Telecom Italia S.P.A. 2006 Annual Report
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Telecom Italia S.p.A. 2006 Annual Report Report on operations Corporate Governance Consolidated financ. stat. Financ. stat. Telecom Italia S.p.A. Appendix Contents Report Corporate boards at December 31, 2006 4 on operations Macro-organization chart - Telecom Italia Group at December 31, 2006 6 The Telecom Italia Group 10 Regulatory framework and Competition 14 Shareholder information 22 Selected operating and financial data - Telecom Italia Group 25 Alternative performance measures 27 Comments on operating and financial performance - Telecom Italia Group 28 Comments on operating and financial performance - Telecom Italia S.p.A. 45 Reconciliation of consolidated equity 55 Related party transactions 56 Business outlook: business outlook 57 The Business Units of the Telecom Italia Group 58 Operations 61 Wireline 63 Domestic Mobile 78 Brazil Mobile 86 Media 89 Olivetti 94 Other activities 98 Sustainability 103 Introduction 103 Customers 112 Suppliers 119 Competitors 122 Institutions 125 The Environment 129 The Community 138 – Research, development and innovation 142 Human resources 146 Shareholders 158 Equity investments held by Directors, Statutory Auditors, General Managers and Key Managers 161 Glossary 163 ANNUAL REPORT ON CORPORATE GOVERNANCE 171 Telecom Italia Contents 204 Group - Consolidated balances sheets 205 Consolidated Consolidated statements of income 207 financial Statements of consolidated equity 208 statements Consolidated statements of cash flows 210 Notes 212 Independent Auditors’ report 340 Telecom Contents 342 Italia S.p.A. - Balance sheets 343 Financial Statements of income 345 statements Statements of changes in equity 346 Statements of cash flows 348 Notes 350 Independent Auditors’ report 464 APPENDIX Board of Statutory Auditors’ report 465 Motions for resolutions 486 Useful information 519 Contents 3 Report on operations Corporate Governance Consolidated financ. stat. Financ. stat. Telecom Italia S.p.A. Appendix Corporate Boards at December 31, 2006 Board of Directors Chairman Guido Rossi (Executive) Deputy Chairman Gilberto Benetton Executive Carlo Orazio Buora (Executive Director) Deputy Chairman Chief Riccardo Ruggiero (Executive Director) Executive Officer Directors Paolo Baratta (Independent Director) Diana Bracco (Independent Director) John Robert Sotheby Boas (Independent Director) Domenico De Sole (Independent Director) Francesco Denozza (Independent Director) Luigi Fausti (Independent Director) Guido Ferrarini (Independent Director) Jean Paul Fitoussi (Independent Director) Vittorio Merloni (Independent Director) Gianni Mion Massimo Moratti Marco Onado (Independent Director) Renato Pagliaro Pasquale Pistorio (Independent Director) Carlo Alessandro Puri Negri Luigi Roth (Independent Director) Secretary Francesco Chiappetta to the Board The shareholders’ meeting held on May 6, 2004 established that the board should be composed of 19 members and appointed the board of directors of the company for three years until approval of the financial statements for the year ended December 31, 2006. The shareholders’ meeting held on April 7, 2005 then revised the number of members of the board of directors to 21 and appointed Marco De Benedetti and Enzo Grilli as directors to complement the original board. The shareholders’ meeting held on April 13, 2006 appointed Diana Bracco and Vittorio Merloni as directors following the resignations of Marco De Benedetti and Giovanni Consorte. On September 15, 2006, Marco Tronchetti Provera submitted his resignation from the post of Chairman and director of the board. On the same day, the board of directors appointed Guido Rossi as Chairman while Carlo Buora (the CEO in office) was appointed Executive Deputy Chairman and the post of CEO held by Riccardo Ruggiero has remained unchanged. In October 2006, lastly, Enrico Grilli passed away without the board of directors appointing another director in his place. The independent director, Guido Ferrarini, is Chairman of the Committee for internal control and corporate governance and, since September 2004, holds the position of lead independent director. The board of directors has established three Committees within the board with consulting and advisory functions: Remuneration Luigi Fausti (Chairman) Committee Paolo Baratta Pasquale Pistorio Committee for Guido Ferrarini (Chairman) Internal Control and Domenico De Sole Corporate Governance Francesco Denozza Marco Onado Strategies Committee Guido Rossi Carlo Orazio Buora Domenico De Sole Marco Onado Pasquale Pistorio Corporate Boards at December 31, 2006 4 Report on operations Corporate Governance Consolidated financ. stat. Financ. stat. Telecom Italia S.p.A. Appendix Board of Chairman Paolo Golia Statutory Auditors