mobile Management solution that gives the IT Manager full control of the data and the business’s applications installed on the device o the collection and tariffing of the traffic of the business profile by means of a private APN o safe navigation on the internet through a firewalling/content filtering system. Fleet Management, an innovative security, protection and satellite localization solution capable of combining the best of the Wind Tre network with the experience of the leading business in Europe in satellite computer systems. Fleet Management provides: o fleet tracking functionality - through real-time viewing of vehicles and journeys o driving style functionality – through simple and intuitive driving/consumption graphics set in relation to the journeys made by the vehicle.
Wind Tre Business has additionally launched three new digital touch points for strengthening its proposition for providing information and support to customers: the www.windtrebusiness.it website dedicated to communicating offers and services for businesses and the public administration and a further customer support tool. Created with responsive technology and with a modern and interactive design, www.windtrebusiness.it is able to guarantee customers an involving experience from any device (desktop, tablet or smartphone) with the aim of developing the concept of a simple shop window of products and proposing itself as an innovative channel for acquiring and managing
Report on operations 14 Wind Tre Group at March 31, 2018 the customer. Through the new web channel businesses have the possibility of requesting customized advice in real time, leaving their contact information in the section set aside for the purpose. Specifically www.windtrebusiness.it is divided into four main areas: the first and the second are addressed to SMEs and large businesses respectively; the third is an area completely dedicated to assistance; finally the fourth is dedicated to the events and roadshows that Wind Tre Business organizes throughout the country as an opportunity for meetings between managers, businesses and the public administration to promote a digital innovation culture. As is the case for all of the products and services of Wind Tre Business, the new website combines cutting edge technology with an easy-to-use facility in order to provide customers with top quality and the support required to compete on the market successfully; the Wind Tre Business app, the channel for effective, intuitive and free of charge self-care, available on the App Store and the Google Play Store. The Wind Tre Business App allows customers to keep the various service profiles constantly under control, both in Italy and abroad, without using, in Italy, the data traffic included in the subscribed offer. With the new app they can monitor the offer and relative consumption and network coverage, become aware of the services available for international travel, request assistance directly from customer service and remain constantly updated about the latest things that Wind Tre Business has to offer; social profiles @windtrebiz available on Facebook and Twitter. The new social profiles represent an important communication and conversation channel for getting to know about the offers and changes in the Wind Tre Business world and receiving information and assistance, thanks to the constant support of a dedicated social care team.
Wind Tre Business develops initiatives throughout the country to promote and divulge the culture of innovation and digital transformation for various spheres and reference models, availing itself of the support of specialist partners in the sector.
Finally, to ensure maximum support with the best technology an advanced technical assistance service is available to all Wind Tre Business customers free of charge. In combination with the mobile offer Wind Tre Business provides businesses and the public administration with a fixed- line offer, described in detail in the section “Fixed line and Internet”.
Innovative Services WIND and “3” strengthened their proposal of digital contents such as apps, games, music, films, e-books and digital magazines which customers can download from the main stores using their telephone account as a means of payment without the need for a credit card. In addition to Google Play and Windows Phone Store, which have been active for a while and are constantly growing, since 2017 it has also been possible to use telephone credit inside the Apple world (iTunes, App Store, Apple Music, iBooks) and for “3” customers Windows Store (active since August 2016 for WIND customers). As of today Wind Tre is the first and only Italian operator to make the service available on Apple platforms. With a view to improving customers’ digital education and spreading the use of this functionality, Wind Tre has initiated a series of communications activities with its various partners. To this end, in March 2018 Wind Tre collaborated with Google in launching a spring promotion with discounts on in-app purchases made in the main games. In addition, there have been numerous communications activities on the online channels that also envisage the involvement of influencers particularly well-known for their love of games. The Mobile Ticketing scheme has now increased its presence to over 60 cities and has been involved in the sale of 10 million tickets. Among the various cities where it is possible to buy tickets using telephonic credit the following can be
Report on operations 15 Wind Tre Group at March 31, 2018 listed: Florence, Genoa, Milan, Naples and many others. The recent inclusion of 11 additional cities (Alessandria, Massa, Viareggio and Salerno to name but a few) has enabled highly significant coverage to be achieved in the region of Tuscany where the residents of all the provincial capitals are able to benefit from this convenient service. In addition, it is possible to use telephone credit to pay for parking and recharging electric vehicles at the Duferco Energia columns. In addition, during the first few months of 2018 WIND and “3” have launched a series of initiatives to make the service known and bring it to people’s awareness by taking action on the various digital channels. Between the end of 2017 and the beginning of 2018 Wind Tre celebrated the fact (by way of several communications activities) that it had issued more than 10 million tickets since the start of the service, and this achievement obtained considerable visibility in the main local and national press. The press also commented on the ecological effect of a service which has enabled over 10 tons of paper to be saved since the launch of the initiative. Finally, and staying in the ambit of electronic ticketing paid for by telephone credit or accounts, the first few months of 2018 saw the enactment into Italian law of the new European payment services directive (PSD2) which opens up the way to the use of telephone credit or accounts for the payment of tickets for a whole variety of new types of service (e.g. cinemas, theatres, museums, concerts, etc.). Wind Tre, in partnership with public and private companies, has therefore set itself the objective of extending mobile ticketing also to those areas in the next few months.
International Roaming
Wind Tre customers have two different types of roaming coverage depending on whether they have chosen the WIND brand or the “3” brand. The two coverages run in parallel. As things currently stand the WIND brand can count on 644 international roaming relationships under which roaming coverage is ensured in 222 countries, of which 12 with satellite services; of these, prepaid customers have the possibility of making a “direct call” in 174 countries thanks to 417 agreements for the provision of the service. In addition, all WIND brand customers can use LTE in roaming in 63 countries thanks to agreements entered with 132 operators. “3” brand customers can on the other hand count on 493 international roaming relations which guarantee them roaming coverage in 194 countries, among which prepaid customers have the possibility of making a “direct call” in 152 countries thanks to 343 agreements for the provision of the service. Further all “3” brand customers can use LTE in roaming in 49 countries with 83 operators. Wind Tre customers can take advantage of the benefits of Easy Europe, which also allows them to use their national offer when they travel within the European Union at no extra cost. The portfolio is completed by offers valid throughout the world, which respond to the needs of customers who only go abroad occasionally as well as those who travel more often.
Sales and Distribution Wind Tre continues to improve the quality of its distribution channels and strengthen its sales network, marketing its mobile products and services including SIM cards, scratch cards and handsets through a series of exclusive outlets which at March 31, 2018 consisted of 1,531 sales points: 680 WIND brand sales points and 851 “3” brand sales points. The non-exclusive Wind Tre sales network consists of 3,727 multibrand dealers spread throughout the country and further strengthened by a presence in electronic store chains with various distribution models (counters, “3” corners). From May 2017 WIND’s offers dedicated to prospective customers for the consumer rechargeable segment can be purchased online. Two different forms of delivery are available: direct, sent by courier to the address named by the customer, or by booking the offer and entering the customer’s details and those of the MNP online and then paying for/collecting the SIM card at the sales point.
Report on operations 16 Wind Tre Group at March 31, 2018 The www.wind.it website has been transformed through a restyling project into a responsive site aiming to optimize the existing functions of the online activation of services and offers, supporting and optimizing the business’s new e- commerce from a mobile standpoint. At the same time the partnership with Amazon continues; under this agreement customers can buy WIND products conveniently from their own home and with no delivery costs. WIND was the first telecommunications company in Italy to enable its services to be bought through Amazon. The partnership continues with FreedomPop, which continues to be one of the main digital purchase channels with its portfolio of dedicated offers. In addition, customers can continue to top-up their SIM cards from the website and from apps, paying by credit card or PayPal, or by charging their WIND or Infostrada telephone account. The activation of a fixed-line offer (fiber or ADSL) for a new or existing telephone number can be requested from the www.wind.it website. Fixed and mobile customers can check their usage, change their offer and independently manage their lines in the website customer area and by using the apps. From the www.tre.it website customers can activate offers and services as well as buy telephones, smartphones, tablets and new mobile SIM cards. In addition, the new 3Fiber offer has been available since September; this enables “3” customers to activate fiber under dedicated conditions. In addition, the new convergent offer, Wind Home and 3Fiber, enables WIND and “3” customers to stay connected inside and outside their homes. By using the www.tre.it website or the Area Clienti 3 app customers can top-up online, paying by credit card or Paypal, and control and manage their telephone lines.
Fixed line and Internet
Wind Tre offers its consumer and microbusiness customers a vast range of direct fixed network, broadband internet and data transmission services. Broadband services are provided to direct customers (unbundling) by renting from Telecom Italia the “last mile” of the access network which is disconnected from Telecom Italia equipment and connected to the WIND equipment to be found in the telephone exchange. In addition, thanks to its strategic partnership with Open Fiber, Wind Tre sells ultra-broadband services in FTTH (Fiber to the Home) mode in the cities of Milan, Bologna, Turin, Perugia, Bari, Venice, Catania, Padua, Cagliari, Palermo, Genoa and Naples, where it markets offers in fiber optic that enable the end user to reach speeds of up to 1 Gigabit a second. Furthermore in January 2018 it reached the Milan hinterland, taking Fiber in FTTH technology to the municipalities of Bresso and Sesto San Giovanni. In the other major Italian municipalities Wind Tre provides ultra-broadband services in FTTC (Fiber to the Cabinet) mode with download speeds of up to 200 Mb/s (where not available 100 Mb/s) and upload speeds of 20 Mb/s. At the locations where it is present in unbundling Wind Tre offers a “Real ADSL” service that enables it to stabilize the customer’s line at the maximum supported speed, up to 20 Mb/s in download, providing the best performance possible and guaranteeing a line that is always stable. The latest expansion plan for the direct access network, initiated in January 2015, has led to the coverage in unbundling of over 70% of the lines, thereby strengthening Wind Tre’s positioning as an alternative operator to Telecom Italia in the fixed environment.
Report on operations 17 Wind Tre Group at March 31, 2018 Voice services Wind Tre’s fixed network voice customer base could count on 2.7 million subscribers at March 31, 2018 representing a decrease of 0.7% over March 31, 2017.
The following table sets out the key fixed-line indicators. 2018 2017 Fixed line Change 3 months 3 months Customer base (thousands of lines) 2,699.0 2,718.5 (0.7)% of which LLU (thousands)(1) 2,532.4 2,497.3 1.4% Revenue (millions of euro) (2) 289.9 276.1 5.0% Voice traffic (billions of minutes) (3) 1.8 2.3 (21.7)% ARPU (euro/month) 27.0 28.1 (3.9)% (1) Including LLU, Virtual LLU and ODA (2) Including TLC and CPE revenues. The figures for the period ended Mach 31, 2017 have been disclosed differently/reclassified to ensure comparability with the figures for the period ended March 31, 2018 (3) Voice Traffic Outgoing and Incoming off net
Internet and data Wind Tre offers a vast range of internet and data transmission services to both its consumer and business customers. At March 31, 2018, the Group had 2.4 million broadband internet customers representing an increase of 1.7% over March 31, 2017.
The following table sets out the key internet access figures. 2018 2017 Internet and data services Change 3 months 3 months Internet customer base (thousands) 2,391.7 2,354.4 1.6% of which narrowband (thousands) 0.1 3.3 (97.0)% of which broadband (thousands) 2,391.6 2,351.1 1.7% of which LLU (thousands) 1,803.3 2,083.1 (13.4)% of which shared access (thousands) 3.9 4.9 (20.4)%
Package and convergent services Wind Tre is one of Italy’s main internet, fixed line voice and data and mobile service providers with an integrated infrastructure and a network coverage that extends throughout the country. To make the positioning of WIND and “3” even more exclusive in the sphere of convergent services, two WIND and “3” brand product lines were launched in September, WindHome and 3Fiber, which target customer segments interested in fixed and mobile integrated packages. In particular, WindHome is directed at families, including unlimited navigation from home with Fiber up to 1000 Mb and 100 GIGAs a month as an addition to the family’s WIND SIMs. On sale in combination is the Fixed Modem which provides the best of technology and fast navigation. 3Fiber is addressed to young and innovation-oriented customers with a dedicated offer which includes Fiber up to 1000 Mb and 15 extra GIGAs a month on the “3” SIMs of customers and those of 4 of their friends. WindHome and 3Fiber are available in both Fiber (FTTH or FTTC) and ADSL coverage at the same price and are aimed at residential users and small professionals. Customers activate the offer with the fastest speed possible on the basis of their coverage, and in the case of ADSL obtain in reserve a “Fiber Pass” which enables them to migrate to Fiber at the same price as soon as it becomes available in their area.
Report on operations 18 Wind Tre Group at March 31, 2018 In addition new WIND and “3” customers can associate new SIMs to the fixed offer under very advantageous conditions. Customers who subscribe to WindHome can activate WindHome Magnum for €10 a month to make unlimited calls from their smartphone sharing the 100 GIGAs. Customers who subscribe to 3Fiber can have unlimited GIGAs and minutes with Free Power and All-In Power starting from €19 a month. WindHome can be enhanced by means of a wide range of solutions for the smart home such as the smart thermostat, the smart cam and consoles for playing with the whole family. In addition the WindHome & Sky Limited Edition promotion continues for customers who want to combine Sky’s great TV with the benefits of fixed and mobile connectivity. In this way they will always be connected, inside and outside the home, and will be able to access their favorite Sky contents anywhere thanks to the inclusion of Sky Go. The plan continues to provide the new offer in Fiber (FTTC and FTTH technology) in the country’s main municipalities and cabling has begun in municipalities bordering on the larger cities. In particular, with a view to ratifying Wind Tre’s presence in FTTH technology, special initiatives dedicated to the cities reached by Fiber have been carried out in terms of communication and offer, in order to attack the market by offering innovative and competitive services, thus maximizing acquisitions. Voice, internet and business services offer Wind Tre Business provides PSTN, ISDN and VoIP fixed-line network voice services, data services, VAS and connectivity services to companies in the large market, capitalizing on the experience gained with ENEL and using a dedicated call center. In this segment Wind Tre Business is also able to tailor its offer to the specific needs expressed by customers and to the requirements set in tenders. The offers for businesses also include flat solutions with tariffs based also on the number of users, which enable customers to keep complete control over their spending. Direct access to the network is assured for large-scale businesses by radio link, by direct fiber optic connections and by LLU direct access; in areas where direct access is not available dedicated lines leased from Telecom Italia are used. In addition, again for the large business market, Wind Tre Business extends its offer by way of cloud services and its commercial proposal with ICT Solutions and Managed Services, on both the fixed and mobile network. Wind Tre Business is able to propose Virtual Private Cloud solutions and Housing and Colocation services for businesses through its data center in Rome and the SUPERNAP data center in Italy, with which it has a partnership agreement and which represents technological excellence in the range of data centers. With its rich catalog of IaaS services, pre-configured bundles of data center services and connectivity, WIND Cloud per Aziende is able to satisfy all the digital transformation needs of businesses. To these should be added solutions for fleet management and business analytics and the mobility pack service, a suite that manages the utilization of the smartphone in its two different use profiles: the business profile, through which data traffic is dedicated and reserved for applications in the working environment, and the personal profile, used for applications and navigation in the private sphere. In this way an employee can keep his and personal lives separate with consumption under control and without having to worry about data security. The offer is completed by Microsoft’s public cloud services and the collaboration and business productivity Saas services, Microsoft Office 365 and Microsoft CRM Dynamics, together with Google Apps. Finally Wind Tre Business has launched WIND Cloud Line, an IP PBX cloud solution which integrates the mobile world with the fixed world and the solution Work & Life, created to provide a response to the requests for smart working increasingly to be found in businesses.
For SMEs, on October 1, 2017 Wind Tre Business completely renewed its fixed offer with Office, the new portfolio created to respond in a complete way to the various needs of all business customers with an all-inclusive fee and no extra costs and available in four offers: Office One, the ideal single-line offer for small businesses and professionals;
Report on operations 19 Wind Tre Group at March 31, 2018 Office Plus, the ideal offer for businesses that need two fixed lines; Office Maxi, for businesses that need a multi-line solution with up to eight lines; and Office Data, the ideal offer for businesses and professionals that need a fixed line with internet up to 200 Megabit/s and a static IP address, required to make the business applications uniquely identifiable from the outside via internet. All the Office offers are available in ADSL, FTTC fiber and FTTH fiber, with unlimited internet and a speed of up to 1 Gigabit/sec and unlimited calls towards fixed and mobile phones in Italy and towards the European Union, the USA and Switzerland. With the Wind Tre Business Office offer both the activation cost and the cost of the modem are reduced to zero if a customer remains for at least 24 months. In addition, thanks to the new convergent offer Office Share, if an unlimited SIM from the Gigashare/MyUnlimited portfolio is combined with a fixed Office product the monthly charge of both products is reduced. Another offer designed for small and medium businesses is Smart Office, this too available in ADSL, FTTC fiber and from October 1, 2017 also in FTTH fiber, which includes a virtual switchboard based on VoiP technology. Smart Office is available in two profiles: Small, which enables customers to activate up to 10 fixed and mobile extensions with 3 simultaneous calls, and Large, for businesses that need to have up to 100 extensions, of which up to 25 fixed, with 6 simultaneous calls. And with Super Smart Office customers can use discounts on connectivity if they also activate mobile offers. The Smart Office offer has been improved with the addition of the Extra Large version with fiber access for companies that require a virtual PBX and more than 6 calls from fixed internal extensions, with unlimited calls to everyone and up to 15 simultaneous calls. Another type of Smart Office is the Executive offer with SHDSL connectivity for medium or large companies that need more than 70 fixed internal extensions. In addition, Netride Smart is also available, a solution that provides considerable customization and flexibility possibilities, created to satisfy the needs of SME customers.
Sale and distribution of fixed network services
The Company’s distribution strategy is based on the multi-channel concept (stores, web or telephone) following the needs of customers who automatically choose the sales channel that is the most suited to their requirements. In terms of performance, retail is the most important channel (monobrand and multibrand stores), which through integrated and convergent offers continues to grow in strength. The other channels that supplement the performance of the FIX are the 159 call center, the web and the outbound call centers, the latter being mostly used for managing the WIND and “3” customer base.
Interconnection services
Wind Tre offers its wholesale services to other operators, making its network capacity available through these services, and manages incoming and outgoing call termination traffic on its network for domestic and international operators. Wind Tre is paid a fee by other operators for managing calls which terminate on its mobile or fixed network, while in the same way it is required to pay a termination fee to other operators for calls which terminate on their mobile or fixed telephone networks. Interconnection tariffs from mobile to mobile, from mobile to fixed, from fixed to mobile and from fixed to fixed are established by Wind Tre in accordance with AGCOM requirements.
Customer care service
Wind Tre’s Customer Value Management department (CVM) sets itself the objective of understanding, anticipating and responding to the needs of current and potential customers with the aim of increasing the value of the relationship in
Report on operations 20 Wind Tre Group at March 31, 2018 all the segments covered, from the consumer market (mobile and fixed) to the business market, with an organizational structure focused by market. A success factor for the initiatives carried out by CVM is the ability to know how to capture customers’ needs on a real- time basis during their lifecycle, and in particular in the presence of certain specific consumption behavior. This has become possible by making analysis and campaign management tools more sophisticated and evolved. Consistent with the identification of customer needs, Wind Tre’s CVM provides suitable solutions in terms of product and offer through traditional and digital relation channels. Customer care service activities for WIND, “3” and Infostrada are coordinated by the Customer Care Operations Department, which is organized to support the needs of the various segments in the most effective manner: rechargeable customers (mobile), subscription customers (fixed line, mobile and internet) and business customers. Call centers dedicated to residential customers are located throughout the country and in addition in order to provide a tailored service for certain particularly important customer segments such as the ethnic communities Wind Tre also provides a customer assistance service in languages other than Italian. The Wind Tre customer care service continues to develop its operational organization, focusing not only on the service activation phase with specific measures but also on the increasing need for mobile-fixed-internet multi-service assistance. In this sense moves are being taken to develop business processes and architectural investments to strengthen the integrated management of customers with different services and brands. An addition has been made to customer satisfaction measurement methods by making it possible to observe the various points of contact between the customer and the Company. NPS methodology has been adopted which represents the benchmark approach in the service market. This methodology makes it possible to understand the customer’s needs better and accordingly to provide targeted replies, and more generally to identify the main areas for development. In a market characterized by a high dynamicity and by a constant renewal and enlargement of the offer and services portfolio a multi-channel approach to assistance has to be extended by diversifying the possibilities available to the customer. As a result the availability of “self-care” assistance through dedicated website areas, dedicated apps and chats, IVRs and services with automatic SMSs has accordingly been further developed to allow customers to select their preferred modality. In addition, testing on the use of Virtual Agents and Chat Bots has started with the aim of increasing the automation of the management of customers’ habitual and repetitive needs with the objective of providing a constantly improving experience by ensuring “the same answer to the same question”. This vision represents a cultural asset for both the WIND and the “3” brands and an approach that involves and combines all business sectors. At March 31, 2018 the MyWind App had reached over 19.6 million downloads. It confirmed itself to be much appreciated and simple to use, posting a rating of 4.2 on the Android store and 3.7 on iOS. The new Veon app, which went live in November 2016 to provide customers with the typical functionalities of Over the Tops, had reached 2.7 million downloads at March 31, 2018. The 3 Customer Area app has confirmed itself as the main contact channel for the “3” brand and has reached almost 17 million downloads, posting a rating of 3.8 on the Android store and 3.4 on iOS.
