WIND TRE GROUP
Consolidated interim financial statements
as of and for the three months ended
March 31, 2017
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 2017, 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 34 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 2017 are not prepared, in all material respects, in accordance with International Accounting Standard 34 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 following:
• as described in the introductions to the Notes (note 1), the effects of the transaction which led to the combination of the businesses of the former Wind and H3G operators in the Italian market have been reflected in the consolidated financial statements of the previous period since 31 October 2016; as a result the comparative income statement data as of and for the period ended 31 March 2016 cannot be immediately compared with the correspondent income statement data as of and for the period ended 31 March 2017;
• transactions exist with the parent company and with other entities belonging to the CK Hutchison Holdings Ltd. and Vimpelcom 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.
Other aspects
The consolidated interim financial statements for the period ended 31 March 2016 have not been subject to audit or review.
Milan, 5 May 2017
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, 2017
CONTENTS
THE WIND TRE GROUP ...... 3 BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TRE SPA ...... 5
WIND TRE GROUP HIGHLIGHTS AT MARCH 31, 2017 ...... 6 THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET ...... 8
COMMERCIAL AND OPERATING PERFORMANCE ...... 10 NETWORK ...... 24
HUMAN RESOURCES ...... 28
REGULATORY FRAMEWORK AT MARCH 31, 2017 ...... 30 OUTLOOK ...... 37
Report on operations 2 at March 31, 2017 THE WIND TRE GROUP
Wind Tre SpA (hereafter 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 and internet mobile access services in broadband and wireless mode. In addition, it accompanies its offer with a wide range of content, applications and multimedia support. Wind Tre is also active on the digital TV market .
These consolidated financial statements for the quarter ended March 31, 2017 were approved by the Company’s Board of Directors on May 8, 2017. At the date of approval of these consolidated financial statements Wind Tre is controlled by Wind Tre Italia SpA (hereafter referred to as Wind Tre Italia) which in turn is controlled by the Luxembourg based entity VIP-CKH Luxembourg Sàrl (hereafter 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 (hereafter referred to as CK Hutchison) and by Veon Ltd. (formerly VimpelCom Ltd. and hereafter referred to as Veon), which jointly own and operate their respective 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. V eon is incorporated under Bermuda law, domiciled in Claude Debussylaan 88, 1082 MD Amsterdam, Netherlands and listed on NASDAQ.
The economic data for the first quarter 2017 are not immediately comparable with those of the same period of the previous year because they refer only to the balance sheet of the former H3G Group, which did not previously draw up interim financial statements under IAS 34 and that therefore the comparative figures have not been subject to review or review procedures by the audit firm.
A proforma income statement is included in the Report on operations to simulate the effects of the merger since January 1, 2016.
On the formation of the Joint Venture at the end of last year the respective holding and operating companies of the telecommunications businesses in Italy of CK Hutchison and VimpelCom, namely Wind Tre Italia and WIND Acquisition Holdings Finance SpA, and Wind Tre and WIND Telecomunicazioni SpA, 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 VimpelCom. WIND Acquisition Holdings Finance SpA and WIND Telecomunicazioni SpA have been merged.
The following diagram sets out the structure of the Wind Tre Group at March 31, 2017.
Report on operations 3 at March 31, 2017
The entry into the market of Iliad, the fourth infrastructure mobile operator, required by the European Commission as a mandatory condition for approving the merger between Wind Telecomunicazioni SpA and H3G SpA which too k place at the end of last year, is planned for the end of 2017 or the beginning of 2018. In the fixed-line market the progressive slowdown in value contraction continues following the dissemination of new generation ultra-fast fiber connections and the overall improvement in broadband services. In addition emphasis continues to be given to increasing efficiency and obtaining a further optimization of the cost structure as part of the integration program that followed the merger of the two operating companies at the end of 2016.