Acting Auditors Enrico Maria Bignami Salvatore Spiniello Ferdinando Superti Furga Gianfranco Zanda Alternate Auditori Enrico Laghi The board of statutory auditors was appointed by the shareholders’ meeting held on April 13, 2006. On October 20, 2006, the statutory auditor, Stefano Meroi, tendered his resignation. As established in the bylaws, his post was taken over by the alternative auditor on the minority slate, Enrico Maria Bignami. Common representatives – Savings shareholders Carlo Pasteris The common representative of the savings shareholders was appointed for a three-year period by the special shareholders’ meeting held on October 26, 2004. – Bondholders Francesco Pensato “Telecom Italia 1.5% 2001-2010 convertible bonds with a repayment premium” Appointed by decree of the Milan Court of May 2, 2005, after failure to establish the corresponding bondholders’ meeting. – Bondholders Francesco Pensato “Telecom Italia 2002-2022 bonds at floating rates, open special series, reserved for subscription by employees of the Telecom Italia Group, in service or retired” Appointed by decree of the Milan Court of July 8, 2005, after failure to establish the corresponding bondholders’ meeting. – Bondholders Francesco Pensato “Telecom Italia S.p.A. Euro 750,000,000 notes 4.50% due 2011” Appointed by decree of the Milan Court of April 10, 2006, after failure to establish the corresponding bondholders’ meeting. – Bondholders Francesco Pensato “Telecom Italia S.p.A. Euro 1,250,000,000 notes 5.375% due 2019” Appointed by decree of the Milan Court of April 10, 2006, after failure to establish the corresponding bondholders’ meeting. Independent Auditors Appointment of the audit firm was conferred to Reconta Ernst & Young S.p.A. by the shareholders’ meeting held on May 6, 2004 for the three years 2004-2006. Reconta Ernst & Young S.p.A. was first engaged for the three-year period 2001-2003 by the shareholders’ meeting of Olivetti S.p.A. (now Telecom Italia S.p.A.) held on July 4, 2000. Corporate Boards at December 31, 2006 5 Report on operations Corporate Governance Consolidated financ. stat. Financ. stat. Telecom Italia S.p.A. Appendix Macro-organization chart - Telecom Italia Group at December 31, 2006 Macro-organization chart 6 Report on operations Corporate Governance Consolidated financ. stat. Financ. stat. Telecom Italia S.p.A. Appendix The organizational structure of Telecom Italia Group at December 31, 2006 is as follows: • Central functions, organized according to Group Functions and/or Service Units, which are in charge of directing the operations of the Group. • Operations and Business Units, which are responsible for business development and activity coordination for the reference market. The following report to the Chairman, Guido Rossi: – the Public Affairs Group function; – General Counsel; the following report to the Executive Deputy Chairman, Carlo Buora: – the Chief Executive Officer of Operations, Riccardo Ruggiero, who is responsible for ensuring the management and development of the fixed telecommunications, mobile telecommunications and internet services businesses; – the Media and Olivetti Business Units; – the Group Functions of Advertising & Image, Brand Enrichment (Progetto Italia), Investor Relations, Finance Administration and Control, Human Resources, Organization and Security, Corporate and Legal Affairs, International Legal Affairs, Corporate Development, Purchasing , Services for the Judicial Authorities and IT Governance, External Relations and Economic Studies; – Telecom Italia Audit and Compliance Services and Telecom Italia Latam. The Support Activities function also reports directly to the Executive Deputy Chairman. Ī Managers with key responsibilities At December 31, 2006, the “managers with key responsibilities”, that is, those who have the power and responsibility, directly or indirectly, for the planning, direction and control of the operations of Telecom Italia, including the directors, are the following: Directors: Marco Tronchetti Provera (*) Chairman Guido Rossi (**) Chairman Carlo Orazio Buora Chief Executive Officer Executive Deputy Chairman from September 15, 2006 Riccardo Ruggiero Chief Executive Officer General Manager Managers: Gustavo Bracco Head of Group Human Resources, Organization and Security Function Enrico Parazzini Head of Group Finance, Administration and Control Function Head of Media Business Unit CEO of Telecom Italia Media S.p.A. Massimo Castelli Head of Market Development in Operations Francesco Chiappetta General Counsel Head of Group Corporate and Legal Affairs Function Luca Luciani Head of Sales & Customer Services in Operations Giuseppe Sala (***) General Manager Head of Top Client and Customer Services in Operations Stefano Pileri Chief Technology Officer Head of Technology in Operations Ramon Grijuela (****)