Report on operations 21 Wind Tre Group at March 31, 2018 Marketing and Branding
Corporate advertising and special projects Wind Tre The Corporate projects linked to the network continued, in particular with the study of the 5G logo for the testing project on 5G technology in the city of L’Aquila and the municipality of Prato, in conjunction with Open Fiber. In an institutional context Wind Tre’s contribution to young businessmen continued with the Wind Tre Business Factor project and the 2017 edition of the Wind Start-up Awards, which during an Investor Day held at the Luiss Enlabs premises at Termini Station in Rome in January 2018 rewarded the most innovative start-up with a training course consisting of an advanced masters in Digital Marketing and a masters in Front-End and Back-End Developing organized by the Dolab School, a training institute for professionals in the digital sector.
NETWORK
The Wind Tre network
Wind Tre currently owns two mobile networks, each of which arriving from the original companies, and a fixed network belonging to WIND. Following the merger the infrastructures of these two networks are being gradually integrated with positive effects for customers, giving better connectivity both in terms of covered areas and the quality of the indoor signal. As of March 31, 2018, Wind Tre’s fixed access network covered 70% of the Italian population with ADSL broadband technology + direct services while mobile network population coverage had reached 99.9%.
The following chart shows Wind Tre mobile’s coverage at March 31, 2018.
The integration between the transmission networks owned by the former WIND and the former H3G is almost complete with links in all provinces and major cities in Italy, resulting in a single infrastructure with 36,085 kilometers of fiber optic cable as backbone and 6,786 kilometers of fiber optic cable for MANs as of March, 2018. The wireline transmission network is completed by 30,120 radio links.
Report on operations 22 Wind Tre Group at March 31, 2018 Fixed-line Network As of March 31, 2018, Wind Tre ’s fixed-line access network had 1,958 LLU sites for direct subscriber connections, with a capacity of approximately 3,470 million lines, and had interconnections with 32 GW IPs which enable it to offer carrier selection access for indirect subscribers throughout Italy, as well as WLR services. Since 2015 Wind Tre has been making investments in fiber activating the ultra-broadband services for almost 53.1% of the Italian population using Fiber to the Cabinet and Fiber to the Home technologies. During previous years, the FTTH service was gradually extended to the following 12 cities: Milan, Turin, Bologna, Perugia, Venice, Padua, Naples, Bari, Catania, Cagliari, Genoa and Palermo. Thanks to a new agreement with Open Fiber in the upcoming years the ultra-broadband plan will be extended to a further 258 cities in the most populous areas of Italy; more specifically, a number of areas of Milan’s and Turin’s hinterland were already reached by FTTH, as of March 31, 2018. This service provides fiber optic connections which allow end user to reach download speeds of up to 1000 Mbps and is designed to meet the needs of “Home-Family” customers.
The national voice switching network consists of: an IMS network with 4 call control nodes, a legacy network with 38 TDM exchanges, a transit NGN network made of 4 media gateway controllers and 42 trunking gateways. This national network, used to manage TDM / VoIP interconnections, is completed by: a network dedicated to interconnection with international operators consisting of 4 media gateway controllers and 12 trunking gateways, an I-SBC layer for the connection with other national network operators.
Wind Tre’s infrastructure for data traffic is an “all IP” network, with over 50 PoPs (Point of Presence), for direct (xDSL) and indirect internet access services, as well as virtual private networks (xDSL, Fiber Optics). The IP access nodes network consist of 68 BRAS for consumer services and 84 Edge Routers for business application, located in PoP to ensure optimal coverage of the national territory.
Mobile Network Wind Tre offers mobile services through 2G, 3G and 4G technologies. Following the merger and in accordance with ministerial directives requiring the transfer of certain frequency blocks previously owned by the two original companies, Wind Tre’s frequency spectrum will change in future years and will have the following configuration by the end of 2019:
System Current Spectrum Blocks
GSM 2x5 MHz – 900 MHz 2x5 MHz – 1800 MHz
UMTS 2x5 MHz – 900 MHz 2x20 MHz – 2100 MHz 10 MHz – 2100 MHz TDD
LTE 2x10 MHz – 800 MHz 2x15 MHz – 1800 MHz 2x20 MHz – 2600 MHz 30 MHz – 2600 MHz TDD
Report on operations 23 Wind Tre Group at March 31, 2018 To meet the considerable increase in data traffic demand Wind Tre mainly concentrated its commitment in the last years on the extension of LTE (long-term evolution) coverage to provide broadband mobile services. The Company has decided to invest in this solution to improve the quality of the mobile network and to obtain benefits in terms of a reduction in energy consumption. As a first step towards the consolidation of the two mobile networks since May 2, 2017 roaming on 2G and 3G WIND’s network has been gradually opened throughout Italy for 3 Italia customers, who can now use WIND’s network at the same price and with the same services as the home network; since August 2017 roaming is also available on the 4G network. All these activities have enabled access to the mobile service to be achieved even if “3”’s network is not available and have also permitted TIM’s roaming switch-off to go ahead; this was concluded in August 2017 and will result in future savings. Starting from a pilot cluster in Bologna the consolidation of two existing mobile networks began at the end of August 2017; this process will be gradually extended to other areas of Italy with the intention of reaching full integration into a single infrastructure in 2019, with positive effects for customers who will have better connectivity and quality of service. As of March 31, 2018 consolidation activities involved 29 Italian provinces including Rome and Milan, and additional 9 provinces were fully consolidated and optimized among which Trieste, Agrigento and Bologna. As a result of this activity certain technical facilities for signal repetition will exceed the Company’s needs: these will be dismantled or transferred to another operator between the end of 2017 and the end of 2019.
Wind Tre also has roaming agreements with international telecommunications operators around the world which allow Wind Tre customers to use their mobile services in other countries.
The following table provides an analysis of Wind Tre’s GSM/GPRS, UMTS/HSDPA and LTE networks as of March 31, 2018.
GSM/GPRS (units) Radiating sites (ON AIR) 14,729 BSC (Base Station Controllers) 255 MSC (Mobile Switching Centers)* 29 HLR (Home Location Register, FE, CUDB)* 22 SGSN (Service GPRS Support Node)/MME** 15 GGSN (Gateway GPRS Support Node)/PGW/SGW** 16
Report on operations 24 Wind Tre Group at March 31, 2018
UMTS Node B (ON AIR) 24,173 RNC (Radio Network Controller) 273 MGW (Mediagateway) 46
LTE Enodeb(ON AIR) 13,967 HSS (FE, CUDB, Monolitici) 8 * Share with GSM/UMTS ** Shared with UMTS/LTE
HUMAN RESOURCES
At March 31, 2018 the Wind Tre Group had a workforce of 7,076 employees structured as follows.
Average no. of employees
No. of employees at in 03/31/2018 03/31/2017 03/31/2018 03/31/2017 Senior managers 166 200 167 204 Middle managers 704 836 705 843 Office staff 6,206 7,945 6,222 8,010
Total Wind Tre Group 7,076 8,981 7,094 9,057
During the first three months of 2018 the Group hired 44 employees while 53 left.
The following table shows the geographical allocation of Wind Tre personnel.
Sites 03/31/2018 03/31/2017 Rome 32% 31% Milan (*) 19% 18% Naples (*) 17% 13% Palermo 5% 7% Ivrea 8% 7% Cagliari 1% 5% Genoa 1% 4% Other 17% 15% Total 100% 100%
(*)The Rho site is included in Milan and the Pozzuoli site is included in Naples.
Organization With the aim of maximizing focus on service from a customer standpoint Technology Operations responsibilities were revised in the first quarter with the setting up of a new function, Service & Quality Assurance, dedicated to presiding over service quality and availability, which works closely with the sales areas. This new structure represents the first step in a program to transform and digitalize the operational technical areas which is designed to increase predictive
Report on operations 25 Wind Tre Group at March 31, 2018 maintenance and introduce automation and artificial intelligence processes that are able to improve the performance of the network and business systems.
Training A total of 1,351 man-days of training were given in the first quarter of 2018.
These mainly involved training in the deployment of Wind Tre’s leadership model and specialized technical and technological evolution training.
Continuing with the activity that started in 2017, the Company’s executives and managers are currently involved in training days aiming to spread knowledge of the leadership model, in order to foster debate and the activation of consistent conduct within the management team as a whole.
Also continuing on from 2017, work picked up again in the first quarter of 2018 on the design and planning of technical training on new technological scenarios: training is being allocated on the basis of the Agile and Lean 6Sigma models and certifications, while courses on ITIL/e-TOM certifications and future network developments (4G/5G and NFV) and new operating models in Technology Management, with particular reference to Digital Operations Transformation, will begin shortly.
Initiatives and projects Various development initiatives got under way in the first few months of 2018. At the conclusion of the establishment of Wind Tre’s new performance and conduct appraisal model, the process initiated saw almost 100% of the Company’s workforce appraised. The phase for feedback and the assignment of 2018 objectives is currently in progress. On the other hand the projects launched by the Wind Tre Community are currently at the design and implementation phase. This community is a group consisting of 36 employees having the objective of collecting new ideas and different points of view as to how the Company’s new business culture can best be developed. The projects drawn up by the community principally regard the development of people, such as for example Myknowhow, the platform for managing employees’ professional profiles, and the full circle feedback in which assessments are requested of supervisors, collaborators and colleagues.
Industrial relations An agreement was signed with the trade unions in March 2018 providing for an increase in the employer’s and employee’s contribution to the Wind Tre Solidarity Fund.
Meetings continued during the quarter with the welfare and network joint committees aimed at sharing the Smart Working and Digital Operations Transformation projects with the unions.
Meetings at Asstel began in March for the upcoming renewal of the national collective bargaining agreement/telecommunications for 2018/2021.
Report on operations 26 Wind Tre Group at March 31, 2018 Safety in the workplace In accordance with the agreement reached between the state and the regions on training, 558 people attended safety in the workplace courses during the first three months of 2018. The following table provides details of this by area and sector.
Staff and Total Area Technology IT commercial Call center area by area entities Nord west 67 46 76 - 189 North east 16 - - - 16 Centre 2 118 75 - 195 South 114 39 - 5 158 Total trained workers 558
A total of 938 periodic health check-ups were carried out during the same period (864 in Wind Tre and 74 in Wind Retail) in accordance with business roles, the allocated health protocols and the relative deadlines.
There were 18 accidents in Wind Tre the first three months of 2018 (15 during travel to and from work and 3 at work) and only 1 in Wind Retail (during travel to and from work).
REGULATORY FRAMEWORK AT MARCH 31, 2018
Mobile Networks and Services
EU Net Neutrality Regulation
In application of European Regulation 2015/2120 in March 2017 AGCOM notified Wind Tre by way of Resolution 123/17/CONS as to a number of aspects relating to the applications “Veon” and “Music by 3” which the Authority believed to be in contrast with article 3, paragraph 3 of the Regulation, under the interpretation provided by Body of European Regulators for Electronic Communications (BEREC)2. In April 2017, Wind Tre notified the Authority of the measures it had adopted to ensure full compliance with the order and the European Regulation. In May 2017 the Authority send Wind Tre a further communication concerning adherence to the requirements of Resolution 123/17/CONS, noting the requirement to implement additional measures. On July 3, 2017 Wind Tre provided AGCOM with additional information following an AGCOM request of June 12, 2017 and on August 8, 2017 Wind Tre informed the Authority that it had implemented the technical measures adopted to avoid a possible fine pending an appeal lodged with the Regional Administrative Court (TAR) which was heard on November 20, 2017. AGCOM took the decision to fine Wind Tre for its delay in adopting the legislation and the Company settled the reduced penalty within the period required (10/17/DTC). In the period in question AGCOM continued its process of monitoring the adoption of the legislation by sending operators periodical questionnaires on specific issues such as traffic management and the use of tethering mobile devices. In February 2018 AGCOM initiated a public consultation on possible measures to facilitate the freedom of choice in the selection of terminal equipment for consumers and end users of public communications network connection services
2 BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules.
Report on operations 27 Wind Tre Group at March 31, 2018 and Internet access services. Wind Tre sent AGCOM its contribution on March 8, 2018, emphasizing that in the case of fixed offers if the ISP supplies the terminal for VoIP services this translates into greater protection for the end customer from both a performance and a security standpoint. On March 8, 2018 BEREC initiated a public consultation for the revision of the guidelines issued in August 2016 in accordance with Regulation (EU) 2015/2120. Wind Tre is assessing how it should participate in this consultation both directly and through the positioning of its stakeholders.
Mobile Termination
In September 2015 AGCOM extended3 the validity of the mobile termination rate of €0.98 per minute established in 20114 through to the conclusion of its market analysis at the end of 2017. This rate is the maximum price cap for all SMP notified operators when they provide mobile termination services to their customers, MVNOs included. In the same decision, given that operators of countries outside the European Union (EU) or the European Economic Area (EEA) apply mobile termination rates on their networks higher than those regulated at a European level (for example Italian operators at €0.98 per minute), AGCOM allowed Italian mobile operators to establish their own fair and reasonable mobile termination rates from a commercial standpoint for calls originating from non EU/EEA operators. Wind Tre took advantage of this opportunity setting prices that depend on the origin of the call. In January 2017, by way of Resolution 45/17/CONS, AGCOM initiated a new cycle of market analyses on mobile termination.
Following the completion of the information-gathering phase in July 2017, by way of Resolution 481/17/CONS AGCOM initiated a public consultation in December 2017 containing the Authority’s orientation on the termination rates to be applied in the upcoming years (2018/2021), proposing to keep €0.98 per minute for 2018.
AGCOM completed the process of collecting observations from operators in March 2018.
As things currently stand the final decision on this matter is expected to be reached in August/October 2018 after submission to the European Commission for its observations.
EU Roaming Regulation
In November 2015 European legislation was issued5 amending the previous regulation6 on roaming, having as its objective the elimination of the difference between roaming tariffs and domestic tariffs for occasional travel, the so called Roaming Like At Home (RLAH), throughout the European Union starting from June 15, 2017. The same regulation provided a transitional period from April 2016 to June 2017 during which mobile operators were allowed to apply a surcharge. The proceedings initiated by AGCOM in 2016 concerning the transitional period for implementing RLAH were concluded in 2017 for both brands, WIND and “3”, with a fine. To complete the above mentioned regulation, in December 2016 the European Commission also published the implementing regulation7 designed to define criteria for the fair use policy and for the evaluation of the sustainability
3 Resolution 497/15/CONS 4 Resolution 621/11/CONS 5 Regulation (EU) 2015/2120 6 Regulation (EU) 2012/531 7 Implementing Regulation (EU) 2016/2286
Report on operations 28 Wind Tre Group at March 31, 2018 of RLAH and a further regulation8 on the maximum tariffs applicable until June 15, 2017 for voice calls received by European customers when roaming in one of the European Union countries. The publication of Regulation 2017/920 in the European Official Journal on June 9, 2017, which amends rules for wholesale roaming markets, completed the regulatory framework required for the new EEA roaming regulation based on RLAH to become effective from June 15, 2017. In accordance with that principle Wind Tre adapted the offers of the two brands in advance of the deadline, namely on April 24, 2017 for the WIND brand and on May 8, 2017 for the “3” brand. AGCOM had no observations with respect to Wind Tre about the means by which the regulation on international roaming will be implemented within the European Union. A conceptually similar measure has been proposed as an amendment by the European Parliament as part of the initiatives to revise the European Electronic Communications Code, directed towards an assessment similar to that carried out at a domestic level for calls from Italy towards EU member states. Under instruction from BEREC, in December 2017 AGCOM began collecting data for an analysis of the effects of a measure of this nature. At the end of February 2018 AGCOM initiated the twenty first round of data collection for the International Roaming Benchmark Report drawn up on the basis of Regulations (EU) 531/2012 and 2120/2015. As always Wind Tre will provide its contribution within the specified time period.
Spectrum
During 2017 Wind Tre completed its change of technology from GSM to UMTS (3G) (refarming) on a block of 2x5 MHz in the 900 MHz band in a specific portion of the country.
Pursuant to and by effect of article 1, paragraphs 568-575 of Law no. 232 of December 11, 2016 and article 25, paragraph 6 of the Electronic Communications Code, Wind Tre has requested authorization to change with effect from July 1, 2017 the technology on the entire allocated band 900 MHz and 1800 MHz expiring on June 30, 2018 and at the same time authorization to extend the term for the above-mentioned rights of use to the new technical conditions at December 31, 2029. Wind Tre has additionally paid the fee stated in the Ministerial Provision of July 26, 2017 within the period and by the means indicated therein. Wind Tre is waiting for the relative interministerial decree that concludes the above-mentioned proceeding.
In addition, the technical and financial plan for the extension to December 31, 2029 of the rights to use the frequencies in the 2100 MHz band has been filed with the Ministry of Economic Development (MISE) as required by the provision of that ministry dated October 24, 2016 and protocolled with no. 67608.
As far as the above is concerned in March 2018 Wind Tre obtained authorization from the Ministry of Economic Development for a partial refarming in the 1800 MHz and 2100 MHz bands and progressively in specific areas throughout the country.
In accordance with the requirements of the Ministry of Economic Development’s provision, protocol no. 67608 of October 24, 2016, Wind Tre notified the ministry that the frequencies in the 2600 MHz and 1800 MHz bands had been released to Iliad Italia S.p.A. on June 30, 2017 and March 31, 2018 respectively.
In conclusion, in order to implement European Commission Communication no. 2016/588, the “5G Action Plan”, by 2020, by way of a notice published on March 16, 2017 the MISE initiated a procedure for acquiring planning proposals
8 Implementing Regulation (EU) 2016/2292
Report on operations 29 Wind Tre Group at March 31, 2018 for carrying out pre-commercial testing in radio spectrum 3.6 – 3.8 GHz in the following three national areas: Area 1 – Milan metropolitan area, Area 2 – Prato and L’Aquila and Area 3 – Bari and Matera.
Together with Open Fiber S.p.A., Wind Tre submitted a planning proposal for taking part in the testing proposed by the Ministry of Economic Development (MISE) as stated in the above-mentioned public notice. MISE published a classification on August 2 and the proposal for Area 2 (Prato and L’Aquila) submitted by Wind Tre together with Open Fiber S.p.A. was ranked first.
On September 20, 2017 the final phase of the “negotiated procedure” between the MISE and the group consisting of Wind Tre and Open Fiber S.p.A. was concluded, and on September 22, 2017 confirmation was given of the award to Wind Tre and Open Fiber S.p.A., with the MISE issuing a temporary authorization for pre-commercial 5G testing in the 3.6 – 3.8 GHz portion of the spectrum for Area 2 Prato and L’Aquila. On December 15, 2017 the first report on the state of progress of the activities planned in the project was sent to the MISE in accordance with the requirements of the authorization.
On November 15, 2017 by way of a press release AGCOM announced that it had ordered the start of the proceeding and relative public consultation on the requests for an extension of the rights of use in the 3.5 GHz band (pursuant to article 25, paragraph 6 of the Electronic Communications Code) made by ARIA, Go Internet S.p.A., Linkem S.p.A. and Telecom Italia S.p.A.. Subsequently, on January 22, 2018, by way of Resolution 503/17/Cons, AGCOM initiated a public consultation which is currently in progress. On March 5, 2018, by way of Resolution 89/18/CONS, AGCOM initiated the public consultation on the procedures for the allocation and rules for the use of the available frequencies in the 694-790 MHz, 3600-3800 MHz and 26.5-27.5 GHz bands for electronic terrestrial communications systems in order to foster the transition towards 5G technology pursuant to Law no. 205 of December 27, 2017. The consultation is currently in progress and is expected by be concluded on May 11, 2018.