Report on operations 4 at March 31, 2017 BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TRE SPA
Board of Directors (1 )
Chairman Christian Nicolas Roger Salbaing
Directors Maximo Ibarra, 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 C ompany (formerly H3G S.p.A .) conv ened on Nov ember 5, 2016 appointed the Board of Directors until the date of the shareholders’ meeting that w ill meet for the approv al of the C ompany ’s financial statements as at December 31, 2018.
(2) The shareholders’ meeting of the C ompany (formerly H3G S.p.A .) conv ened on Nov ember 5, 2016 appointed the Board of Statutory A udit ors of the C ompany until the date of the shareholders’ meeting that w ill meet for the approv al of the C ompany ’s financial statements as at December 31, 2018.
Report on operations 5 at March 31, 2017 WIND TRE GROUP HIGHLIGHTS AT MARCH 31, 2017
The operating and financial data reported below are taken from the Group’s consolidated financial statements as of and for the quarter ended March 31, 2017, prepared in accordance with the IFRS endorsed by the European Union.
Below are the main indicators of the Wind Tre Group as of and for the quarter ended March 31, 2017, with a comparison with the corresponding proforma figures for 2016.
Operational data At March 31 At March 31 2017 2016 (proforma) Mobile customers (millions of SIM Cards) 30.9 31.1 Mobile ARPU (euro/month) 11.1 11.1 Fixed-line customers (millions of lines) 2.7 2.8 Fixed-line ARPU (euro/month) 28.1 27.3 Mobile network coverage(1) 99.9% 99.9% Employees (headcount) 8,981 9,652 (1) A s a percentage of the Italian population.
2017 2016 Income statement (millions of euro) 3 months 3 months (proforma) Revenue 1,552 1,519 EBITDA(1) 458 471 Operating income (320) 91 Net finance expense (144) (76) Loss for the period (496) (11) (1) O perating income before depreciation and amortization, rev ersal of impairment losses/impairment losses on non-current assets and gains/losses on disposal of non-current assets
Statement of financial position At March 31, 2017 At December 31, 2016 (millions of euro)
Total assets 20,391 20,887 Equity attributable to owners of the parent 3,719 4,204 non-controlling interests - - Total liabilities 16,672 16,683 Net debt 9,892 9,904
Total revenue in the three months ended March 31, 2017 reached €1,552 million, increasing by 2%. This effect is mainly due to the increase in Revenue from sales due to the increase in the sale of high-range mobile telephone handsets.
Telephone services are affected by a contraction, with the decrease remaining at 1% in the first three months of 2017 compared with 2016, thanks to the substantial maintenance in the mobile customer base and the increase of internet market on mobile phones.
Report on operations 6 at March 31, 2017 EBITDA amounted to €458 million in the first three months of 2017, a decrease of €13 million compared to the corresponding period of 2016, while there was an operating loss of €320 million, higher by €411 million over the first three months of 2016.
Net finance expense for the first three months of 2017 amounted to €144 million, an increase of €68 million over the first three months of 2016.
There was a loss for the period of €496 million for the first three months of 2017 compared to a loss of €11 million for the first three months of 2016.
Net debt totaled €9,892 million at March 31, 2017, a decrease of €12 million over December 31, 2016. The following table sets out the components of net debt at March 31, 2017 and the changes which have occurred since December 31, 2016.