National Numbering Plan and SMS/MMS Alias
In July 2016, AGCOM set up a public consultation9 on modifications and additions to the “Numbering plan in the telecommunication sector and implementation regulations” in relation to the use of alphanumeric identification codes. On September 28, 2017, AGCOM published its Final Decision 132/17/CIR, concluding the proceeding without making any changes to the existing NNP on the subject. In April 2017, by way of Resolution 18/17/CIR, AGCOM ordered the extension of the alias testing in progress to March 31, 2018. In December 2016, AGCOM initiated public consultation no. 561/16/CONS on modifications and additions to the National Numbering Plan for the use of the 455 codes utilized by non-profit organizations for fund raising. In May 2017 AGCOM published Resolution 17/17/CIR which updates the discipline for managing 455 numbers, requiring operators to adopt a new self-regulation code within 90 days of the publication of the provision. At the beginning of August 2017, within the time period established by Resolution 17/17/CIR, operators submitted the new version of the self-regulation code to AGCOM.
The self-regulation code was subsequently approved by AGCOM and signed by the operators adhering to the code.
9 Resolution 158/16/CIR
Report on operations 30 Wind Tre Group at March 31, 2018 During July and September 2017, AGCOM organized talks with operators as a means of identifying any developments connected with the way by which IINs (Issue Identification Numbers) are allocated for eSIM purposes.
In October 2017 AGCOM set up a public consultation on the subject concerning possible changes/additions to the numbering plan as per Resolution 8/15/CIR in relation to the numbering needed to develop the eSIMs. Wind Tre has already sent its proposal. The proceeding is in progress.
In March 2018, by way of Resolution 196/17/CIR, AGCOM initiated a public consultation on “An Amendment to the Numbering Plan” as per Resolution 8/15/CIR, implementing the annual law for the market and competition no. 124/2017 regarding the “urban tariff” and the criterion for initiating the taxing of non-geographic numbering in the case of services for a fee. The consultation is in progress.
Database of all internet access networks
In December AGCOM completed the proceeding10 initiated in 2015 to draw up innovative solutions to fill the digital gap between broad and ultra-broad band and map the internet access network. Wind Tre provided the information requested by the Authority by the set deadline. In the meantime AGCOM has published the application on its website enabling the information contained in its data banks (Broadband Map) to be viewed. An app for the mobile devices has also been developed. Wind Tre continues to send AGCOM the data requested for the functioning of the tool with the frequency and by the means prescribed in Determination 1/16/DSD.
Fixed-line network
Renewal of fixed licenses expiring in 2018
Pursuant to and by effect of the Electronic Telecommunications Code, in December 2017 Wind Tre filed a request with the Ministry of Economic Development for the renewal for a further 20 years of the individual Fixed Licenses previously assigned to Infostrada and WIND Telecomunicazioni expiring in 2018. The two licenses were renewed by way of a provision protocolled as no. 2249 of January 12, 2018.
TIM reference offers
In August 2017 proceedings started for the approval of the 2017 Telecom Reference offers for the following wholesale services: a) wholesale fixed-line services for unbundled access services; b) dedicated capacity transmission services; c) copper and NGA based bitstream services, VULA and related ancillary services; d) WLR services. The proceedings are in progress. Wind Tre has replied to all of these consultations.
In December 2017 AGCOM initiated consultations relating to the 2017 reference offers “termination and transit collection” (made by TIM) and “NGAN and End to End access services and backhaul services for 2017”. The proceedings are in progress.
In March 2018, by way of Resolution 34/18/CIR, AGCOM approved Telecom Italia’s reference offer for wholesale unbundled access services to the metal networks and sub-networks and for co-location services for 2017.
10 Determination 1/16/DSD
Report on operations 31 Wind Tre Group at March 31, 2018 In February 2018, by way of Resolution 33/18/CONS, AGCOM published a “Public consultation on the determination of the technical characteristics and corresponding denominations of the various types of physical infrastructure used in the provision of telephony, television network and electronic communications services” pursuant to article 19 quinquiesdecies of Decree Law no. 148 of October 16, 2017. The consultation is in progress.
Market analyses
In January 2017, by way of Resolution 43/17/CONS, AGCOM initiated a new cycle of market analyses relating to fixed- line access. These markets comprise the main wholesale fixed access services and include i) unbundling and subloop unbundling (LLU and SLU); ii) bitstream copper; iii) bitstream NGA and VULA (FTTH and FTTC); iv) FTTH P2P and GPON; v) WLR; vi) NGA access services (dark fiber, cable ducts, verticals); vii) end to end; viii) backhauling services.
On May 29, 2017 AGCOM sent operators qualitative and quantitative questionnaires. Wind Tre sent in its replies to the questionnaires and publication of the public consultation by AGCOM is currently awaited.
Again in January 2017 by way of Resolution 44/17/CONS, AGCOM initiated a new cycle of market analyses relating to fixed position high quality wholesale access services – terminating circuits (market no. 4 of European Commission Recommendation 2014/710/EU).
In June 2017 AGCOM sent operators qualitative and quantitative questionnaires.
With the information-gathering phase over, by way of Resolution 507/18/CONS in January 2018 AGCOM initiated a public consultation containing the Authority’s orientation.
The final decision on this matter is expected after the end of the consultation phase and will be submitted to the European Commission for its observations.
Technical workgroups
In 2016 the Authority set up a number of workgroups designed to address the technical issues relating to wholesale services. In particular the following matters were and still are the subject of discussion by these groups: a) the new assurance process for unsuccessful intervention on WLR and Asymmetric Bitstream lines; b) the technical specifications of street cabinets within the provision of wholesale FTTCab and subloop unbundling services; c) the technical specifications required for implementing Multi Operator Vectoring (MOV); d) the procedures to be used in the case of the switch-off of the copper network by TIM. In 2017 AGCOM set up workgroups relating to e) the passage to direct routing in the fixed-line sphere; f) migration to TIM’s new delivery chain in the fixed-line sphere; g) the methodology for determining the overbooking factor for regulatory purposes; h) the updating of the fixed migration procedures of users utilizing TIM’s fiber offer or that of other operators. Discussions are in progress.
In particular in July and September 2017 meetings were held by the workgroups relating to i) the procedures for the switch-off of the copper network by TIM and ii) migration to TIM’s new delivery chain in the fixed-line sphere (with respect to the latter the start of migration, initially planned for July 1, was then postponed to October, compatible with the results of the tests in progress). At the present time the migration to the new delivery chain originally planned to be completed by the end of 2017 is still in progress. The issue of the switch-off of the TIM copper network, theme of a specific technical workgroup, may also form part of the new cycle of market analyses of fixed access, for which consultation is expected in the second half of 2018.
Report on operations 32 Wind Tre Group at March 31, 2018 Universal service
By way of Resolution 113/16/CONS of March 24, 2016, AGCOM submitted for consultation a review of the scope of application of the universal service obligations in relation to internet access and the relative quality objectives.
In this respect by way of Final Resolution 253/17/CONS of June 27, 2017, AGCOM concluded that:
Once the ultra-broadband (BUL) tenders have been allocated together with the relative coverage, the cost of the universal service extended to connectivity services with a speed of at least 2 Mbps should remain restricted to residual areas excluded from broadband and ultra-broadband coverage;
When revising universal service obligations, as a means of supplementing fixed network access, the qualitative requirements may be set for fixed wireless, satellite or mobile connections that must guarantee a speed of at least 2 Mbps.
By way of Resolution 133/17/CIR of September 26, 2017, AGCOM set up a public consultation on the results of the activities to calculate the net cost of the universal service for 2008 and 2009. The Authority has not yet approved the provision with the final results of this proceeding.
Replicability testing of TIM’s fixed-line offers
By way of Resolution 584/16/CONS, AGCOM approved the guidelines for assessing the replicability of the retail offers of the notified operator for fixed network access services (TIM); as required by that resolution following specific checks carried out by the Authority AGCOM determined the “production mix”, meaning the weights to be allocated to the cost of each system-based solution as part of verifying the replicability of TIM’s retail ultra-broadband fiber-optic offers.
In February 2018 a proposal for making additions to Resolution 584/16/CONS on guidelines for assessing the replicability of the retail offers of the notified operator for fixed network access services was submitted for review to the AGCOM Board; the relative public consultation is expected to begin in April 2018.
Equal treatment and unbundling of provisioning and assurance services for LLU and SLU services
In May 2016 AGCOM started a proceeding11 to assess TIM’s proposal for the unbundling and outsourcing of provisioning and assurance activities for LLU and SLU services and the measures required to provide greater assurance for equal treatment in the provision of regulated fixed wholesale access services.
With the publication of Resolution 321/17/CONS in August 2017 the procedure was completed and AGCOM issued its decision on the subject of unbundling. The decision, for which an effective date of September 1 was set, provides for a series of interactive meetings over the next few months between TIM, alternative fixed operators, system businesses and authorities. At the present time meetings are taking place of the unbundling monitoring unit set up by AGCOM and meetings between operators for the purpose of establishing the main contractual and implementation aspects of the unbundling.
11 Resolution 122/16/CONS
Report on operations 33 Wind Tre Group at March 31, 2018 Proceeding for the revision of SLAs and penalties pursuant to Resolution 623/15/CONS
On the basis of Resolution 623/15/CONS relating to wholesale markets for fixed access services, AGCOM has initiated a proceeding for the review of the current framework for SLA and penalties in order to improve the “Equivalence of Output” model to which TIM, the dominant operator, is required to adhere in providing wholesale access services. The proceeding is in progress and AGCOM has asked operators to provide their initial observations.
Review of non-discrimination key performance indicators as per Resolution 623/15/CONS
Following its approval of Resolution 623/15/CONS relating to wholesale markets for fixed access services, AGCOM has initiated a review proceeding on non-discrimination key performance indicators in order to ensure compliance with equality of treatment between TIM and alternative operators. In this respect AGCOM requested operators to provide their observations at two distinct times, in April and November 2016. The proceeding is in progress.
The deadline for the conclusion of the proceeding was then extended by way of a communication of September 11, 2017 to take account of the need to understand more about the potential effects that the unbundling measure introduced by Resolution 321/17/CONS may have on the definition of the KPIs and the workgroup’s activities. At the present time, by way of Resolution 27/18/CONS published at the end of February 2018 AGCOM has initiated a public consultation on an overhaul of the Key Performance Indicator non-discrimination system which contains a proposal for assessment. The consultation is in progress.
Fact-finding survey into digital platforms and electronic communications services
By way of Resolution 357/15/CONS, AGCOM initiated a fact-finding survey into digital platforms, addressed to all parties who operate along the value chain of the new digital services provided through the internet platform. The survey aims i) to understand the business models employed by these entities; ii) to determine a means of protecting users and the market as a whole; iii) to evaluate the opportunity of defining rules to establish a "level playing field" between new and traditional subjects; iv) to understand the functioning of platforms for distributing the apps and their underlying technologies; v) to understand the role played in the new digital ecosystem by the social communication apps (e.g. WhatsApp, Viber, WeChat, Facebook Messenger, Skype).
On June 28, 2016, by way of Resolution 165/16/CONS, AGCOM published the main findings of the fact-finding survey for the consumer section.
Again with respect to Resolution 357/15/CONS, in November 2016 AGCOM put a series of questions to the above parties on Big Data, to which Wind Tre promptly responded. These represented an anticipation of a fact-finding survey specifically dedicated to the subject, initiated by way of Resolution 217/17/CONS, to be carried out jointly with AGCM and the personal data protection authority. The objective of the survey is among others “to identify any critical matters connected with big data, to establish of a set of rules designed to foster and protect competition in the digital economy markets and to safeguard privacy and the consumer”. The publication of the questions relating to the fact-finding survey is currently awaited.
Report on operations 34 Wind Tre Group at March 31, 2018 Fixed termination
In September 2016 AGCOM adopted its final decision12 on fixed public telephone network interconnection services. The decision confirmed AGCOM’s previous decisions on the matter that established symmetric termination rates between TIM and other operators.
As envisaged by this decision the Authority has set up a technical workgroup to assess the most suitable means, and the related critical matters, with which operators must modify the routing technology used in the fixed-line telephone networks, moving from the current onward routing technique to direct routing. The group’s work is currently in progress.
Migration procedures and pure number portability
In October 2015 AGCOM submitted for consultation13 a review of the timing underlying the fixed pure number portability procedure. The consultation ended in April 2016 with Resolution 40/16/CIR setting up a technical workgroup to review current fixed number portability procedures.
At the same time the Authority set up a technical workgroup to amend the current procedures for user transfer in order to adapt these in the case of fiber optic access services provided by wholesale operators other than Telecom Italia Wholesale. The technical workgroup is in progress. Wind Tre has prepared a proposal for a procedure and this is currently being reviewed by the workgroup.
Television frequencies and networks
Article 1 of the decree issued by the MISE on August 4, 2016 established that the fees for spectrum rights of use for 2014, 2015 and 2016 should be paid by December 31, 2016. These fees are due for the use of spectra with national coverage for terrestrial television bands and amounts to €1,966,990 for each network (multiplex). This is reduced by 60% for sales of capacity between 75% and 100%.
By way of the decree issued by the MISE on April 13, 2017 the ministry indicated the reference amount for 2017 for the annual fee due for the use of spectra with national coverage for terrestrial television bands. This fee was set as €2,042,058 for each network (multiplex) applying a contribution rate of 7.5% and keeping unchanged the reductions envisaged for the sale of capacity established by the previous decree.
In April 2018 the MISE published a public consultation on the national timetable on its institutional website (as per Law no. 205 of December 27, 2017) for freeing-up the 700 MHz band and rearranging the under-694 MHz band. The public consultation regards the national timetable that sets out the deadlines for the implementation of the objectives of Decision (EU) 2017/899 of May 17, 2017, as per subsection n.1026, given the need to establish a transitional period, from January 1, 2020 to June 30, 2022, to ensure the release of the frequencies by all operators holding the relative rights of use at an Italian national and local level and the restructuring of the multiplex containing the regional information by the concessionaire of the public radio, television and multi-media service. The roadmap has been drawn up by taking into account both the international agreements entered into by Italy with its neighboring countries and the contents of the national frequency allocation plan to be used for the PNAF 2018 digital terrestrial television service
12 Resolution 425/16/CONS 13 Resolution 119/15/CIR
Report on operations 35 Wind Tre Group at March 31, 2018 issued by AGCOM on March 29, 2018 (24006). Observations and comments on the consultation by the parties concerned should be sent by May 6, 2018.
Antitrust issues
Proceedings A500 A and B
In November 2016 AGCM initiated investigation proceedings against TIM and Vodafone for two separate but similar alleged violations of article 102 of the TFUE (abuse of dominant position) against the two companies operating in the national bulk SMS market. On December 19, 2016 WIND and H3G each sent a formal request to the Authority to participate in the proceedings and both requests were upheld. On April 6, 2017 AGCM notified Wind Tre that the commitments submitted separately by TIM and Vodafone had been rejected. In this case the Authority maintained that these commitments were insufficient to eliminate the charge of anti-competitive conduct.
The proceeding has been extended to apply also to Telecom Italia Sparkle. As reported in Provision 26716 (published by AGCM on August 2, 2017) on July 28, 2017 the results of the investigations were sent to the parties. In addition, the deadline for concluding the two proceedings was extended to December 31, 2017, as AGCM considered the need to guarantee the full right to reply regarding the requests of Vodafone, Telecom Italia and Telecom Italia Sparkle to be justified.
On December 13, 2017, the Authority concluded the two separate investigation proceedings. In particular, the Authority established that:
Vodafone Italia S.p.A. had abused its dominant position by internal and external discriminating behavior of a technical and economic nature such as to determine a squeezing of the margins of its downstream market competitors who purchase SMS termination towards the Vodafone Italia mobile network;
Telecom Italia S.p.A, also with the aid of Telecom Italia Sparkle S.p.A., had abused its dominant position by squeezing the margins of an equally efficient competitor in the downstream market that purchases SMS termination towards the TIM mobile network.
In both cases the operators, dominant in the respective upstream SMS termination markets on their own network and vertically integrated, applied tariffs on both the upstream and downstream markets for the mass dispatch of SMSs that make the potential margin for competitors in the retail market insufficient for covering the specific costs for providing the services to end customers. This conduct is liable to jeopardize the competitive ability of competitors active in such market. The duration of the abuse:
Vodafone: margin squeezing resulting from internal and external discrimination is noted to have taken place at least during the period between May 7, 2015 and January 8, 2017;
TIM: margin squeezing is noted to have taken place at least during the period between October 20, 2015 and January 15, 2017.
Due to the seriousness of the conduct the Authority accordingly decided to fine Vodafone Italia S.p.A. and Telecom Italia S.p.A. amounts of €5,843,814 and €3,717,988 respectively.
Report on operations 36 Wind Tre Group at March 31, 2018 Proceeding I799
This proceeding has been initiated against Telecom Italia and Fastweb for an alleged understanding to restrict competition (article 101 of the TFUE) deriving from the agreement that led to the creation of Flash Fiber for implementing FTTH solutions in certain specific cities.
This proceeding, in which Wind Tre was authorized to participate and which was also set up on the basis of a report made by WIND on July 29, 2016 and then subsequent reports made by Vodafone and Enel, was expected to be concluded by December 31, 2017.
On June 28, 2017 the Authority published TIM’s commitments (Provision 26654) and those of Fastweb (Provision 26655) in order to submit them to market testing. By way of Provision 26911 the Authority resolved:
to extend the completion of Proceeding I799 to July 31, 2018;
to continue with the assessment of the proposed commitments submitted by the parties up to February 28, 2018, except for any procedural suspensions (e.g. the request for an opinion from AGCOM).
On April 9, 2018 the AGCM published a provision by which it approved the commitments submitted by TIM and Fastweb, deeming them suitable for overcoming the concerns regarding competition.
Proceeding I820
On February 7, 2018 an investigative proceeding was initiated against Assotelecomunicazioni – Asstel, Fastweb S.p.A., TIM, Vodafone Italia S.p.A. and Wind Tre to determine whether article 101 of the TFEU (agreements between undertakings) had been breached.
At the end of the information-gathering procedure the AGCM concluded that TIM, Vodafone, Fastweb and Wind Tre had coordinated a sales strategy between them relating to the frequency of renewals and billing.
In the light of the documents analyzed on March 21, 2018 the AGCM stated that while waiting for the proceeding a precautionary procedure should be adopted suspending the implementation of the alleged understanding to which the proceeding refers, and as the effect of this each operator should establish the terms of its service offer independently from its competitors.
Within seven days of the notification of the proceeding the parties involved submitted written statements and documents and asked to be heard before the AGCM Board. The Authority will assess the items acquired.
Proceeding I757 – WIND commitment compliance
The annual compliance report on the commitments accepted by AGCM as part of proceeding I757 for an alleged vertical agreement between Wind Tre and its multibrand sales chain was submitted to the Authority in March 2018.
Proceeding A514
A proceeding against Telecom Italia S.p.A. (TI) was initiated on June 28, 2017 to ascertain whether there had been a violation of article 102 of the TFUE (abuse of a dominant position) on the basis of reports submitted by Infratel, Vodafone Italia, Enel S.p.A., Open Fiber S.p.A. and Wind Tre.
Report on operations 37 Wind Tre Group at March 31, 2018 On the basis of the information received by the Authority, TI allegedly conducted itself in a series of different ways with the aim of achieving two objectives harmful to competition:
obstructing tenders called by Infratel Italia for the coverage of the white areas with FTTH networks in order to maintain the monopoly position it has historically held in those areas and avoid the entry of new competing operators;
capturing customers by providing the new segment of retail ultra-broadband telecommunications services in advance, including by way of anti-competitive commercial policies (unrepeatable prices, lock-ins).
In this way TI would allegedly achieve two objectives: on the retail market to make it harder to take over its customer base on migration to the ultra-broadband offers; and on the wholesale market to discourage investment in the new networks and make these less profitable. The proceeding is expected to be concluded by October 31, 2018.
On February 14, 2018 the Authority resolved to objectively extend the proceeding to the other conduct relating to TIM’s wholesale price strategy on the wholesale broadband and ultra-broadband access service market and the use of inside information concerning the customers alternative to TIM on the broadband and ultra-broadband retail telecommunications service market. This also on the basis of reports made by Wind Tre October 6, 2017 and October 24, 2017.
Personal data protection
On April 15, 2016 the European Parliament approved the Data Protection Reform Package, consisting in particular of a General Regulation which from May 25, 2018 will replace Privacy Directive 95/46/EC and as a consequence all related national legislation such as for example the Italian Data Protection Code (Legislative Decree no. 196 of June 30, 2003). All the activities regarding both technical and organizational implementation required by the above regulation are in progress. In particular Wind Tre appointed a Data Protection Officer in February 2018.
On March 20, 2017 a violation in the Selfcare tre.it computer system was identified by one of the Group’s foreign suppliers (notified to the Data Protection Authority on March 21) with the resulting illegal access to and acquisition of credentials included in a file containing the personal data of 5,118 customers (of whom 683 no longer active). On March 23, 2017 Wind Tre contacted the 402 customers whose personal area had been accessed. On March 26, 2017 a provision was notified under which the Data Protection Authority required Wind Tre to advise all those concerned who had not received the March 23 communication, in writing and within 15 days of receipt of the provision to which Wind Tre duly complied. On July 28, 2017 the Data Protection Authority notified a new provision which prescribes the need to inform all the other concerned parties whose numbers were included in the file. Wind Tre satisfied the requirement in August 2017. The proceeding is still pending. An additional inspection took place at Wind Tre in November 2017 into the data breach matter; as things currently stand the proceeding is still in progress and the final pronouncements are awaited.
The Data Protection Authority has carried out a number of inspections whose results are not yet known. In particular:
Inspection of the WIND brand in August 2016 arising from a contact campaign sent to certain customers to obtain their consent. Following the inspection, the Data Protection Authority notified a prescriptive provision which has been satisfied by Wind Tre, although the Company has filed an appeal that is still pending (on January 16, 2017
Report on operations 38 Wind Tre Group at March 31, 2018 Wind Tre filed three defense briefs opposing the fine issued by the Authority and a verbal request has also been made for a hearing before the Authority) and will be heard on May 8, 2018.
Following the above inspection two fines have been issued, one for an amount of €20 thousand and another whose amount has yet to be established; as of today the Authority has not yet expressed its opinion on the matter and a pronouncement is awaited.
Three inspections have been carried out into the "3" brand (one in November 2016, one in January 2017 and one in February 2018 ) whose results are not yet known.
In addition, on January 11, 2018 Law no. 5 was issued on new dispositions regarding registration in the “opposition register” and how such register should work, together with the establishment of national prefixes for telephone calls made for statistical, promotional and market research purposes. The Company is implementing the measures resulting from this legislation.
Consumer protection
In respect of the proceedings of the Italian Competition Authority (AGCM) on consumer protection matters one proceeding (PS 10702) concerning the WIND/Infostrada brand is currently pending which involves the “3” brand for alleged lack of adequate information relating to the phrase “without limits” used commercially and the WIND brand for alleged lack of adequate information concerning the cost of early withdrawal from fixed network offers and technical and economic details relating to the publication of fiber offers. Another proceeding (PS 10967) is also pending regarding the “3” brand which concerns the All-In offers marketed between 2013 and 2017 and guaranteed “forever”, meaning with beneficial economic conditions for a minimum contractual term, which were then subjected to reformulation and specific charges in the event of withdrawal. A new proceeding was initiated by the AGCM in the first quarter of 2018 that is looking into certain information campaigns directed at “3” brand customers which were carried out in 2016 and in the first half of 2017 and regard the SIMOITEL data bank.
In terms of the activities performed by AGCOM on consumer protection a dispute was raised against Wind Tre in 2017 (6/17/DTC) concerning breaches of Resolution 121/17/CONS, which was concluded at the end of 2017 with a fine of €1.16 million and an order to reverse certain amounts not used by the user in terms of service. The dispute relating to the four repricing information campaigns (3/17/DTC) concerning the All-In offers of the “3” brand was concluded at the end of 2017 with the issue of an injunction of €2.32 million. Recently, following an appeal, AGCOM recently issued Decision 115/18/CONS. In conclusion, AGCOM served a cautionary notice (40/18/CONS) on the Company’s decision to pass to a monthly billing on the basis of Law no. 172/17 as well as to make contractual changes, in respect of which the Company promptly took action by implementing the requested amendments.
With the participation of the Ugo Bordoni Foundation the technical workgroups in AGCOM are continuing their work on Resolutions 580/15/CONS (on provisions on quality and mobile and personal communications service charters) and 244/08/CSP as amended (on quality and service charters for access to internet from a fixed workstation). AGCOM Proceeding 1/17/DTC relating to LTE reformulation that was initiated in 2016 against the “3” brand was concluded in 2017 with a fine of €580 thousand.
Report on operations 39 Wind Tre Group at March 31, 2018 Trading Practices
Proceedings PS10702 and PS10967, initiated by AGCM, and proceeding PS11043, as discussed above, are currently in progress. The following proceedings on unfair trading practices were brought to an end in 2017: i) PS10685 (WIND brand) relating to 2016 breaches of consumer code regulations on rights for withdrawal and a cooling off period and consumer-related rights regarding the WIND brand (ending with a fine of €2.1 million), ii) PS 10571 (Infostrada brand) relating to payment by instalment of the terminal payment in the 2016 fixed reformulation (ending with a fine of €500,000), iii) PS10026 (WIND brand) relating to Teleselling 2016 (ending with a fine of €450,000).
Disputes between operators before AGCOM
By way of Resolution 449/16/CONS changes and additions were made to the “Regulation on the resolution of disputes between operators” as per attachment A of Resolution 226/15/CONS, adapting the requirements of the previous regulation to those of article 9 of Legislative Decree no. 33/2016 which identifies the Communications Authority as the body competent for the resolution of disputes between network operators and physical infrastructure managers or between owners of real estate property, or condominia where established by law, and network operators, in relation to the rights and responsibilities envisaged by articles 3, 4, 5, 6 and 8 of such decree.
OUTLOOK
The extremely high level of competition in the telecommunications market already to be seen in the second half of 2017 has also been a future of the first few months of this year, especially in the mobile segment, also because a fourth infrastructured mobile operator, Iliad, is expected to make its entry in 2018 as required by the European Commission as a mandatory condition for approving the merger between WIND and H3G which took place on December 30, 2016. In the fixed-line market there is the expectation of a gradual slowdown in value contraction due to the upcoming arrival of fiber on a larger scale and an overall quality improvement in broadband.
In 2018, Wind Tre will explore the opportunities arising from the combination of new technologies and new demands expressed by the market, in particular strengthening digital channels in terms of new services, customer interaction and process efficiencies. The company will contribute to the country’s digitalization through planned investments of €6 billion in the telecommunications network, innovation and new technologies over a five-year period (2017-2021).
Wind Tre’s objective is to create the best and most extensive broadband mobile network in Italy; in addition, the Company intends to pursue new growth opportunities in the Business segment and will continue to strengthen its position in the mobile, fixed-voice and internet segments by enhancing the value of its convergent business model.
Putting significant emphasis on a rise in efficiency and a further optimization of cost structures continues to be a key point in the integration of the two operating companies. In the first quarter of 2018, Wind Tre achieved opex savings from synergies amounting to a total of €204 million. These savings are expected to reach around €270 million when the synergies are fully operational, which is already over half of the total stated target (an opex run-rate of €490 million by 2020). Following the approval of the country’s finance law Italy’s telecommunications regulator AGCOM is now establishing procedures for allocating the rights of use of the radio frequencies for bi-directional terrestrial wireless broadband electronic communications services through the use of the 694-790 MHz band and the pioneer spectrum bands 3.6-3.8 GHz and 26.5-27.5 GHz, with these to be completed during the next meeting.
Report on operations 40 Wind Tre Group at March 31, 2018 GLOSSARY
ADSL (Asymmetric Digital Subscriber Line): a technology which via a modem uses normal twisted-pair telephone lines and converts the traditional telephone line into a high-speed digital link for transferring multimedia data into asymmetric mode.
AGCM: Italian Authority for Market Competition
AGCOM: Italian Authority for Competition in Communication
ATM (Asynchronous Transfer Mode): a switching technology that permits the transmission of different kinds of information such as voice, data and video.
Backbone: the telecommunications network portion with the highest traffic intensity and from which the connections for services in the local areas depart.
Base Station Controller (BSC): an interface with the MSC switching exchange. It has the task of supervising and controlling radio resources, both during the phase when a call is being set up and during the maintenance phase.
Base Transceiver Station (BTS): a radio signal transmitter which sends out the GSM radio signal via antenna to cover an area (a cell).
Bitstream: a service consisting in the supply by the incumbent to the alternative operator of the transmission capacity between the final customer’s workstation and the interconnection point or PoP (Point of Presence) of an alternative operator which wants to offer broadband services to its final customers.
B Node: a term which in UMTS technology denotes the radio base station which creates the coverage of the cell.
Broadband: services characterized by a transmission speed of 2 Mbit/s or more.
Cloud Computing: represents the emerging development model, implementation of ICT infrastructures which support the provision of the services and the distribution of Cloud Services, meaning services where the “intangible” asset may be acquired and used in real time through the internet.
Crowdsourcing: a neologism which specifies a model in which a business or an institution delegates an activity which is usually assigned to employees of a group, generally containing a large number of members who have not been determined in advance, in “open call” mode using the internet (through outsourcing).
EDGE (Enhanced Data rates for GSM Evolution): an evolution of the GPRS standard that increases the data transmission rate on the GSM network.
EIR (Equipment Identity Register): a database which contains the data to validate access to the network by a mobile phone through its IMEI code.
ESP (Enhanced Service Provider): an operator which provides telecommunications services to the public availing of an agreement with a mobile network licensee.
FEMTO Cell: low power indoor cellular base station. FEMTO Cells allow mobile operators to connect standard mobile devices to their networks through the customers’ home DSL or cable broadband network. FNR: (Flexible Numbering Register): a table in which the telephone numbers of a single customer under the old and the new operator are listed.
FR (Frame Relay): a packet switching transmission technique.
Gateway: a network node which allows interfacing with another network using different protocols.
GGSN (Gateway GPRS Support Node): a node which acts as a gateway between a GPRS wireless network and an Internet or private network.
GPON (Gigabit Passive Optical Network): optical access network.
Report on operations 41 Wind Tre Group at March 31, 2018 GPRS (General Packet Radio Service): a packet-switching based system of transmitting data over the GSM network at medium speed.
GSM (Global System for Mobile Communications): standard architecture for digital cellular communications working on 900MHz and 1800MHz bands. This is currently the most widespread mobile standard in the world.
HLR (Home Location Register): a centralized database containing the details of each mobile telephone customer authorized to access the GSM network.
HSDPA (High Speed Downlink Packet Access): a protocol which allows UMTS networks to improve their performance by increasing capacity and band width.
Internet: a global computer network accessible to the public. The Internet is an interface for networks based on different technologies but which use the TCP/IP protocol platform.
IoT: The Internet of things is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data. Each thing is uniquely identifiable through its embedded computing system but is able to inter-operate within the existing Internet infrastructure.
IP (Internet Protocol): a packet-switching network protocol which enables networks with heterogeneous technologies to be inter-connected.
IPTV (Internet Protocol Television): a system which transmits digital audiovisual content via a broadband Internet connection.
ISDN (Integrated Services Digital Network): a circuit-switching technology which allows the transmission of voice and data over traditional telephone lines.
ISP (Internet Service Provider): a vendor who provides access to the Internet.
LLU (Local Loop Unbundling): it indicates unbundled access to the local network, meaning the possibility for alternative operators, on the payment of a fee, to make use of the incumbent’s infrastructure to offer services to its own customers.
MAN (Metropolitan Area Network): a computer network infrastructure within a town or city.
MGW (Media Gateway): it connects different types of networks (such as PSTN, Next Generation Networks, 2G and 3G); one of its main functions is to convert between the different transmission and coding techniques.
MMS (Mobile Multimedia Services): multimedia messaging services for mobile phones.
MNP/FNR Node: (Mobile Number Portability/Flexible Numbering Register) Node - see FNR.
Modem: a device that modulates and demodulates signals containing the information to enable digital data to be transmitted on analog channels.
MSC (Mobile Switching Center): a part of the GSM mobile telephone network which in addition to acting as a network interface executes functions such as controlling calls, switching traffic and issuing data cards (used for tariffing traffic).
MSC-Server: a 3G core network element.
MVNO (Mobile Virtual Network Operator): a company which provides mobile phone services but which does not own a telephone network or have its own frequencies and which uses the infrastructure and frequencies of other mobile telephone operators to offer mobile telephone services.
NGN/IMS: (Next Generation Network/IP Multimedia Subsystem): these allow all types of information and services (voice, data and all sorts of media) to be transported by encapsulating them into packets: NGN type networks are based on the Internet Protocol.
Node: a topological network junction, commonly a switching center or station.
Report on operations 42 Wind Tre Group at March 31, 2018 Packet Switching: method of transmitting information by which each message is divided into different packets that are then sent to their specified destination, even by different routes.
PoP (Point of Presence): a point of access to the network provided by an ISP to route traffic to the final users connected to it.
RNC (Radio Network Controller): an element of the UMTS network with supervisory and control functions over the B Nodes.
Roaming: a service by which mobile telephone operators allow their customers to make connections by using a network not owned by them. This service is activated when the phone is used in a foreign country (if the operators of the other country belong to the GSM network) or when the customer is in the home country of an operator which does not have LLU coverage in that country.
SGSN (Serving GPRS Support Node): the SGSN is responsible for the delivery of data packets from and to the mobile stations within its geographical service area.
SGSN: (Serving GPRS Support Node): the SGSN is responsible for the delivery of data packets from and to the mobile stations within its geographical service area.
Shared Access: indicates the sharing of access to the user’s twisted-pair telephone lines by the incumbent and another LLU service provider.
Short Message Service Center: a network element in the mobile telephone network which delivers SMS messages.
SIM (Subscriber Identity Module): a chip to which a serial number is associated that enables a telephone operator to identify on its computer system a specific mobile telephone subscriber, and which enables the subscriber to gain access to its services.
SME: small and medium-sized enterprises.
SMS: short text messages that can be received and sent through GSM network connected mobile phones.
Softswitch: a central device in a telephone network which routes calls from one phone line to another entirely by means of software (instead of by physical switchboards).
Switching Center: network nodes which handle the set-up and routing of the signal towards the required destination.
TDM (Time-Division Multiplexing): a technique for sharing a communication channel in which two or more signals are apparently transferred simultaneously within the channel, but where in reality each in turn has the exclusive use of the channel for a short period of time.
Trunking Gateway: an interface between the VoIP network and the traditional telephone network.
UMTS (Universal Mobile Telecommunications System): a third generation mobile phone technology (3G), the successor to GSM, consisting of a broadband transmission system in which data travels at 2Mbit/s.
Unbundling: see LLU.
VAS: Value Added Services.
VDSL2: (Very High Digital Subscriber Loop): Transmission system at high speeds over copper wire.
Virtual Unbundling: VLLU, meaning "virtual LLU”, is the complete unbundling of the old operator’s line for administrative purposes only. Telephony services continue to be provided by the old operator while data and internet services are provided by the new operator.
VMS (Voicemail System): a centralized system for managing telephone messages.
VoIP: a technology which makes it possible to hold a telephone conversation over the Internet or another dedicated network using the IP protocol instead of passing through the traditional telephone network. WAP (Wireless Application Protocol): a protocol allowing access to the Internet from a mobile phone.
Report on operations 43 Wind Tre Group at March 31, 2018 Web 2.0: a general term describing an evolution of the World Wide Web and referring to the set of online applications characterized by a high level of interaction between the website and the user.
Webmail: an application which enables an electronic mail account to be managed via a web browser.
WiMax (Worldwide Interoperability for Microwave Access): a technology that allows wireless access to broadband telecommunications networks.
Wholesale Line Rental (WLR): a service in which a telecommunications operator other than the incumbent may set up an exclusive commercial relationship with its customers, also outside the LLU service coverage areas, leasing the customer’s lines from the incumbent under wholesale terms and conditions.
The Board of Directors
Report on operations 44 Wind Tre Group at March 31, 2018
WIND TRE GROUP
Consolidated interim financial statements as of and for the three-month period ended March 31, 2018
FINANCIAL STATEMENTS AND NOTES THERETO
CONTENTS
CONSOLIDATED INCOME STATEMENT ...... 47 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... 48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 49 CONSOLIDATED STATEMENT OF CASH FLOWS ...... 50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 51 COMPOSITION OF THE CORPORATE BODIES OF WIND TRE S.P.A...... 52 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WIND TRE GROUP AS OF AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2017 ...... 53 1 INTRODUCTION ...... 53 2 GENERAL ACCOUNTING POLICIES ...... 54 3 BASIS OF CONSOLIDATION ...... 61 4 REVENUE ...... 64 5 OTHER REVENUE ...... 65 6 PURCHASES AND SERVICES ...... 65 7 OTHER OPERATING COSTS ...... 66 8 PERSONNEL EXPENSES ...... 66 9 RESTRUCTURING COSTS ...... 67 10 DEPRECIATION AND AMORTIZATION ...... 67 11 FINANCE INCOME AND EXPENSE ...... 68 12 INCOME TAXES ...... 69 13 TANGIBLE ASSETS ...... 69 14 INTANGIBLE ASSETS ...... 70 15 FINANCIAL ASSETS ...... 72 16 OTHER NON CURRENT ASSETS ...... 72 17 DEFERRED TAX LIABILITIES ...... 73 18 SHAREHOLDERS’ EQUITY ...... 73 19 PROVISIONS ...... 74 20 FINANCIAL LIABILITIES ...... 75 21 DERIVATIVE FINANCIAL INSTRUMENTS ...... 77 22 NET DEBT ...... 79 23 RELATED PARTIES TRANSACTIONS ...... 79 24 OTHER INFORMATION ...... 81 25 SUBSEQUENT EVENTS ...... 86
Consolidated interim financial statements 46 as of and for the period ended March 31, 2018
CONSOLIDATED INCOME STATEMENT
(millions of euro) 2018 2017 Note 3 months 3 months(1)
Revenue 4 1,390 1,510 Other revenue 5 20 38 Total revenue 1,410 1,548
Purchases and services 6 (748) (845) Other operating costs 7 (67) (72) Personnel expenses 8 (86) (114) Restructuring costs 9 (25) (59) Operating income before depreciation and amortization 484 458
Depreciation and amortization 10 (553) (778) Operating income (69) (320)
Finance income 11 25 28 Finance expense 11 (104) (172) Foreign exchange gains / (losses), net 1 (2) Profit before tax (147) (466)
Income taxes 12 (6) (30) Loss for the period (153) (496)
(1) The figures for the period ended March 31, 2017 have been disclosed differently/reclassified to ensure comparability with the figures for the period ended March 31, 2018
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated interim financial statements 47 as of and for the period ended March 31, 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions of euro) 2018 2017 Note 3 months 3 months
Loss for the period (153) (496) Other comprehensive income that will be reclassified
subsequently to profit or loss Gains on cash flow hedging instruments net of tax effect (19) 11
Total Other comprehensive income that will be reclassified 18 (19) 11 subsequently to profit or loss
Total comprehensive loss for the period 18 (172) (485)
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated interim financial statements 48 as of and for the period ended March 31, 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(millions of euro) At March 31, At December 31, Note 2018 2017
Assets Tangible assets 13 3,239 3,528 Intangible assets 14 9,778 9,742 Financial assets 15 1,125 1,128 Other assets 16 623 653 Total non-current assets 14,765 15,051
Inventories 104 127 Trade receivables 953 1,251 Financial assets 15 46 24 Current income tax assets 31 28 Other receivables 297 303 Cash and cash equivalents 701 612 Assets held for sale 254 241 Total current assets 2,386 2,586 TOTAL ASSETS 17,151 17,637
Equity and Liabilities Equity Issued capital 474 474 Share premium reserve 3,119 3,119 Other reserves 11,335 11,354 Retained earnings (13,451) (13,303) Total equity 18 1,477 1,644
Liabilities Financial liabilities 20 12,065 12,028 Employee benefits 65 67 Provisions 19 196 195 Other liabilities 401 418 Deferred tax liabilities 17 174 174 Total non-current liabilities 12,901 12,882
Financial liabilities 20 124 49 Trade payables 1,974 2,343 Other payables 640 694 Income tax payables 25 19 Liabilities associated to assets held for sale 10 6 Total current liabilities 2,773 3,111 Total liabilities 15,674 15,993 TOTAL EQUITY AND LIABILITIES 17,151 17,637
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated interim financial statements 49 as of and for the period ended March 31, 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of euro) 2018 2017 3 months 3 months
Cash flows from operating activities Loss for the period (153) (496) Net financial costs 79 144 Income taxes 6 30 Loss for the period before taxes, interest, gains/losses on (68) (322) disposal of assets Adjustments to reconcile the loss for the period with the cash flows from/(used in) operating activities Depreciation and amortization 553 778 Net changes in provisions and employee benefits 4 7 Impairment of trade receivables 52 43 Changes in inventories 22 (43) Net changes in current assets/liabilities (235) (114) Interest paid (10) (130) Taxes paid (5) - Net cash flows from operating activities 313 219
Cash flows from investing activities Acquisition of tangible assets (116) (149) Acquisition of intangible assets (108) (91) Assets disposal - 13 Net cash flows used in investing activities (224) (227)
Cash flows from financing activities Parent company and fellow subsidiaries borrowings: Proceeds - 171 Repayments - (144) Net cash flows from financing activities - 27
Net cash flows for the period 89 19
Cash and cash equivalents at the beginning of the period 612 603 Cash and cash equivalents at the end of the period 701 622
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated interim financial statements 50 as of and for the period ended March 31, 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(millions of euro) Equity attributable to the owners of the parent
Retained Share premium earnings/(losses Issued capital reserve Other reserves carried forward) Equity
Balances at January 1, 2017 474 3,119 11,650 (11,039) 4,204
Total comprehensive income for the period
- Loss for the period - - - (496) (496) - Cash flow hedges - - 11 - 11 Other movements - - (328) 328 -
Balances at March 31, 2017 474 3,119 11,333 (11,207) 3,719
Balances at December 31, 2017 474 3,119 11,354 (13,303) 1,644
IFRS 15 effect - - - 63 63
IFRS 9 effect - - - (58) (58)
Balances adjusted at January 1, 2018 474 3,119 11,354 (13,298) 1,649
Total comprehensive income for the period
- Loss for the period - - - (153) (153)
- Cash flow hedges - - (19) - (19)
Balances at March 31, 2018 474 3,119 11,335 (13,451) 1,477
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated interim financial statements 51 as of and for the period ended March 31, 2018
COMPOSITION OF THE CORPORATE BODIES OF WIND TRE S.P.A.