At March 31, At December 31, (millions of euro) 2017 2016 Change
FINANCIAL LIABILITIES
Non -current financial liabilities 12,789 12,838 (49) Bonds 10,232 10,293 (61) Financing from shareholders 1,728 1,717 11 Financing from banks 679 677 2 Financing from other lenders 127 128 (1) Derivative financial instruments 23 23 -
Current financial liabilities 206 176 30 Bonds 201 160 41 Financing from banks 1 8 (7) Financing from other lenders 1 1 - Derivative financial instruments 3 7 (4)
TOTAL GROSS DEBT (A) 12,995 13,014 (19)
FINANCIAL ASSETS
Non -current financial assets (2,440) (2,486) 46 Derivative financial instruments (1,410) (1,460) 50 Financial receivables (1,030) (1,026) (4)
Curren t financial assets (41) (21) (20) Financial receivables (41) (21) (20)
Cash and cash equivalents (622) (603) (19)
TOTAL FINANCIAL ASSETS (B) (3,103) (3,110) 7
NET DEBT (A-B) 9,892 9,904 (12)
Report on operations 7 at March 31, 2017 THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET
Industry overview
Italy is Europe’s fourth largest telecommunications services market by revenue. The value of the Italian mobile market for 2017 is estimated in approximately €14 billion, confirming the pick-up already noted in 2016 due to growth in internet services and contents services. The Italian fixed-line market (voice and VAS) for 2017 is estimated to be worth approximately €5 billion, a decrease over 2016 mainly as the result of a drop in voice traffic revenues. The value of the fixed internet access industry for 2017 is estimated to be approximately €5.0 billion with the broadband segment accounting for the whole market. In the first quarter of 2017 Italian operators continued proposing their offers of bundled voice and data services with increasingly enriched traffic packages, the addition of multimedia streaming services and fixed network connectivity. Offers tended to be differentiated by type of user, with tariffs including unlimited voice traffic, roaming, large quantities of data and value added services and offers for a less demanding population of users, with charges concentrated on voice traffic and internet. In the first quarter of 2017 operators announced the availability of new smartphone models in their product portfolios from the beginning of April; in the meantime devices have remained part of the tariff promotions with discounts and reductions. Navigation in mobility on the 4G network continues to be the cornerstone of the offers and the strategies set up by operators. In fact quality, navigation speed and LTE coverage as well as the development and testing of the 4G+ and 5G innovative networks continue to be at the heart of the communications made by the market players. There were no particular changes in the business market during the quarter, the offer addressed to the consumer market developed with the aim of acquiring new customers, providing tariffs including bundles increasingly enhanced with voice-data traffic, triple and quadruple play services (with fixed line network and streamed contents) and initiatives designed to win back old customers. In addition, a great deal of importance was placed on loyalty initiatives for the customer base, in particular through the use of discounts and gifts associat ed with certain feast days and other important moments of the year. Innovative services are always to be found in the offers made by the main operators to encourage the use of the large volumes of data included in the packets. More specifically, in the consumer world the focus remains on audio and video streaming while in the business sector the attention is focused on business digitalization services and the Internet of Things. The key partnerships entered by operators in the first quarter of 2017 regarded the testing of 5G with start up planned by the end of the year. AGCOM has determined that the minimum billing frequency for mobile offers must be 28 days, whereas offers which also include fixed lines must be billed at the most on a monthly basis. The scenario of a competitive market continued to evolve: after the merger between WIND and 3 Italia, Kena Mobile made its entry, a virtual operator of the Telecom Italia group, while the arrival of a fourth operator MNO Iliad is planned to take place at the end of 2017 or beginning of 201 8.
In the first quarter of 2017 the market for fixed network telecommunications services continued to evolve with quadruple play offers, with digital video streaming contents for consumer customers and solutions supporting the digitalization of business processes being added on fixed and mobile to convergent services with voice and internet, with particular focus on SMEs.
Report on operations 8 at March 31, 2017 All operators continued to propose profiles in optic fiber, continuing with the extension of the ultra-broadband network by way of direct investments and partnerships. The quarter was characterized by several promotional initiatives for the consumer market, with high -speed voice- data bundles, with discounted monthly charges and activation fees, including calls to mobile phones, mobile navigation services, TV contents and products. Promotions of offers for business customers were essentially directed at sole traders and SMEs, with converging fixed and mobile network offers, assistance, video-surveillance systems and Wi-Fi services made available to customers. The contract for the fifth edition of the public administration tender for fixed telephony worth a total of €925 million was awarded at the end of March. In January 2017 the board of directors of OpEn Fiber approved the merger of Metrowe b into the company, and the following month the Enel newco signed an agreement with the Region of Emilia-Romagna and Lepida to reach 70% of homes and businesses in 10 cities with ultra-fast broadband. OpEn Fiber’s strategic plan was therefore updated and the wholesale-only operator plans to cover 270 towns and cities situated in areas of market success (A and B clusters) with ultra-broadband using FTTH architecture by 2022, with an increase to €3.9 billion being made in the overall investment. OpEn Fiber has signed wholesale service supply agreements in four Italian cities (Bologna, Milan, Perugia and Turin) and in addition came first in all the five lots of the first Infratel tender worth €1 .4 billion. In March 2017 TIM approved a new project for the development of the fiber network in the “blank” areas of the country (C and D clusters), bringing forward the coverage targets initially established for 2019 by two years; this will reach 95% of the population by the end of the first half of 2018 and 99% by the end of 2019, without the need to make any changes to the investments established in the plan (€5 billion for fixed and mobile UBB).
Mobile telecommunications
The Italian mobile telephone market is the fourth largest European market by revenue after the United Kingdom, Germany and France. There are three infrastructure operators in Italy which offer mobile telephone services to the approximately 83 million SIMs registered at March 31, 2017 equal to a penetration rate of approximately 137% 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 75% of the customer base uses prepaid cards. Excluding MVNOs, at March 31, 2017 Wind Tre had an estimated market share of 37.1% while Telecom Italia and Vodafone had 35.3% and 27.6%.
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/Teletu, Tiscali and BT Italia.
Internet At March 31, 2017 access to internet and broadband had reached a penetration of 77% of the total of fixed lines in Italy. Broadband services in Italy have grown swiftly over the past few years to reach approximately 15 million connections or 25% of the country’s population. Despite the recent considerable rise in broadband, Italy still lags behind other European countries.
Report on operations 9 at March 31, 2017 COMMERCIAL AND OPERATING PERFORMANCE
Mobile Telephony
At March 31, 2017, Wind Tre had 30.9 million mobile telephone customers a decrease over March 31, 2016 , and a market share (calculated by excluding MVNO operators) of 37.1%.
The following table shows the main indicators in the mobile telephone market.
Mobile telephony 2017 2016 3 M 3 M (proforma) Change Customer base (millions of SIM Cards) 30.9 31.1 (0.64%) Revenue (millions of euro) 790 1,219 (35.19%) Voice traffic (billions of minutes) 24.7 25.8 (4.26%) ARPU (euro/month) 11.1 11.1 - % ARPU Data/Total ARPU 51% 48% -
Consumer offer The WIND brand WIND continues to maintain a positioning that is much loved by its customers, one which over the past few years has succeeded in ensuring a constant increase in its market share. Its offers continue to embody the values of clarity, transparency and simplicity. In the first quarter of 2017 WIND reinforced its All Inclusive offer with a promotion that doubled minutes, SMSs and gigabytes for the whole year. And with the consolidated Bring a friend’ mechanism customers can add up to 8 gigabytes to their offer which is valid for everyone, old and new customers alike.
The first operator to launch an All Digital offer in 2014, WIND continues to be close to the digital customer’s needs. The new All Digital, characterized by a weighty data bundle, reserves further opportunities for customers who use WIND’s digital channels for recurring operations such as top-ups or requests for assistance to receive reductions in their charges.
WIND mobile connection is a necessary but not sufficient condition for responding to a customer’s communication requirements. At WIND sales points customers can buy the latest generation smartphones on instalment or in a single payment at the best market conditions. And what is more WIND gives customers 5 gigabytes free to reward their loyalty to the brand. In addition, thanks to the synergies resulting from the merger with 3 Italia, WIND customers too can benefit from the latest Apple devices at favorable conditions. And for customers who want the comfort of a smartphone with WIND convenience there is WIND Smart, the Smartphone for every pocket. For just €1 customers can have a WIND smartphone and 1 gigabyte a month, paying in 30 easy instalments with Telefono Incluso. In addition to being aimed at All Inclusive customers, the offer is also valid for voice-only customers with the NOI Tutti offers.