Board of Directors (1)
Chairman Christian Nicolas Roger Salbaing
Directors Jeffrey Alan Hedberg, Managing Director
Kjell Morten Johnsen
Board of Statutory Auditors (2)
Chairman Giancarlo Russo Corvace
Standing auditor Marcello Romano
Standing auditor Luca Occhetta
Substitute auditor Roberto Colussi
Substitute auditor Maurizio Paternò di Montecupo
(1) The shareholders’ meeting of the Company held on November 5, 2016 appointed the Board of Directors for a term expiring on the date of the shareholders’ meeting that approves the Company’s financial statements for the year ending December 31, 2018. On June 22, 2017 the shareholders’ meeting of the Company appointed Mr. Jeffrey Alan Hedberg as a board member to replace the Managing Director, Mr. Maximo Ibarra, who had resigned. At the same date the Board of Directors of the Company appointed Mr. Hedberg as Managing Director of the Company and granted him powers to manage the Company. The Managing Director will hold office until the term of the current Board of Directors expires.
(2) The shareholders’ meeting of the Company held on November 5, 2016 appointed the Board of Statutory Auditors for a term expiring on the date of the shareholders’ meeting that approves the Company’s financial statements for the year ending December 31, 2018.
Consolidated interim financial statements 52 as of and for the period ended March 31, 2018
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WIND TRE GROUP AS OF AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2017
1 INTRODUCTION
Wind Tre S.p.A. (hereinafter referred to as Wind Tre or the Company and together with its subsidiaries the Group or the Wind Tre Group) is a joint stock company having registered office in Via Leonardo da Vinci, 1, Trezzano sul Naviglio, Milan, Italy. Wind Tre is a leading operator in the fixed and mobile telecommunications and data services sector in Italy and is strongly oriented towards providing in mobility data communication services, internet mobile access services in broadband and broadband and ultra-broadband fixed-line services, as well as a convergent fixed- mobile offer. In addition, it accompanies its offer with a wide range of content, applications and multimedia support.
These consolidated financial statements for the period ended March 31, 2018 were approved by the Company’s Board of Directors on May 11, 2018. At the date of approval of these consolidated financial statements Wind Tre is controlled by Wind Tre Italia S.p.A. (hereinafter referred to as Wind Tre Italia) which in turn is controlled by the Luxembourg based entity VIP-CKH Luxembourg Sàrl (hereinafter referred to as VIP-CKH or the Joint Venture). VIP- CKH is a joint venture whose share capital is owned as to 50% by CK Hutchison Holdings Limited (hereinafter referred to as CK Hutchison) and by Veon Ltd. (hereinafter referred to as Veon). The Joint Venture owns and operates telecommunications businesses in Italy. CK Hutchison is a limited liability company incorporated in the Cayman Islands and registered in the Register of Companies of the Cayman Islands (no. MC-294.571) whose shares are listed on the Hong Kong stock exchange and whose principal place of business is located at 12th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Veon is incorporated under Bermuda law, domiciled in Claude Debussylaan 88, 1082 MD Amsterdam, The Netherlands and listed on NASDAQ.
On the formation of the Joint Venture at the end of 2016 the respective holding and operating companies of the telecommunications businesses in Italy of CK Hutchison and Veon, namely Wind Tre Italia and WIND Acquisition Holdings Finance S.p.A., and Wind Tre and WIND Telecomunicazioni S.p.A., and all their subsidiaries became subsidiaries of the Joint Venture, and the Joint Venture became the new parent company of the Group holding the telecommunications businesses in Italy of CK Hutchison and Veon.
Following the above mentioned transaction WIND Acquisition Holdings Finance S.p.A. and WIND Telecomunicazioni S.p.A. were merged into Wind Tre Italia and Wind Tre respectively.
The approval for the transaction obtained from the European Commission, which led to the formation of the Joint Venture, required the implementation of a number of remedies which included the signing of certain agreements with Iliad, a French telecom operator, aiming to allow Iliad to enter the Italian market. These agreements have resulted in the commitment of the Wind Tre Group to sell frequencies for €450 million and sites to Iliad in the period 2017 – 2019 as well as to sign certain temporary agreements which enable Iliad to operate telecommunications services in the Italian market while it is creating its own network. From an accounting perspective the frequencies and sites that are expected to be transferred to Iliad by March 31, 2019 are presented and measured at each closing date as required by IFRS 5 and discussed in the General Accounting Policies section. Conversely accelerated depreciation has been charged on the sites that are expected to be transferred after March 31, 2019 and will still be utilized by the Group through that date, in order to represent their new expected limited useful lives.
Consolidated interim financial statements 53 as of and for the period ended March 31, 2018
As a result of these agreements at the end of the 2016 the carrying amount of the assets to be sold was reviewed in terms of impairment or by revising their useful lives. These assessments have been updated in the financial statements at March 31, 2018 as discussed in the explanatory notes.
The following diagram sets out the structure of the Wind Tre Group at March 31, 2018.
As required by the European Commission as a mandatory condition for approving the merger between WIND Telecomunicazioni S.p.A. and H3G S.p.A. which took place at the end of 2016, Iliad, the fourth infrastructure mobile operator, is expected to enter the market during 2018. For more information on this transaction reference should be made to the Wind Tre Group Notes to the Consolidated Financial Statements as at December 31, 2016 and 2017.
The subsidiary Wind Tre is investing to strengthen its fixed and mobile networks, thereby accelerating the process of network integration. Trieste and Agrigento are the first two Italian cities to benefit from the new consolidated Wind Tre network which guarantees high performance for coverage, quality of service and connection speed and ensures a better user experience; Bologna, Alessandria and Milan have been added in 2018. The consolidation of the mobile network is expected to be completed by the end of 2019.
2 GENERAL ACCOUNTING POLICIES
2.1 Basis of preparation
The consolidated financial statements for the period ended March 31, 2018 have been prepared on a going concern basis in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) and with all the SIC/IFRIC interpretations, as adopted by the European Union (EU) and contained in EU Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002.
The statement of financial position is prepared using an analysis of assets and liabilities into current and non-current. The income statement is prepared in accordance with IAS 1 "Presentation of Financial Statements" with a classification of expenses by nature that is believed to provide more relevant information than a classification by function.
Consolidated interim financial statements 54 as of and for the period ended March 31, 2018
The structure and content of these consolidated interim financial statements comply with the disclosure requirements of IAS 34 Interim Financial Reporting. The consolidated interim financial statements have been prepared in accordance with IAS 1, while the notes thereto have been drawn up in a condensed format, as permitted by IAS 34. Accordingly, these consolidated interim financial statements do not include all the disclosures required for annual financial statements and should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2017. The consolidated financial statements as of and for the year ended December 31, 2017 is available on request at the registered office of the Parent and on the website www.windtre.it. The income statement, statement of comprehensive income and statement of changes in equity figures provided relate to the three-month period ended March 31, 2018. The accounting standards adopted by the Group are the same as those used for the preparation of the consolidated financial statements as of and for the year ended December 31, 2017 with the exception of the calculation of income taxes that is based on the best estimate of the tax rate that will be applied for the entire period. Amounts set aside for income taxes are therefore subject to variation in the next interim periods as the annual tax rate is revised.
Starting from January 1, 2018 become effective the new international accounting standards IFRS 15 "Revenue from contracts with customers" and IFRS 9 "Financial instruments" for which was used as a transition method the so- called "simplified approach". The comparative data are presented with the accounting standards used in the previous year and the impacts of these new principles are reported in paragraph 2.2, Accounting standards and interpretations.
In preparing these consolidated financial statements the Group adopted historical cost as the basis of measurement except for certain financial instruments for which, in accordance with IAS 39, measurement at fair value has been used. These consolidated financial statements are expressed in euros, the currency of the economy in which the Group operates. Unless otherwise stated, all amounts shown in the tables and in these notes are expressed in millions of euros. The preparation of these notes required management to apply accounting policies and methodologies that are occasionally based on complex, subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based on the related circumstances and on the available information. The application of these estimates and assumptions affects the reported amounts in the income statement, the statement of comprehensive income, the statement of financial position, the cash flow statement and the accompanying notes. The closing amounts of items in the consolidated annual financial statements that were initially determined for the purposes of the consolidated interim financial statements by using the above estimates and assumptions may differ from those based on such estimates and assumptions, given the uncertainty surrounding the assumptions and conditions upon which these estimates are based. Management’s significant judgments on the application of Group accounting policies and the main causes of uncertainty of these estimates are the same as those applied in the preparation of the consolidated financial statements as of and for the year ended December 31, 2017.
Consolidated interim financial statements 55 as of and for the period ended March 31, 2018
2.2 Accounting standards and interpretations
New accounting standards and interpretations
The Group has adopted all the newly issued and amended standards of the IASB and interpretations of the IFRIC, adopted by EU, applicable to its transactions and effective for financial statements for years beginning January 1, 2018 and thereafter.
Standard effective in 2018
With reference to the application of accounting standards that became effective from January 1, 2018 are reported in particular the following standards and amendments which, despite not having a significant impact on the interim financial statements at March 31, 2018, have been applied by the Group's core business and have relevance also with respect to future transactions.
IFRS 15 “Revenue from Contracts with Customers” – This replaces IAS 18 “Revenues” and IAS 11 “Construction Contracts” and the interpretations IFRIC 13 “Customer Loyalty Programs”, IFRIC 15 “Agreements for the Construction of Real Estate”, IFRIC 18 “Transfer of Assets from Customers” and SIC 31 “Barter Transactions Involving Advertising Services”. It applies to all contracts with customers except from those included in the scope of IAS 17 “Leases”, IFRS 4 “Insurance Contracts” or IAS 39/IFRS 9 “Financial Instruments”.
IFRS 15 introduces a model based on the following steps: (i) Identify the contract with a customer; (ii) Identify the performance obligations in the contract, the separable elements that are part of the contract but which, for accounting purposes, must be separated; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when (or as) the entity satisfies a performance obligation. In 2017, the Group started the necessary activities for the assessment of the expected impacts from the application of IFRS 15. In particular, the impacts from IFRS 15 are mainly driven by both the business model applied by an entity and by the complexity of the contracts offered to the end-customers. The main considerations around the application of IFRS 15 and related effects to the Group can be summarized as follow: The Group has utilized as transition method the so-called “simplified approach” which means that IFRS 15 will be applied to all contracts that are not completed by January 1, 2018. The cumulative effect of the transition has been then treated as an adjustment to the opening equity at January 1, 2018, making the comparison with the previous year not immediate. Consequently, the following paragraphs provide additional disclosure required by the same accounting standard for the application of the simplified approach, aimed to evaluate the impact of IFRS 15 on the income statements and balance sheet for the current period despite the comparative figures are presented based on the accounting following the previously applicable IAS 18; The Group sells “bundle” / multiple arrangements offers to the end-customers. However, considering the business model applied by the Group (mainly through indirect channel, thus generating a separation of the obligation related to the handset sell from the service provision), and the pricing strategy of the Group in
Consolidated interim financial statements 56 as of and for the period ended March 31, 2018
relation to the embedded discounts in bundles, IFRS 15 did not generate significant impacts on revenues as of January 1, 2018; The above conclusions are mainly linked to the actual business model applied by the Group. Changes in the business model, including for example (i) changes in the distribution strategy; (ii) inclusion in the offers of significant options to activate future services at discounted price (material rights); (iii) the inclusion in the offers of services provided by third parties at discount; (iv) significant increase of the discount offered for “bundle” arrangements; and (v) changes to the average length of the contracts may lead to impacts in the future; One-off contributions deriving from post-paid and pre-paid mobile activation with restrictions, as these revenues are not considered "separate performance obligations", are always considered part of the transaction price allocated to other performance obligations The pre-tax impact of this adjustment at January 1, 2018 is a decrease in shareholders' equity of approximately €7 million, gross of the related tax effect, while for the first quarter of 2018 there are no significant impacts (€0.1 million); Customer acquisition costs (mainly commissions for the Group) are now always capitalized for all types of commercial offers and amortized on the basis of the average customer life. The pre-tax impact on Equity of this adjustment at January 1, 2018 is equal to an increase in Equity of about €95 million while for the first quarter of 2018 there is a net effect on the income statement of around €8 million. This net effect is made up of capitalization of customer acquisition costs for around €19 million and amortization for the period of approximately €27 million. In terms of presenting, the Group considers these costs, by nature, similar to the acquisition of customer relations. Therefore, the relative release to the income statement is presented in the amortization line.
The following tables summarizes the effects of the application of the new accounting standard on equity at January 1, 2018 and on the first quarter of 2018.
Effects on Consolidated Statement of Financial Position IAS 18 Adjustment IFRS 15 IFRS 15 (milions of euro) At March 31, At March 31, At March 31, 2018 2018 2018
Assets Non-current assets 14,678 87 14,765 Of which: Intangible assets 9,691 87 9,778 Current assets 2,386 - 2,386 TOTAL ASSETS 17,064 87 17,151
Equity and Liabilities Equity 1,420 57 1,477 Of which: Retained earnings (13,509) 57 (13,452) Non-current liabilities 12,878 23 12,901 Of which: Deferred tax liabilities 151 23 174 Current liabilities 2,766 7 2,773 Of which: Other payables 633 7 640 TOTAL EQUITY AND LIABILITIES 17,064 87 17,151
Consolidated interim financial statements 57 as of and for the period ended March 31, 2018
Adjustment Effects on Consolidated Income Statement IAS 18 IFRS 15 IFRS 15 (milions of euro) 2018 2018 2018 3 months 3 months 3 months
Total Revenue 1,410 - 1,410 Purchases and services (767) 19 (748) Other operating costs (67) - (67) Personal expenses (86) - (86) Restructuring costs (25) - (25) Operating income before depreciation and amortization, reversal of impairment 465 19 484 losses/impairment losses on non-current assets and gains/losses on disposal of non-current assets Depreciation and amortization (526) (27) (553) Operating Income (61) (8) (69) Finance income and expenses (78) - (78) Loss before tax (139) (8) (147) Income taxes (8) 2 (6) Loss for the period attributable to the group (147) (6) (153)
Clarifications to IFRS 15 “Revenue from Contracts with Customers” – integrate the principles by providing clarifications on how to identify a “performance obligation” to the considerations related to the “principal/agent” and to the “licensing”.
IFRS 9 “Financial Instruments” – This replaces IAS 39 “Financial Instruments” and contains a model to evaluate financial instruments (based on a business model assessment of different portfolios of financial assets and the cash flow characteristics of each single financial asset) in three categories: amortized cost (“hold to collect” business model), fair value through profit or loss (“hold to collect and sale” business model) and fair value through other comprehensive income (“hold to sell” business model). The standard also envisages a new impairment model that is different from the model currently included in IAS 39 and is more focused on expected credit losses. Finally, the standard also simplifies the requirements for hedge accounting generally aligning management strategy with hedge accounting requirements. The Group started and finalized in 2017 the activities deemed necessary to assess the effect of the application of IFRS 9. The main considerations around the application of IFRS 9 and the related effects on the Group can be summarized as follow: Concerning the classification of financial assets, no impacts have been identified in relation to the vast majority of financial assets which are generally managed through a “hold to collect” business model. The only main exception is related to receivables connected with handset sale, which are mainly managed instead through an “hold to sell” business model. The fair value measurement of these assets generates a pre-tax impact on Equity of about €54 million of decrease at January 1, 2018. The following table summarize the reclasses made on January 1, 2018, first time adoption of IFRS 9:
Consolidated interim financial statements 58 as of and for the period ended March 31, 2018
Financial assets at January 1, 2018 Fair Value through Fair Value Amortized cost Other Comprehensive Held to (millions of euro) through Profit & (Receivables Income (Available- maturity Loss 2017) for-sale 2017)
Balance at December 31, 2017 (50) - - 1,522 Reclass of receivables for handset sale according with “Hold to sell” business 429 - - (429) model Balance at January 1, 2018 379 - - 1,093
By an impairment perspective the modification of the credit impairment model, it should be noted that the Group mainly has financial assets consisting of receivables from customers and contract assets related to measurements in accordance with IFRS 15. Therefore, the Group has applied the simplified method for estimating expected losses as required by IFRS 9, paragraph 5.5.15. The review of the impairment for these types of instruments now based on the expected losses methodology, has led to an increase at January 1, 2018 of about €22 million in the allowance for doubtful accounts and, therefore, to a corresponding decrease of pre-tax equity; Future changes in business model or in the expected credit loss may lead to additional impacts in the future; From the analysis carried out by the Group, there are no significant impacts on the valuation of hedging derivatives. The interest rate swaps and cross currency swaps outstanding as at 31 December 2017 follow the cash flow hedge accounting under IFRS 9.
IFRIC 22 “Foreign Currency Transactions and Advance Consideration” - this IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The IASB effective date did not have significant effects.
Accounting standards and interpretations issued by IASB/IFRIC – not yet effective
Set out below is the information required to assess the possible impact arising from the application of new accounting standards and interpretations that have already been issued but have not yet become effective or have not been adopted by the EU and thus cannot be applied to the financial statements as of March 31, 2018. Unless otherwise indicated, the Group does not believe that the application of these standards will have any significant impact on its economic results, except for the need for further possible disclosures
Consolidated interim financial statements 59 as of and for the period ended March 31, 2018
Standard, amendment or interpretation Status
IASB Effective date: January 1, 2019 IFRS 16 “Leases” (issued on January 13, 2016) Endorsed by EU: October 31, 2017 Effective (EU): January 1, 2019 Amendment to IFRS 9 “Financial Instruments” relating to the IASB Effective date: January 1, 2019 valuation of certain financial instruments denominated Endorsed by EU: March 22, 2018 “negative compensation” Effective (EU): January 1, 2019
Amendment to IAS 28 “Investments in Associates and Joint IASB Effective date: January 1, 2019 ventures” (issued on October 12, 2017) Expected EU endorsement in 2018
Annual improvements 2015-2017 (issued on December 12, IASB Effective date: January 1, 2019 2017) Expected EU endorsement in 2018
Amendment to IAS 19 “Amendments, curtailments or IASB Effective date: January 1, 2019 settlements of the Defined Benefit Plan for Employee” (issued Expected endorsement in 2018 on February 7, 2018)
IASB Effective date: January 1, 2019 IFRIC 23 “Uncertainty over income tax treatments” Expected EU endorsement in Q3 2018
Table 1 - IFRSs whose effective date is expected for accounting periods beginning on or after January 1, 2019 (the effective date determined by the IASB may differ from the effective date for the EU)
IFRS 16 “Leases” – This replaces IAS 17 “Leases” and interpretations IFRIC 4 “Determining Whether an Arrangement Contains a Lease”, SIC 15 “Operating Leases - Incentives” and SIC 27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”. IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee; instead all leases are treated in a similar way to finance leases applying IAS 17. Leases are to be recognized as right-of-use assets with the corresponding recognition of a financial liability. Partial exemptions to this rule are allowed for short-term leases (i.e. leases of 12 months or less) and leases of low-value assets (for example, the lease of a personal computer). By some preliminary considerations several types of assets at present held under operating leases by the Group might be affected by the implementation of this standard (physical sites in particular but potentially additional assets). This may lead to the recognition in the statement of financial position of significant right of use assets, and corresponding significant financial liabilities, from January 1, 2019. Ultimately, this may lead to an increase in both future EBITDA (due to the change in the nature from lease operating expense to depreciation and interest of the income statement impact) and future net financial positions of the Group. The Group has started up and will complete within 2018 the activities deemed necessary to assess the effect of the application of IFRS 16.
Amendment to the IFRS 9 “Financial Instruments” – This amendment confirms that when a financial liability measured at amortised cost is modified without this resulting in de-recognition, a gain or loss should be recognised immediately in profit or loss.
Amendment to IAS 28 “Investments in Associates and Joint ventures” – clarifies that an entity must apply IFRS 9 “Financial Instruments”, including impairment considerations, to long term interests in an associate or joint ventures for which the equity method is not applied.
Annual improvements 2015-2017 - affecting IFRS 3 “Business Combinations”, IFRS 11 “Joint Arrangements”, IAS 12 “Income taxes” and IAS 23 “Borrowing Costs”. The main parts of these changes applicable to the Group are as follows:
Consolidated interim financial statements 60 as of and for the period ended March 31, 2018
IFRS 3 “Business Combinations” and IFRS 11 “Joint Arrangements” – the amendments propose changes to the definition of business and the accounting of investments already held in a business in which control or joint control is subsequently acquired.
IAS 12 “Income taxes” – the amendment clarifies that all income tax consequences of dividends should be recognised in profit or loss, regardless of how the tax arises.
IAS 23 “Borrowing Costs” - the amendment clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.
Amendment to IAS 19 “Amendments, curtailments or settlements of the Defined Benefit Plan for Employee” – the amendments require an entity to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement.
IFRIC 23 “Uncertainty over income tax treatments” – explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment (or where there is uncertainty over whether that treatment will be accepted by the tax authority).
3 BASIS OF CONSOLIDATION
The companies controlled by the Group ("subsidiaries") are consolidated on a line-by-line basis. Control exists when the Company has simultaneously: decisional power, that is the power to govern the financial and operating policies of the entity, meaning those activities that have a significant influence on the results of the company; the right to the variable results (positive or negative) arising from its investments in the entity; the ability to use its decision-making power to determine the amount of the results arising from its investments in the entity. The existence of control is verified whenever facts and circumstances indicate a change in one or more of the three qualifying elements of control.
Subsidiaries are consolidated from the date of acquisition and deconsolidated when such control ceases. Where there is an acquisition or loss of control of a company included in the consolidation perimeter, the consolidated financial statements include the net income of the company for the period in which the parent company has control. The financial statements used in the consolidation process are those prepared by the individual Group entities as of and for the period ended March 31, 2018.
The consolidation procedures used are as follows: the assets and liabilities and income and expenses of consolidated subsidiaries are included at 100% in the Group Financial Statements, allocating to non-controlling interests, where applicable, the share of equity and profit or loss for the year that is attributable to them. The resulting balances are presented separately in consolidated equity and the consolidated income statement;
Consolidated interim financial statements 61 as of and for the period ended March 31, 2018
except for business combinations under common control as noted below the purchase method of accounting is used to account for business combination in which control of an entity is acquired. The cost of an acquisition is measured as the fair value of the assets acquired, liabilities incurred or assumed and equity instruments issued at the acquisition date. Any excess of the cost of acquisition over the fair value of the assets and liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in profit or loss after first verifying that the fair values attributed to the acquired assets and liabilities and the cost of the acquisition have been measured correctly; business combinations in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination are considered business combinations involving entities under common control. In the absence of an accounting standard guiding the accounting treatment of these operations the Group applies IAS 8, consolidating the carrying amounts of the transferred entity and reporting any gains/losses arising from the transfer directly in equity; the purchase of investments from minority holders in entities where control is already exercised is not considered a purchase but an equity transaction. Therefore, the difference between the cost incurred for the acquisition and the respective share of the accounting equity acquired is recognized directly in equity; unrealized gains and losses arising from transactions carried out between companies consolidated on a line- by-line basis and the respective tax effects are eliminated, as are corresponding balances of receivables and payables, income and expense, and finance income and expense; gains and losses arising from the sale of investments in consolidated subsidiaries are recognized in income as the difference between the selling price and the corresponding portion of the consolidated equity sold.
The following table provides a summary of the Group’s investments showing the criteria used for consolidation and measurement.
Basis of consolidation / % holding % holding measurement 12/31/2017 03/31/2018 03/31/2018 Subsidiaries
WIND Retail S.r.l. 100 100 Line-by-line
WIND Acquisition Finance S.A. 100 100 Line-by-line
3lettronica Industriale S.p.A. 100 100 Line-by-line
Others
MIX Srl 9.75 9.75 Cost
Consel – Consorzio Elis per la formazione professionale superiore a r.l. 1 1 Cost
Janna Scarl 17 17 Cost
QXN Società consortile per azioni 10 10 Cost
Dono per…Scarl in liquidazione 33.33 33.33 Cost
Consolidated interim financial statements 62 as of and for the period ended March 31, 2018
The following table sets out investments in subsidiaries at March 31, 2018.
(thousands of euro) Share/quota Profit (loss) for Share/quota holders' equity the period Holding % as Carrying capital as of as of ended of March 31, amount as of Name Registered office 03/31/2018 03/31/2018 03/31/2018 2018 03/31/2018 Rome - Via Cesare Giulio WIND Retail S.r.l. 1,027 35,236 (1,079) 100% 31,103 Viola, 48 1, Route d’Esch L-1470 WIND Acquisition Finance S.A. 60,031 108,190 (483) 100% 61,797 Luxembourg Trezzano sul Naviglio, Via 3lettronica Industriale S.p.A. 16,000 32,083 (1,569) 100% 48,859 Leonardo da Vinci, 1
The following table sets out non-controlling interests in companies and consortia at December 31, 2017.
(thousands of euro) Share/quota Share/quota holders' equity Profit (loss) for Holding % as Carrying Registered capital as of as of the year ended of December amount as of Name office 12/31/2017 12/31/2017 12/31/2017 31, 2017 12/31/2017 Consel - Consorzio Elis per Rome - Via Sandro la formazione professionale 51 52 - 1% 1 Sandri, 45 superiore a r.l.(**)
QXN Società consortile per Rome – Piazzale Don 500 758 7 10% 50 azioni Luigi Sturzo n.23 Cagliari - Loc. Sa Janna Scarl(*) Illetta, Strada 13,717 9,382 (1,459) 17% 2,072 Statale 195 Km 2.3 Milan - Via Caldera, MIX S.r.l. 99 1,649 293 9.75% 10 21
(*) Data of the company are related to December 31, 2016. The company is also owned by the Sardinia region, owner of the submarine cables that connect it with the rest of Italy. (**) Data of the company are related to September 30, 2017.
Business combinations under common control
A business combination involving entities or businesses “under common control” is a business combination in which all the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. These transactions are not contemplated by IFRS 3, which outlines the accounting method for business combinations, or by any other IFRS. In the absence of an accounting standard of reference, it is believed that the selection of the accounting principle most suitable is the general objective set out in IAS 8 in order to provide relevant and reliable information about a transaction. In this context, some guidance in the Italian context can be found in OPI 1 (Assirevi – Italian Association of auditing - preliminary guidelines on IFRS) relating to accounting for business combinations under common control in “Separate and Consolidated Financial Statements”. Taking into account the OPI 1 guidance, which is applicable to all reorganizational transactions (mergers) completed in Italy after the major transaction completed at a higher level which created the joint venture, the Group has decided to select the predecessor accounting method (based on continuity of values and not on IFRS 3 principles) as an accounting policy for this kind of transaction. Use of the predecessor accounting method is also in line with certain other generally accepted accounting principles that permit, or require, this accounting to be used for other common control transactions or similar circumstances.
The concept of continuing values requires the recognition in the financial statements of the acquirer of the same values as those recorded in the books of the companies / business segments acquired before the transaction or, if available, the values in the consolidated financial statements of the common parent (the “predecessor accounting”
Consolidated interim financial statements 63 as of and for the period ended March 31, 2018
principle). Where the values transferred are higher than these historical values, both the acquirer and the seller must eliminate the excess by reducing equity.
Segment reporting
The Board of Directors of Wind Tre, consisting of the chief executive officer, the chief financial and officer, examines the Group’s performance mainly from geographic perspective and has identified one reportable segment of its business. The Board of Directors of Wind Tre primarily uses a measure of “Operating income before depreciation and amortization, reversal of impairment losses/impairment losses on non-current assets and gains/losses on disposal of non-current assets” (EBITDA), of the revenue and tangible assets to assess the performance of the operating segment. Information about segment EBITDA and Revenue are disclosed in “consolidated income statement”, further information related to Revenue is disclosed in Note 4 and information about segment tangible assets are disclosed in note 13. The information related to the revenue divided by group of services are disclosed in note 4. All the revenues, non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets are related to the single geographical segment concerning Italy country. There are no revenue from transactions with a single external customer amount to 10 per cent or more.
4 REVENUE
The following table provides an analysis of Revenue for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Revenue from sales 170 196 (26) (13.3)%
- Telephone services 1,032 1,137 (105) (9.2)% - Interconnection traffic 119 123 (4) (3.3)% - International roaming 15 15 - - - Judicial authority services 1 2 (1) (50.0)% - Other revenue from services 53 37 16 43.2% Revenue from services 1,220 1,314 (94) (7.2)% Total 1,390 1,510 (120) (7.9)%
Revenue from sales mainly refers to the sale of mobile telephone handsets, accessories and other enabling terminals (Smart Home products, modems, etc.).
Revenues from telephone services mainly refer to voice fixed and mobile services and internet services mobile data transmission.
Interconnection traffic includes revenue from other telecommunications operators for the termination of traffic to the Company’s customers
Other revenue from services mainly refer to network sublease and revenue from MVNO.
Consolidated interim financial statements 64 as of and for the period ended March 31, 2018
Total revenues in the first three months of 2018 amounted to 1,390 million euros, a decrease of 7.9% compared to the same period of the previous year. This effect is mainly due to: (i) a decrease in revenues from telephone services that are affected by the macroeconomic environment and the market still slightly down, showing a decrease of 9.2% in the first three months of 2018 compared to the same period of 2017; (ii) a decrease in revenues from sales of 13.3% (€170 million at March 31, 2018 compared to €196 million at March 31, 2017) reflecting the change in commercial policy, more focused on the value that on the increase in volumes sold; (iii) a partial compensation due to the increase in Other revenues from services of 43.2% (€53 million euros at March 31, 2018 compared to €37 million euros at March 31, 2017) due to a new network sharing agreement (MOCN) with another MNO. There were no significant impacts on the first quarter of 2018 (€0.1 million at March 31, 2018) deriving from the adoption of the new standard IFRS 15 related to revenues for one-off contribution deriving from the activation of mobile offers.
5 OTHER REVENUE
Other revenue amounts in total to €20 million in the first three months of 2018, a decrease of €18 million over the corresponding period of the previous year, and refers principally to release to income statement of capital contribution for the period and to estimates review.
6 PURCHASES AND SERVICES
The following table provides an analysis of Purchases and services for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Purchases of raw materials, consumables, supplies and goods 137 215 (78) (36.3)%
Interconnection traffic 130 139 (9) (6.5)% Outsourcing costs for other services 98 93 5 5.4% Rental of local network and circuits 97 98 (1) (1.0)% Lease of civil/technical sites and use of third party assets 88 86 2 2.3% Customer acquisition costs 38 73 (35) (47.9)% Power consumption and other utilities 34 34 - - Maintenance and repair 26 44 (18) (40.9)% Advertising and promotional services 25 34 (9) (26.5)% National and international roaming 11 11 - - Consultancies and professional services 11 11 - - Change in inventories 9 (32) 41 <(100.0)% Other services 44 39 5 12.8% Total purchases and services 748 845 (97) (11.5)%
The change compared to March 31, 2017 in Purchases and services is mainly due to the combined effect of the following increases and decreases:
a net decrease of €37 million in costs for Purchases of raw materials, consumables, supplies and goods and Change in inventories mainly due to a decrease in mobile telephony terminals sales;
Consolidated interim financial statements 65 as of and for the period ended March 31, 2018
a decrease of €35 million in Customer acquisition costs mainly due to the application of the new accounting standard IFRS 15, on which base the customers acquisition costs (mainly consisting in commissions for the Group) are always capitalized for all commercial offers and amortized on the customer's average life bases and a decrease in commissions on activations, mobile traffic, sale of telephone top-up and on commission to contents provider;
a decrease of €18 million in Maintenance and repair costs, essentially due to the optimization of network maintenance and IT systems contracts;
decrease of €9 million in Advertising and promotional services costs mainly due to a better strategy in terms of efficiency in the purchase of advertising media such as TV, radio, billboards and reduction of sponsorship costs.
The effect on the first quarter of 2018 deriving from the application of the new standard IFRS 15 approximately amounts to €19 million and is related to the capitalization of acquisition costs.
7 OTHER OPERATING COSTS
The following table provides an analysis of Other operating costs for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Impairment losses on trade receivables and current assets 52 43 9 20.9%
Annual license and frequency fees 10 16 (6) (37.5)%
Accruals to provision for risks and charges 5 6 (1) (16.7)%
Other operating costs - 7 (7) (100.0)%
Total other operating costs 67 72 (5) (6.9)%
8 PERSONNEL EXPENSES
The following table provides an analysis of Personnel expenses for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) 2018 2017 Change 3 months 3 months Amount % Wages and salaries 83 100 (17) (17.0)%
Social security charges 20 26 (6) (23.1)%
Post-employment benefits 5 6 (1) (16.7)%
Other personnel expenses 4 4 - -
(Costs capitalized for internal works) (26) (22) (4) 18.2%
Total personnel expenses 86 114 (28) (24.6)%
Consolidated interim financial statements 66 as of and for the period ended March 31, 2018
Personnel Costs as at March 31, 2018 amounted to €86 million, a decrease of €28 million compared to the same period of the previous year (€114 million at March 31, 2017). The decrease in ordinary personnel costs is attributable, among other things, to the contraction of the average paid level (7,094 average units).
9 RESTRUCTURING COSTS
The item, amounting to €25 million at March 31, 2018, a decrease of €34 million over the corresponding period of the previous year, is mainly due to the accrued costs for implementing the business’s restructuring and reorganization plan, drawn up with the objective of the incorporation.
10 DEPRECIATION AND AMORTIZATION
The following table provides an analysis of Depreciation and amortization for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Depreciation of tangible assets
- Plant and machinery 378 631 (253) (40.1)%
- Industrial and commercial equipment 3 5 (2) (40.0)%
- Other assets 5 6 (1) (16.7)%
Amortization of intangible assets with finite lives
- Industrial patents and similar rights 55 56 (1) (1.8)%
- Concessions, licenses, trademarks and similar rights 12 12 - -
- Other intangible assets 14 14 - -
- Customer acquisition costs 86 54 32 59.3%
Total depreciation and amortization 553 778 225 28.9%
The item includes the effect of the acceleration of some amortization on the network infrastructure following an optimization plan and the construction of a new generation network that is being launched as a result of the merger of the two operating companies. The item also includes acceleration of depreciation on some sites as a result of agreements with Iliad for its shortest use in the light of group expectations. Depreciation and amortization decreased by €225 million compared to the three months of 2017 mainly due to i) lower amortization of plant and machinery following the conclusion of the accelerated depreciation on some sites ii) partially offset by the effect of higher depreciation relative to customer acquisition costs deriving from the application of the new standard IFRS 15 approximately amounts to €27 million.
Consolidated interim financial statements 67 as of and for the period ended March 31, 2018
11 FINANCE INCOME AND EXPENSE
Financial management generated a negative net finance expense of €79 million in the first three months of 2018 (€144 million first three months of 2017).
The following table provides an analysis of Finance income for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Cash flow hedges reversed from equity - 2 (2) (100.0)% Fair value measurement of non-hedging derivatives - 2 (2) (100.0)% Other 25 24 1 4.2% Total finance income 25 28 (3) (10.7)%
Other financial income at March 31, 2018 consists mainly of the interest of €25 million arising on the receivable from the parent Wind Tre Italia under the intercompany agreements entered in April 23, 2014 and in August 4, 2014, for which details may be found in note 15 (€23 million at March 31, 2017).
The following table provides an analysis of Finance expense for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Interest expense on: Bond issues 62 148 (86) (58.1)% Shareholders loans 12 12 - - Bank loans 15 13 2 15.4% Cash flow hedges, reversed from equity (5) (30) 25 (83.3)% Fair value measurement of derivatives 6 17 (11) (64.7)% Other 14 12 2 16.7% Total finance expense 104 172 (68) (39.5)%
Finance expense consists mostly of accrued interest on financial liabilities outstanding at March 31, 2018, for which further details may be found in note 20.
Interest expense on shareholders loans refers to costs incurred during the first quarter 2018 for interest and fees on loans due to the other CK Hutchison Group companies.
The item also includes the positive effect of hedge accounting of €5 million and the negative effect of fair value revaluation of financial derivatives by €6 million.
Finance expenses related to bond issues, bank loans, cash flow hedges and fair value measurement of derivatives have considerably decreased due to the refinancing process ended in November 2017 which substantially changed terms and conditions of the Group capital structure.
Consolidated interim financial statements 68 as of and for the period ended March 31, 2018
12 INCOME TAXES
The following table provides an analysis of Income tax for the three months of 2018 compared with the corresponding period of 2017.
(millions of euro) Change 2018 2017 3 months 3 months Amount % Current tax 7 10 (3) (30.0)% Deferred tax (1) 20 (21) <(100.0)% Total income taxes 6 30 (24) (80.0)%
The net charge for the period is made up of the following: current income taxes expense of €7 million (of which 6 million for IRAP tax of Wind Tre). The change is due to tax decrease of the subsidiary WIND Acquisition Finance SA; net deferred tax income of €1 million related to temporary period differences. The change is due to deferred tax of the subsidiary WIND Acquisition Finance SA released in 2017.
13 TANGIBLE ASSETS
The following table sets out the changes in Tangible assets during the first three months of 2018.
(millions of euro) Net book value as Net book value as at December 31, Addition Depreciation Reclass. at March 31, 2017 2018 Land and buildings 1 - - - 1 Plant and machinery 3,418 108 (378) (19) 3,129 Equipment 54 1 (3) (22) 30 Other 55 7 (5) 22 79 Total 3,528 116 (386) (19) 3,239
The cost, accumulated impairment losses and accumulated depreciation at March 31, 2018 can be summarized as follows.
(millions of euro) At March 31, 2018 Accumulated Accumulated Carrying Cost impairment losses depreciation Amount Land and buildings 1 - - 1 Plant and machinery 16,817 - (13,688) 3,129 Equipment 395 - (365) 30 Other 717 - (638) 79 Total 17,930 - (14,691) 3,239
The change in Plant and machinery is mainly related to the effect of the acceleration of the depreciation on part of the network infrastructure (the Group is replacing the old network with a new generation one. The old network will only be used up end of 2019 or early 2020, see note 10 for details) only partially offset by the purchases mainly related to radio links and high frequency equipment for the expansion and consolidation of the mobile access network, exchanges and electronic installations (IT infrastructures and 3G and LTE technologies). At March 31, 2018, transmission equipment, telephone systems and commutation switchboards owned by the Parent company and having a carrying amount of €95 million (€97 million at December 31, 2017) were held by customers
Consolidated interim financial statements 69 as of and for the period ended March 31, 2018
for use. Transmission equipment for direct access through “unbundling of the local loop” having a carrying amount of €2 million at March 31, 2018 (€2 million at December 31, 2017) was held on deposit by Telecom Italia S.p.A.. Plant and machinery additionally includes the expenditure incurred to acquire the exclusive rights for the use, under IAS 17, of cable and optic fiber for a total of €67 million at March 31, 2018 (€70 million at December 31, 2017).