The need for connectivity of mobile broadband customers is constantly moving upwards thanks to an increasingly intensive use of mobile applications that are able to simplify daily activities and allow the sharing of digital platforms.
Report on operations 10 at March 31, 2017
It was therefore obvious that the new data portfolio had to envisage a recurring basket of 30 gigabytes for the first time. And to deal with peaks of seasonal usage, WIND proposes two ‘data only’ special promotions with GIGA MAX Limited Edition and GIGA Ricarica.
The frequency is increasing with which on going to a sales point WIND customers can activate free of charge promotions based on certain annual events such as St. Valentine’s Day and Father’s Day.
In the first quarter of 2017 WIND continued to strengthen its ‘closer’ positioning, also for non-Italians living in the country. There was a constant increase in the success of the Call Your Country offer portfolio, which in February was renewed and enhanced with the new Call Your Country Super that includes 5 gigabytes, 100 minutes to 49 other countries and in Italy unlimited calls to WIND and 300 minutes to everyone at a total price of €10 every 4 weeks. With the aim of satisfying the growing need for data traffic by non-Italian users, WIND proposes a dedicated offer: GIGA International, which provides 20 gigabytes of internet every 4 weeks for only €16.95. Customer loyalty continues to be at the heart of the Company’s objectives and to reward it WIND has a GIGA Bonus free of charge offer under which 1 gigabyte is given free, for use within the following 30 days, if a customer spends at least €10 in international traffic over 30 days. In addition, customers with a Call Your Country WIND or Call Your Country Super offer can subscribe to the telephone included offer and buy a smartphone by paying small monthly instalments or purchase dedicated models at extremely beneficial prices.
The rise in the acquisition of consumer and professional customers with subscription offers continued in the first quarter of 2017. In the light of the successes achieved during its March canvass, WIND renewed its portfolios of voice and internet offers for these segments. For consumer customers the range of Wind Magnum offers was renewed in the bundle and made even more convenient in its pricing: unlimited minutes and shared gigabytes starting from €14.90 every 4 weeks. The innovative No Tax offer with 2 SIM cards was successful in imposing itself on the market thanks to its ability to satisfy the various needs of high-spending customers, who on activating their Wind Magnum offer make the denomination of the gigabytes they choose the main driver of their decision and who from March can navigate with up to 30 gigabytes. Wind Magnum has become even more flexible with the introduction of two new optional extras that enable it to be customized: with Magnum +SMS Illimatati the Magnum offer is enhanced with unlimited SMS traffic; with Magnum +1GIGA customers who have run out of gigabytes can also navigate until the next renewal. Wind Magnum is a complete offer created for the whole family: up to 3 additional SIM cards can be added with the Wind Magnum Family offer which provides 500 minutes, 500 SMSs and 2 gigabytes for only €5 every 28 days. The device-included proposals are still a must for Wind Magnum, thereby continuing to satisfy the demand for smart devices; after the significant success achieved by the Mini Drone Parrot in December, followed by Google Chromecast in January and Tom Tom Touch in February, all customers activating Wind Magnum from March can have the EZVIZ S1C Action Cam included. For customers who with Telefono Incluso decide to combine a smartphone with their Wind Magnum, the exclusive discounts on the top smartphone of the moment continue , while with the Giga Box promotion an additional 2 gigabytes are included for the whole term of the Telefono Incluso contract. Changes also regard the data portfolio which has been made even more convenient with internet offers starting from €8, but the real new develop ment is
Report on operations 11 at March 31, 2017 the introduction of Easy Night for navigating from midnight to 7:59 a.m. without consuming any of the gigabytes in the offer. Lastly, for Wind Magnum customers who would like to have both fixed and mobile in a single solution, WIND has created a new, advantageous convergent offer, Wind Magnum Home Edition, with unlimited minutes and 5 gigabytes for mobiles, and for fixed-lines unlimited ADSL/Fiber and calls to fixed and mobile numbers at €24.95. In the wake of the success of the Wind Magnum offers, WIND has also renewed its professional portfolios introducing Wind Magnum Pro, the Wind Magnum offer for VAT-registered professionals. Recognizing that the professional target has greater needs than the consumer customer, Wind Magnum Pro is available starting from 10 gigabytes at €19.90 plus VAT. The sole trader offer is therefore simplified, in actual fact becoming the mirror image of the consumer subscription offer; professionals too can combine up to 3 additional SIM cards with the Wind Magnum Pro offer by using the Magnum Company plan (500 minutes, 500 SMSs and 2 gigabytes for only €5 plus VAT). VAT-registered customers who need a large number of gigabytes for their business can choose between the new internet plans with 5, 10 or 30 gigabytes, while in addition with the benefits of Easy Night they can stay connected at night without using gigabytes. Exclusive discounts on top smartphones can also be found with Wind Magnum Pro while with the Giga Box promo the gigabytes in the offer increase. The growing need for convergence in the business segment is satisfied by WIND with the new Magnum Office Edition, the integrated fixed and mobile offer with unlimited minutes and 10 gigabytes for mobiles, and for fixed-lines unlimited ADSL/Fiber and calls to fixed and mobile numbers at €29.95 (plus VAT).