In the first quarter of 2018, “Reclass” includes a negative amount of €19 million related to the Assets held for sale that will be transferred to Iliad in the twelve months, ending March 31, 2019.
14 INTANGIBLE ASSETS
The following table sets out the changes in Intangible assets during the first three months of 2018.
(millions of euro) Net book IFRS 15 Net book Net book value as at effect at value as at value as at Addition Amortiz. Reclass. December January1, January 1, March 31, 31, 2017 2018 2018 2017 Industrial patents and intellectual 270 - 270 29 (55) 341 585 property rights Concessions, licenses, trademarks 5,195 - 5,195 - (12) (83) 5,100 and similar rights Other intangible assets 425 - 425 - (14) (258) 153
Customer acquision costs 249 95 344 79 (86) - 337 Goodwill 3,603 - 3,603 - - - 3,603
Total 9,742 95 9,837 108 (167) - 9,778
The cost, accumulated impairment losses and accumulated amortization at March 31, 2018 can be summarized as follows.
(millions of euro)) At March 31, 2018 Accumulated Accumulated Cost Carrying amount impairment losses amortization Industrial patents and intellectual property rights 3,609 - (3,024) 585
Concessions, licenses, trademarks and similar rights 10,238 (1,593) (3,545) 5,100
Other intangible assets 1,137 - (984) 153
Customer acquision costs 1,640 - (1,303) 337
Goodwill 3,684 (81) - 3,603 Total 20,308 (1,674) (8,856) 9,778
Industrial patents and intellectual property rights consist of the cost for the outright purchase of application software licenses or the right to use such licenses for an unlimited period and the capitalized costs relating to the time spent by Parent personnel in designing, developing and implementing information systems, which at March 31, 2018 amounted to €8 million.
Concessions, licenses, trademarks and similar rights include individual licenses for the installation of networks and concessions to operate in the regulated activities of the telecommunications sector granted to the Group’s companies by the relevant authorities, as detailed below.
Consolidated interim financial statements 70 as of and for the period ended March 31, 2018
Individual Licenses or General Authorizations or Use of Frequencies Date of issue Date of expiry (1) Wind Tre Group Installation of network and provision of voice telephony services on the Italian national territory (2) February 1998 December 2038 Installation and provision of public telecommunications networks on the Italian national territory (2) April 1998 December 2038
Provision of public digital mobile communications services using DCS 1800 technology, including the June 1998 December 2029 (3) possibility of operating in frequencies in the 900 MHz band using GSM technology on the Italian national territory
Provision of third generation mobile communications services adopting the UMTS standard (IMT-2000 January 2001 December 2029 (5) family) and the installation of the related network on the Italian national territory (4)
Use of frequencies for broadband point-multipoint radio networks in the 24.5-26.5 GHz band for the July 2002 July 2022 geographical area corresponding to the specified Italian region/autonomous province (6)
Use of frequencies for providing terrestrial publicly available broadband mobile services in the 800, 1800 and January 2012 December 2029 2600 MHz bands (LTE technology) (7) (1) Under the current rules, individual licenses are subject to renewal upon request be submitted at least sixty days before the deadline (art.25 paragraph 6, of Legislative Decree no. 259/03) or application for extension. (2) The Group is the assignee of additional licenses valid for the installation of the network and provision of fixed telephony services also following the previous merger of Infostrada S.p.A. in WIND Telecomunicazioni S.p.A. and the merger of WIND Telecomunicazioni S.p.A. in H3G S.p.A.. In December 2017, Wind Tre filed with MISE an application to renew for a further 20 years the individual Fixed Licenses previously granted to Infostrada and WIND Telecomunicazioni, expiring in 2018. On January 12, 2018 Wind Tre obtained from MISE the renewal of the licenses (3) In accordance with art. 1, paragraphs 568 to 575, of Law no. 232 of December 11, 2016 and art. 25, paragraph 6, of Legislative Decree no. 259/03 and subsequent amendments a refarming application was submitted on February 15, 2017 to the MISE with effect from July 1, 2017 and the relative extension until 2029 of the right to use the 900 and 1800 MHz frequencies having an original expiry date of June 30, 2018. Moreover, Wind Tre has already paid the contribution due according to Ministry Decree of 26 July 2017. Wind Tre is currently awaiting the relevant interministerial decree which concludes the proceedings referred to in the aforementioned Law. (4) The Group is the assignee of two valid individual licenses and the related rights of use of frequencies in the 2100 MHz band, already issued to WIND Telecomunicazioni S.p.A. and H3G S.p.A. respectively with effect from 1 January 2002. (5) The extension to 2029 is subject to compliance with the provisions of Ministry of Economic Development with order issued in October 2016, and to the payment of the contributions due for the years 2022 to 2029 pursuant to art. 35 of the Electronic Communications Code pursuant to Legislative Decree no. 259/03 and subsequent amendments.
(6) Overall 21 multiple point individual licenses have been allocated.
(7) Following the participation respectively by WIND Telecomunicazioni S.p.A. and H3G S.p.A. to tender for the allocation of rights to use frequencies in the bands 800, 1800, 2000 and 2600 MHz for terrestrial services to the public at large electronic communication band, published in the OJ of the Italian Republic no. 75 of 27 June 2011, the Group holds the rights to use frequencies in the bands 800, 1800 and 2600 (FDD and TDD) MHz, respectively, issued in January and February 2012. It also holds the rights of use on a national basis of a coupled block of 2x5 MHz in the 1800 MHz band following the exercise of subscription rights on the preferential allocation of these frequencies, by order of allocation of 12 April 2012 having effect from 1 June 2012 and expiring on 31 December 2029.
On September 22, 2017, the Ministry of the Economic Development (MISE) formalized the award to Wind Tre and Open Fiber S.p.A. of a provisional authorization, for a four year duration, to carry out the 5G pre-commercial trials in the spectrum portion 3.6 – 3.8 GHz in area 2 – Prato and L’Aquila. In addition, Concessions, licenses, trademarks and similar rights includes €1,300 million related to trademarks, which have an indefinite useful life. Similar rights consist of rights of way and the right to use assets owned by third parties for a predetermined period of time and are initially recognized at their one-off purchase price, including any accessory costs. This item relates for the most part to the right of way on the Italian railway network and the purchase of the right to use the existing optic fiber on the network with a net value of €121 million at March 31, 2018 and to the backbone rights of way of TERNA/TELAT with a net value of €104 million at March 31, 2018. Other intangible assets mainly relate to the customer list amounting to €145 million.
Goodwill pertains to the legal entity WIND Retail S.r.l. for €23 million and to the parent Wind Tre for €3,580 million, both of which are, however, part of a single Cash Generating Unit for the purposes of IAS 36.
Consolidated interim financial statements 71 as of and for the period ended March 31, 2018
15 FINANCIAL ASSETS
The following table sets out Financial assets at March 31, 2018 and at December 31, 2017.
(millions of euro) At March 31, 2018 At December 31, 2017
Non-current Current Total Non-current Current Total Financial assets measured at cost 2 - 2 2 - 2
Derivative financial instruments 1 - 1 7 - 7
Financial receivables 1,122 46 1,168 1,119 24 1,143
Total 1,125 46 1,171 1,128 24 1,152
Financial assets measured at cost consist of non-controlling interests in companies and consortia for €2 million and mainly refer to an investment of 17% in Janna Scarl, in which the Sardinia region participates, owner of the submarine cables that connect it with the rest of Italy.
Derivative financial instruments include the positive fair value of embedded derivatives on bond issued amounting to €1 million. Additional details on the composition of the balance and respective changes can be found in note 21.
Financial receivables, amounting to €1,168 million at March 31, 2017, mainly include the loans granted by Wind Tre to Wind Tre Italia for €1,165 million (of which €42 million related to accrued interest), resulting from the two intercompany agreements signed on April 23, 2014 and August 4, 2014 respectively. In particular, the first loan, with a nominal value of €1,040 million (with repayment date in April 2024 and an annual fixed interest rate of 9%) was fully disbursed at March 31, 2018. The second loan for up to a nominal value of €82 million (with reimbursement in August 2024 and annual fixed interest rate of 8.5%) was drawn down in the amount of €67 million at March 31, 2017.
The increase in Financial receivables over December 31, 2017 is mainly due to the capitalization of accrued interest made during the period.
16 OTHER NON CURRENT ASSETS
The item at March 31, 2018 shows a balance of €623 million mainly due to: i) €385 million for the non-current portion of the charges incurred with the Ministry of the Economic Development, paid in September 2017, for the extension, until 2029, of the frequency right of use with due date in 2018 and ii) for €227 million for trade receivables with maturity beyond twelve months.
Consolidated interim financial statements 72 as of and for the period ended March 31, 2018
17 DEFERRED TAX LIABILITIES
The following table provide the variation of Deferred tax liabilities by origin at March 31, 2018 and at December 31, 2017.
(millions of euro) At December 31, At March 31, 2017 Decrease Increase 2018 Accelerated depreciation and amortization 4 (1) - 3
Fair value of tangible assets 270 - 30 300
Depreciation of Purchase Price Allocation 448 (6) - 442
Allowance for doubtful accounts (115) - (22) (137)
Amortization and depreciation of non-current assets (212) 19 (13) (206)
Fair value financial assets/liabilities (8) - (6) (14)
Revenues - - (1) (1)
Losses carryforward considered for offsetting purposes (186) - - (186)
Provisions for risks and charges (taxed) (27) - - (27) Deferred tax liabilities 174 12 (12) 174
Deferred tax liabilities at March 31, 2018 are mainly due to temporary differences on balances of fixed assets. The following table provides an analysis of Deferred tax liabilities at March 31, 2018 and at December 31, 2017, between those expected to reverse within 12 months and those expected to reverse after 12 months.
(millions of euro) At March 31, At December 31, 2018 2017 -within 12 months - -
-after 12 months 174 174
Total Deferred tax liabilities 174 174
At March 31, 2018, deferred tax assets on temporary differences that can be carried forward for an aggregate amount of € 1,554 million (€ 1,356 million at December 31, 2017), attributable to previous years tax losses carried forward and to financial charges not deductible for the limits established by current legislation, are still unrecognized.
18 SHAREHOLDERS’ EQUITY
The following table sets out the composition of Shareholders’ Equity at March 31, 2018 and December 31, 2017.
(millions of euro) At March 31, At December 31, 2018 2017 Issued capital 474 474 Share premium reserve 3,119 3,119 Other reserves and retained earnings/(accumulated losses), including (2,116) (1,949) profit/(loss) for the year - Remeasurement of defined benefit plans (IAS19) (11) (11)
- Cash flow hedge reserve (40) (21)
- Parent company legal reserve 8 8
- IFRS 15 AND IFRS 9 opening effect on shareholders’ equity 5 -
- Sundry reserves and retained earnings/(accumulated losses), including loss for (2,078) (1,925) the year Total 1,477 1,644
Consolidated interim financial statements 73 as of and for the period ended March 31, 2018
The Parent Company's share capital amounts to €474,303,795, fully paid, consisting of 94,860,759 shares each of nominal value €5 wholly owned by the sole shareholder Wind Tre Italia. The number of the Parent Company’s shares has not changed during the year. As a guarantee for loan agreements and bond issues the Company’s shares have been pledged; it is noted that, derogating from article 2352, paragraph 1 of the Italian Civil Code and by express contractual stipulation, entitlement to vote at shareholders’ meetings of the Parent Company remains with the direct parent Wind Tre Italia, despite such pledge.
Changes in equity attributable to the owners of the Company during the first three months of 2018 as well as the loss for the year mainly arose from a decrease in the cash flow hedge reserve as the effect of the income and the expense recognized among other components of the Consolidated Statement of Comprehensive Income for the year that relate entirely to the transactions on hedging derivatives on cash flows, as described in further detail in note 21. The Company obtains the capital needed to fund its requirements for business development and operations; sources of funds are found in a balanced mix of equity and debt. Debt is structured on the basis of different maturities and currencies to ensure adequate diversification of funding sources and efficient access to external financing sources. The Group has utilized as transition method for the application of the new accounting standards IFRS 15 and IFRS 9 the so-called “simplified approach”. The cumulative effect of the transition has been then treated as an adjustment to the opening equity at January 1, 2018 amounting to €5 million of which: i) IFRS 15 impact amounting to €63 million net of the positive tax effect ii) offset by a negative effect amounting to €58 million net of tax for the IFRS 9 application.
19 PROVISIONS
The following table sets out changes in Provisions for the period ended March 31, 2018.
(millions of euro) At December At March 31, 31, 2017 Increases (Utilization) (Release) 2018 Litigation 45 6 (2) - 49 Universal service contribution 5 - - - 5 Handset assistance 1 - - - 1 Dismantling and removal 96 - - - 96 Other provisions 61 2 (5) - 58 Total 208 8 (7) - 209 Current 13 13 Non current 195 196
The timing of payments in respect of non-current provisions is, with few exceptions, not contractually fixed and cannot be estimated with certainty.
Litigation The provision at the respective dates is based on estimates using the best information available of the total charge that the Group expects to incur upon settlement of all outstanding legal proceedings (for details on the main proceedings in progress, reference should be made to the paragraph on the contingent assets and liabilities in note 24).
Consolidated interim financial statements 74 as of and for the period ended March 31, 2018
Universal service contribution Article 3, paragraph 6, of Presidential Decree no. 318 of September 19, 1997 regarding the “Implementation of European Union Directives” establishes a mechanism designed to distribute the net cost of providing the universal service throughout the country whenever the related obligations represent an unfair cost for the entity or entities assigned the responsibility for supplying the service.
Handset assistance The provision represents an estimate of the costs that the Group may incur for assistance for handsets sold under warranty.
Dismantling and removal The item consists of the estimate of the dismantling, restoration and removal costs of tangible assets which may be incurred as a result of contractual obligations which require the asset to be returned to its original state and condition. The current portion amounting to €13 million is reclassified to other payables.
Other provisions This item consists of the measurement of certain liabilities arising from obligations assumed by the Group for which an estimate is made at the date of these financial statements of the amount to be settled upon due date. The balance at March 31, 2018 includes €33 million for liabilities for termination benefits arising from agency contracts in existence at the reporting date and €3 million relating to compensation plans for the long-term retention and incentive of management.
20 FINANCIAL LIABILITIES
The following table sets out an analysis of Financial liabilities at March 31, 2018 and changes with respect to December 31, 2017.
(millions of euro) At March 31, 2018 At December 31, 2017 Non-current current Total Non-current Current Total Bond issues 7,205 99 7,304 7,247 39 7,286
Loans from parent companies 1,777 - 1,777 1,764 - 1,764
Bank loans 2,962 25 2,987 2,960 10 2,970
Derivative financial instruments 121 - 121 57 - 57
Total 12,065 124 12,189 12,028 49 12,077
Consolidated interim financial statements 75 as of and for the period ended March 31, 2018
The following tables provide the most important information regarding bond issues and bank loans outstanding at March 31, 2018.
(millions of euro) Carrying Carrying Nominal amount at amount at amount at Issue Interest Currency Due date Price March 31, December March 31, price rate Bond Issues 2018 31, 2017 2018 Senior Secured Fixed Rate Notes 2023 € 1,630 1,619 1,625 100.00 EUR 01/20/2023 2.625% 90.00
Euribor 3M + Senior Secured Floating Rate Notes 2024 € 2,258 2,242 2,250 100.00 EUR 01/20/2024 2.750% 92.25
Senior Secured Fixed Rate Notes 2025 € 1,774 1,760 1,750 100.00 EUR 01/20/2025 3.125% 88.00
Senior Secured Fixed Rate Notes 2026 $ 1,642 1,665 2,000 100.00 USD 01/20/2026 5.000% 85.50 Total 7,304 7,286
(millions of euro) Carrying Carrying Nominal amount at amount at amount at Residual Currency Due date Interest rate March 31, December March 31, commitment Bank Loans 2018 31, 2017 2018 Senior Facility Agreement Euribor + Term loan A 2,987 2,970 3,000 3,000 EUR 11/03/2022 2,00% Euribor + Revolving - - - 400 EUR 11/03/2022 1,75% Total 2,987 2,970 3,000 3,400
The following table provides an analysis by effective interest rate and lending currency, excluding derivative financial instruments, intercompany debt and loans at March 31, 2018.
(millions of euro) At March 31, 2018
<5% 5% US dollars - 1,642 - - - 1,642 Total 8,649 1,642 - - - 10,291 Changes in balances of bonds at March 31, 2018 is due mainly to the change in the period of the euro/USD exchange rate on financial liabilities in foreign currency. The Senior Facility Agreement contains financial covenants (“Financial Covenants”). An analysis of the Derivative financial instruments balance and of the respective changes is found in note 21. Consolidated interim financial statements 76 as of and for the period ended March 31, 2018 21 DERIVATIVE FINANCIAL INSTRUMENTS The following table provides details of the outstanding Derivative financial instruments at March 31, 2018 and changes over December 31, 2017, analyzed by the type of risk hedged. (millions of euro) At March 31, 2018 At December 31, 2017 Fair Value (+) Fair Value (-) Fair Value (+) Fair Value (-) - Exchange rate risk - 113 - 53 - Interest rate risk - 8 - 4 Total cash flow hedges - 121 - 57 - Exchange rate risk - - - - Total fair value hedges - - - - - Embedded derivatives in bonds 1 - 7 - Total Derivatives non Hedge Accounting 1 - 7 - Total 1 121 7 57 Changes in the fair value of derivatives arise mainly from variations in the interest rate curve and movements in the euro/USD exchange rate over the period. The following table shows the detail of current and non-current derivative instruments. (millions of euro) At March 31, 2018 At December 31, 2017 Fair Value (+) Fair Value (+) Fair Value (+) Fair Value (-) Current - - - - Non current 1 121 7 57 Total 1 121 7 57 At March 31, 2018 the Group used cash flow hedge accounting to hedge the risk on future foreign currency cash flows and floating interest rate cash flows. The fair value of financial instruments listed on active markets is determined as the market quotation at the reporting date. In the absence of an active market, which is the case for the above instruments, fair value was determined by referring to prices and data provided by external operators and using valuation models based mostly on objective financial variables, as well as by taking into account, where possible, the prices used in recent transactions and the quotations of similar financial instruments. The following were outstanding at March 31, 2018: cross currency swaps hedging the interest rate and currency risks relating to the tranches of bonds denominated in US dollars, for which reference should be made to note 20, having a notional amount of $2,000 million and having a negative fair value of €113 million; interest rate swaps hedging the interest rate risk of bank loans, having a notional amount of €3,000 million and a negative fair value of €8 million; embedded derivatives of €1 million relating to the fair value of the early repayment options provided for on issue of the bonds, for which details may be found in note 20. The fair value of cross currency swap and interest rate swaps is determined through directly observable inputs such as interest rates curves (Level 2 in the fair value hierarchy). Consolidated interim financial statements 77 as of and for the period ended March 31, 2018 The fair value of embedded derivatives is determined by comparing the fair value of the total bond with the fair value of comparable bonds that do not incorporate this option. The following tables provide an analysis of financial assets and liabilities measured at fair value by hierarchy at March 31, 2018 and at December 31, 2017. At March 31, 2018 Level 1 Level 2 Level 3 Total (millions of euro) Assets at fair value Derivative financial instruments - - 1 1 Total assets - - 1 1 Liabilities at fair value Derivative financial instruments - 121 - 121 Total liabilities - 121 - 121 At December 31, 2017 Level 1 Level 2 Level 3 Total (millions of euro) Assets at fair value Derivative financial instruments - - 7 7 Total assets - - 7 7 Liabilities at fair value Derivative financial instruments - 57 - 57 Total liabilities - 57 - 57 Level 3 includes the embedded derivative fair value on loans and relates to the early repayment option while Level 2 includes the fair value of other derivatives. In the first three months of 2018 there were no transfers either from Level 1 to Level 2 or vice versa or from Level 3 to other levels or vice versa. The following table summarizes the movements in level 3 fair value embedded options: (millions of euro) Change in FV Settlement / Change in FV reported in extinguishment reported in At December Purchase At March 31, income reported in other 31, 2017 (new) (c) 2018 statement income comprehensive (a) statement (b) income Fair value of embedded repayment options 7 (6) - - - 1 Total 7 (6) - - - 1 (a) movement in mark to market of fair value of embedded options (b) exercise of early repayment options on November 3, 2017 and extinguishment of embedded derivatives options on old bonds (c) measurement at inception of fair value of new early repayment options embedded in some of the new bonds issued on October 24, 2017 It should also be noted that at March 31, 2018 there are no additional financial instruments measured at fair value other than those indicated in the tables above. Consolidated interim financial statements 78 as of and for the period ended March 31, 2018 22 NET DEBT The following statement shows the Group’s net debt analyzed into its principal components, as described in notes 6, 18 and 19 relating to financial items (in the customary definition of financial position which does not correspond to IAS 32 and IAS 39 definitions of financial assets and financial liabilities) in the statement of financial position. (millions of euro) At March 31, At December 31, 2018 2017 Bond issues 7,205 7,247 Loans from parent companies 1,777 1,764 Bank loans 2,962 2,960 Derivative financial instruments 121 57 Non-current financial liabilities 12,065 12,028 Bond issues 99 39 Bank loans 25 10 Current financial liabilities 124 49 TOTAL GROSS FINANCIAL DEBT 12,189 12,077 Cash and cash equivalents (701) (612) Financial receivables (42) (21) Current financial assets (42) (21) Derivative financial instruments (1) (7) Financial receivables (1,122) (1,119) Non-current financial assets (1,123) (1,126) TOTAL FINANCIAL ASSETS (1,866) (1,759) NET FINANCIAL DEBT 10.323 10,318 Net debt does not include trade payables, other liabilities, other payables and guarantee deposits (included in financial liabilities) of €4 million at March 31, 2018 and of €3 million at December 31, 2017. 23 RELATED PARTIES TRANSACTIONS Related party transactions are part of normal operations which are conducted on an arm's length basis from an economic standpoint and formalized in agreements, and mainly relate to transactions with telephone operators. At March 31, 2018, the Group did not hold treasury shares of the parent Wind Tre Italia, either directly or through trustees, or hold shares of the indirect parent VIP-CKH Luxembourg S.à r.l.. The table below provides a summary of the main effects on the consolidated income statement and consolidated statement of financial position following transactions during the year with related parties, all companies of the Veon and CK Hutchison groups, joint venturers at 50% in the parent company VIP-CKH Luxembourg S.à r.l.. With reference to the transactions with the parents, Wind Tre has an outstanding loan with both Wind Tre Italia and VIP-CKH, for which details may be found in notes 15 and 20. Consolidated interim financial statements 79 as of and for the period ended March 31, 2018 (thousands of euro) At March 31, 2018 Financial Trade Other Trade Other Reven Expen Financial Financial income/ receiv receiv payabl payabl ue ses receivables payables (expenses) ables ables es es Armenija Telefon Kompani 2 - - - - - 17 - - KaR-Tel 3 - - - - - 11 - - Kievstar 206 - 3,460 - - - 2,877 - - Mobitel LLC Georgia - - 1 - - - 11 - - Orascom Telecom Algeria SpA 6 - 10 2,017 - - - - - Banglalink Digital Communications - - - 967 - - - - - Limited Pakistan Mobile Communications - - - 449 - - - - - Ltd. SKY MOBILE LLC ------1 - - VIP-CKH LUXEMBOURG S.a r.l. - (4,850) 40 - 213 - 25 308,084 - Unitel - - - 2 - - - - - Vimpelcom ltd 3 - - - 115 - - - - Vympel-Kommunikacii 202 - 763 - - - 671 - - Vimpelcom International services - - - - 22 - - - - Wind Tre Italia 18 17,984 442 - 1,380 1,165,036 442 1,468,046 10 Vodafone Hutchison Australia Pty 3 - 1 100 - - 2 - - Ltd. Hutchison Telecommunications - - 3 ------Lanka (Private) Limited PT. Hutchison 3 Indonesia - - 1 ------ Hutchison 3G UK Limited 297 - 18 390 - - - - - Telefonica Ireland Limited 1 - 3 17 - - - - - Hutchison Drei Austria GmbH 51 - 24 539 - - - - - HI3G Access AB 11 - 2 106 - - - - - Hutchison Whampoa Europe - - 283 - - - 733 - - Investments S.à r.l. HI3G Denmark ApS 17 - 2 - - - 17 - - Hutchison 3G Ireland Limited 19 - 2 47 - - - - - Hutchison Global Enabling Services - - - 14 - - - - - Limited Hutchison Telephone Company 44 - - 1,102 - - - - - Limited Hutchison Telephone (Macau) - - - 25 - - - - - Company Limited Hutchison 3G Enterprises S.à r.l. 224 - - - - - 1 - - Hutchison Whampoa 3G Content ------1 - - S.à r.l. Hutchison Whampoa 3G IP S.à r.l. 53 - 840 - 109 - 17,440 - - Hutchison Whampoa 3G 31 - - - - - 203 - - Procurement S.à r.l. Hutchison Telecommunications - - 2 ------(Vietnam) S.à r.l.-BCC Total 1,191 13,134 5,897 5,775 1,839 1,165,036 22,452 1,776,130 10 Consolidated interim financial statements 80 as of and for the period ended March 31, 2018 24 OTHER INFORMATION Operating Leases The Group leases various cell sites, offices, outlets and motor vehicles under operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. Cell site leases are negotiated for an average term of 6 years. Offices are negotiated for an average term of 6 years and motor vehicles leases are negotiated for an average term of 2.5 years. The Group is required to give six months’ notice for the termination of cell site leases and three months’ for the termination of offices leases. The future aggregated minimum lease payments under operating leases with a due date of less than one year are as follows: (millions of euro) At March 31, At December 31, 2018 2017 Cell sites 188 206 Offices 35 38 Outlets 20 23 Motor vehicles 3 2 Total 246 269 The data included in the above table only reflects uncancellable costs for one year. The same data will be reconsidered in light of IFRS 16 application starting from 2019. Please also refer to paragraph “New accounting standards and interpretations” for further considerations on IFRS 16. Contingent assets and liabilities The Wind Tre Group is subject to various legal proceedings arising in the ordinary course of business. Below is a description of all material pending legal proceedings as at March 31, 2018, excluding those situations in which the cost arising from a negative outcome of the proceedings cannot be estimated or for which a negative outcome is not considered probable. Proceedings with agents and retail dealers As at March 31, 2018, certain proceedings relating to the termination of agency agreements were pending at different stages of judgment. The agent dealers in these proceedings are seeking typically payment from Wind Tre of damages and indemnities, including a termination indemnity pursuant to article 1751 of the Italian Civil Code. Proceedings concerning misleading advertising and unfair commercial practices Under Legislative Decree No.146/2007, the Italian Antitrust Authority (AGCM) has the power to initiate proceedings concerning unfair commercial practices and misleading advertising and issue fines up to €5 million for each proceeding (amount redefined by Law N°. 135/12 dated August 2012). During 2015, four proceedings initiated by the AGCM against Wind Tre for unfair commercial practice were closed with the payment of fines totalling €1.55 million and the order to cease the alleged unfair practices. The company has filed an appeal with the Lazio Administrative Court (Lazio TAR) against these fines and the related administrative litigations are currently pending. In 2016 AGCM initiated four new proceedings (respectively on February, April, July and December) against Wind Tre for alleged unfair commercial practices: the first proceeding has been closed without ascertaining any unfair practice; the second, third and fourth proceeding have been closed with the payment of a fine amounting respectively to €455 Consolidated interim financial statements 81 as of and for the period ended March 31, 2018 thousand, €450 thousand and €2.1 million (for these last both fines Wind Tre has filed an appeal before the Lazio TAR). In 2017 AGCM initiated three new proceedings against Wind Tre for alleged unfair commercial practice; the first one has been closed with the payment of a fine of €500 thousand which Wind Tre appealed before the Lazio TAR, the second one has been closed with the payment of a fine of € 4.25 million which Wind Tre is going to appeal before the Lazio TAR while the second and the third one is currently pending. In 2018 AGCM initiated one new proceeding against Wind Tre for alleged unfair commercial practice which is still pending. Other Proceedings (AGCOM) The decision by AGCOM number 494/17/CONS has been appealed before the Tar Lazio during February 2018. Audit by the Italian tax authorities The Agenzia delle Entrate (“ADE”) (the Italian tax authorities) conducted a tax audit on the senior lenders under the senior facility agreement of 24 November 2010 (“SFA”), raising an objection to the non-application of substitute tax on the SFA. Each senior lender is liable for the substitute tax disputed on its own portion of the SFA, but may claim indemnification from Wind Tre. The indemnification right has already been exercised. It should be noted that appeals against the assessments have been filed by the senior lenders in coordination with Wind Tre. ADE has withdrawn the assessments raised with certain senior lenders concluding that no substitute tax is due. As a consequence the ADE has requested the courts to withdraw its claim in respect of these assessments. On 2012, WIND Telecomunicazioni S.p.A. (now Wind Tre) appealed against the payment injunction n. 2012/ORA00014 requesting the payment of €2,536,254.25 as additional registration tax due on transfer deed of May 3, 2011 between WIND Telecomunicazioni S.p.A. (seller) and Veon Ltd (buyer) concerning the sale of shares in company Libero S.r.l.. The Tax Court of first and second instance rejected the appeal. After rejection ADE notified a request of payment of €3,625,872.08 including penalties and interests. Terms to appeal against decisions, to the Supreme Court, are still pending. Proceedings concerning electromagnetic radiation There are certain pending proceedings regarding the installation of radio base stations. These proceedings concern the emission of electromagnetic radiation. As at March 31, 2018 four proceedings for electromagnetic emissions were pending as a consequence of BTS installations. The Group doesn’t think that these proceedings will result in additional liabilities to those already booked in the balance sheet’s item Provision. Audit of dealers’ fees In 2001 WIND Telecomunicazioni S.p.A. (now Wind Tre), received a dispute notice from the tax authorities regarding the tax treatment adopted in 1999, 2000 and 2001 for certain fees paid to dealers. With respect to the tax disputes for 1999, 2000 and 2001 Wind Tre obtained a positive outcome in the Supreme Court proceedings. For 2000 the Supreme Court has remitted the dispute to the Commission of Second Instance that has given a judgement in favor of Wind Tre. Consolidated interim financial statements 82 as of and for the period ended March 31, 2018 Wind Tre / Crest One S.p.A. On October 9, 2009, Crest One S.p.A. (‘‘Crest One’’) initiated proceedings against Wind Tre for: (i) the refund of an amount of approximately €16 million previously paid to Wind Tre by Crest One as value added tax under a distribution agreement entered into between Crest One and Wind Tre, and (ii) the compensation of damages alleged to have been suffered by Crest One pursuant to the payment of such value added tax by Crest One to Wind Tre. The Court of Rome has rejected the claims of Crest One which has filed with the Court of Appeal. At the hearing of July 18, 2017, the Court reserved its decision and granted to parties terms to file final briefs; judgment is awaited. Fastweb / Wind Tre On January 2, 2014, Fastweb served a claim on Wind Tre based on antitrust proceedings no. A/357, which in August 2007 convicted Wind Tre and Telecom Italia for abuse of their dominant positions in the wholesale termination market in favour of their respective internal commercial divisions and to the detriment of the competitors in the fixed market (i.e. internal-external discriminatory application of economic and technical conditions for fixed-to-mobile on net and intercom calls to business clients). Amongst other issues Wind Tre has argued that the claim is time barred because it was filed outside the statute of limitations. On December 10, 2015, the presiding judge decided to defer to the panel of the tribunal to deliberate on Wind Tre’s time-bar argument, scheduling the next hearing for March 30, 2016 (then postponed to April 6, 2016). At this hearing the parties filed their conclusions and, at the end of June 2016, filed their final memoranda. A partial ruling on the time-bar argument was issued on November 23, 2016, rejecting Fastweb’s request for damages relating to 2002-2007 as it is definitely time-barred. In the same ruling, the judge ordered the continuation of the proceedings which is still pending and decided to appoint an expert asking for a technical support to verify whether damages have been suffered by Fastweb for the following claimed period notwithstanding that the Antitrust Authority itself in its A/357 decision found that the abusive conduct by WIND ceased following this period On May 16, 2017, Fastweb challenged the ruling on time barring/ limitation 2002-2007 before the Court of Appeal and Wind Tre is opposing, defending the ruling. The related hearing has been set on February 2018 and the Judge has scheduled the terms for briefs and reply. Proceedings concerning transition to monthly billing 1. Proceedings concerning the period before the Law n. 172/2017 With decision n. 121/17/CONS, AGCOM imposed to all the operators to modify the billing cycle and renewals of all the fixed (or convergent fixed and mobile) offers from 28 days to month (or its multiples). The decision has been appealed by Wind Tre before Lazio TAR which, after the hearing set on 7 February 2018, rejected the appeal. With Decision n. 497/17/CONS, on December 19, 2017, AGCOM fined W3 (€ 1.16 million) for not compliance to the previous decision n. 121/17/CONS and imposed to restore the customers for the amount corresponding to the difference between the monthly and 28 days billing period invoices. Wind Tre appealed this AGCOM decision with interim measure request before TAR Lazio which suspended the restoration order and set the merit hearing on October 31, 2018. On March 8, 2018, AGCOM issued the decision n. 115/18/CONS imposing a new restoration mechanism based on the postponement of the invoicing issue for a number of days equal to what the customers have paid for the services with 28 days invoices (de facto imposing, for this period, to provide free services). On March, 16 2018, Wind Tre appealed before TAR Lazio this decision with urgency interim measures decree. The President of TAR Lazio Consolidated interim financial statements 83 as of and for the period ended March 31, 2018 suspended the AGCOM decision and set the panel hearing on April 11, 2018. In the meanwhile, AGCOM issued the decision n. 9/18/PRES which canceled the date related to the execution of the obligation to make the cancellation (on the occasion of the first useful invoicing) and invited the operators to have further discussions on the reimbursement measures. For this reason, the company's lawyers due to the lack of interest of Wind Tre, renounced to discuss the suspension of the resolution in the aforementioned hearing on 11 April 2018; Wind Tre has therefore renounced the suspension and has reserved the right to assess the possible appeal of the provision adopted by AGCOM following the table held on April 19, 2018. 2. Proceedings concerning the period after the Law n. 172/2017 On December, 4, 2017 the new law on monthly billing came into force imposing all operators the monthly billing cycles both for fixed and mobile services within April 5, 2018. On December, 19, 2018 AGCOM issued the decisions n. 495/17/CONS and n. 496/17/CONS (guidelines about the new law provision) which have been appealed before TAR Lazio on February 2018 by Wind Tre. The appeal is still pending. On February 16, 2018 AGCOM issued the decision n. 40/18/CONS i.e. the order to comply with the informative provisions set by AGCOM with the previous guidelines on monthly billing modification. On April 17, 2018 Wind Tre appealed this decision before TAR Lazio and the related appeal is pending. On February 15, 2018 AGCM started the proceeding n. I-820 to evaluate a possible anticompetitive agreement between TLC operators about the commercial strategy related to the monthly billing of the fixed and mobile offers, as stated by the new regulatory/legislative framework. On March 21, 2018, AGCM issued temporary interim measures for the suspension of the alleged agreement. On March 27, 2018, Wind Tre filed an appeal with urgency decree inaudita altera parte against this interim measure decision before TAR Lazio which rejected the Wind Tre request and set the panel hearing on April 11, 2018. At this hearing, since the AGCM final interim measure decision was expected shortly (as effectively issued on April 13, 2018), Wind Tre declared its lack of interest to pursue the suspension of the temporary AGCM interim measure decision and reserved to appeal the final interim measure decision. AMC/ Wind Tre: Proceeding concerning transition to monthly billing On 24 November 2017, Associazione Movimento Consumatori (AMC) filed a precautionary injunction against Wind Tre before the Court of Milan requesting to the judge to declare the illicit application on the fixed line of the billing cycle every 28 days instead of monthly billing. The plaintiffs are asking the Court to order to Wind Tre the immediate modification of the billing cycle and to order the publication of judge’s decision on Company’s website and on 3 national periodic newspaper. The claimants are also asking to the judge to order to the Company to send a formal communication to each consumer informing about the illicit application of the billing cycle every 28 days and about their right to present request in order to be refunded of the major amount paid. At the hearing of 7 March 2018 the judge after discussion, reserved the case and with decision of 13 March 2018, also due to the decision of TAR Lazio on Decision 121/17/CONS, the Court of Milan accepted a petition by a consumer association body (AMC) against Wind Tre and other operators ordering an immediate modification of the billing cycle (already partially done by Wind Tre) and publication of the order in two national newspapers and the operators’ websites of the order. Consolidated interim financial statements 84 as of and for the period ended March 31, 2018 W3 filed an appeal against the ruling issued before Court of Milan. The Court accepted W3 claim and on 22 March 2018 suspended totally the order, setting the hearing of 5 April 2018 for parties discussion on the merit of the request. At the hearing of 5 April 2018 the Court reserved its decision. Other disputes During the second quarter of 2017 the Group continued with the credit collection actions started in December 2012 against a company specialising in selling prepaid traffic, VAS and broadband services. On December 22, 2014 the Court of Rome declared the company bankrupt. The Group took part in the bankruptcy procedure for credit collection, formally approved by the Judge on June 26, 2015, and is currently awaiting payment. During 2017 credit recovery actions were also continued against a communications services company (wholesale), active in services for MVNO. Proceedings against this company have been directly handled by AGCOM. On December 16, 2014, the Court declared the company bankrupt. The Group took part in the bankruptcy procedure for credit collection, formally approved by the Judge on June 9, 2015, and is currently awaiting payment. The contingent liabilities arising from these proceedings will be recognized as provisions in the balance sheet if management believes that the risk of a loss is probable. Relevant AGCOM proceedings challenged on TIM 2013 reference offers Recently both TIM and FW have challenged AGCOM decision 424/17/CONS that complied with the decision of the Council of State no. 3143 of 14 July 2016. In Resolution 424/17/CONS AGCOM confirmed the results already established in its decision 746/13/CONS (TIM Bitstream 2013) and 747/13/CONS (TIM OR LLU 2013). An eventual acceptance of the appeal by TIM and Fasweb could lead AGCOM to issue a new provision characterized by a significant increase in the prices of the LLU and Bitstream services, with potential unfavorable impacts on Wind Tre. Guarantees The collateral pledged by Group companies at March 31, 2018 as a security for liabilities may be summarized as follows: a pledge on the shares representing 100% of the corporate capital of the subsidiary WIND Acquisition Finance owned by Wind Tre in favor of a pool of banks under the Senior Facility Agreement and in favor of the holders of the notes issued by Wind Tre pursuant to the related share pledge agreement; a pledge on the shares representing 100% of the corporate capital of Wind Tre in favor of a pool of banks under the Senior Facility Agreement and in favor of the holders of the notes issued by Wind Tre pursuant to the related share pledge agreement; a pledge under Italian law on two bank accounts of Wind Tre in favor of the lenders under the Senior Facility Agreement and in favor of the holders of the notes. The subsidiary Wind Acquistion Finance is one of the guarantors of the Senior Facility Agreement dated October 24, 2017, between, among others, Wind Tre and Banca IMI S.p.A.. As of March 31, 2018, the total commitment amounted to €3,400 million. Consolidated interim financial statements 85 as of and for the period ended March 31, 2018 The subsidiary Wind Acquistion Finance has granted a guarantee on the: (i) €2,250 million Senior Secured Floating Rate due 2024; (ii) €1,625 million Senior Secured Notes due 2023; (iii) €1,750 million Senior Secured Notes due 2025; and (iv) $2,000 million Senior Secured Notes due 2026, issued by Wind Tre pursuant to an indenture dated November 3, 2017. The above arrangements are subject to intercreditor arrangements between the parties, and the shares of the WIND Acquisition Finance have been pledged in favor of the creditors. A description is provided below of guarantees (sureties) issued mainly by banks and insurance companies on behalf of the Group and in favor of third parties in respect of commitments of various kinds. The total of these, amounting to €134 million at March 31 2018 includes: sureties totaling €16 million issued by insurance companies, mainly relating to participation in tenders; sureties totaling €118 million issued by banks, relating to participation in tenders, of which €43 million in favor of the Minister for Economic Development for the participation in the tender procedure it had been awarded for the frequency use rights in the 800, 1800, 2000 and 2600 MHz bands, to sponsorships, property leases, operations regarding prize competitions, events and excavation licenses. 25 SUBSEQUENT EVENTS No significant events took place after the closing of these consolidated interim financial statements as of and for the period ended March 31, 2018 that would require adjustments or additional disclosures in the consolidated financial statements. The Board of Directors Consolidated interim financial statements 86 as of and for the period ended March 31, 2018