The “3” brand In the first quarter of 2017 “3” pursued a strategy designed to confirm its position as the leading operator on the market as far as satisfying the needs of a technological customer is concerned, a customer characterized by high usage of data traffic and constant attention on value for money, while at the same time also aiming to reinforce its relationship of trust with customers and foster an increasingly high level of transparency in its offers. From this standpoint as its first offer for the year on the prepaid untied front “3” launched a promo for St. Valentine’s Day (from January 30 to February 19), which at an unchanged price included an increase in the gigabytes provided (+4GB) on ALL-IN 400 (8GB for €10) and on ALL-IN Unlimited (12GB for €20). Subsequent to this, in order to provide a new image for the brand in line with the values of its 2017 strategy “3” renamed the ALL-IN family on February 20, with Start, Prime and Master replacing the previous 400, Unlimited and VIP . To promote the renamed operation, “3” launched an important promo exclusively dedicated to the Untied segment and offers: an increase in data contents for Start at an unchanged price (6GB instead of 4GB for €10) and a reduction of 30% in the monthly fee for Prime and Master (Prime: 8GB for €14 instead of €20; Master: 30 gigabytes for €21 instead of €30). This initiative was then further enhanced in the middle of March with the Gold Edition promotion, which added the Grande Cinema 3 Gold Card to the untied offers as always to emphasize the Company’s close links with the cinema. ALL-IN Tied continued in the quarter in line with 2016, with Start providing 4GB for €5 (instead of €10), Prime providing 8GB for €10 (instead of €20) and Master providing 30GB for €15 (instead of €30). For offers with a telephone at the end of February “3” launched the Giga Days promotion with the aim of attracting “internet-driven” customers, which automatically activated for all new customers included 10GB to be used within two months in addition to the gigabytes included in the chosen tariff plan at a one-off cost of €10. At the same time, to support activations with the iPhone 7, a key product for the Company, thanks to a partnership with Apple “3”
Report on operations 12 at March 31, 2017 launched a promotion that provided a discount of €50 on the advance of the telephone with the ALL-IN offers with smartphone and FREE. Finally, to promote fixed-mobile convergence, at the end of February “3” introduced the possibility for Infostrada customers and Casa 3 customers to participate in the ALL-IN offer without restriction at the discounted price of the corresponding Tied offer; in the same way “3” customers can also participate in Infostrada offers at a discount (for example Fiber at €10 less a month for the first year). In addition, as part of the project to improve the customer experience “3” has introduced two important developments: the immediate renewal of options with firstly an alignment of the renewal and supply to the option ceilings and secondly the ‘customized week’, and Ricarica Always On’ (only for the tied segment) that allows customers to set an automatic top-up to avoid remaining without telephone credit. Going in the same direction it is the intention of “3” over the next few months to take further steps designed to make its offer increasingly clear and transparent so that customers can become more aware of what they are spending and avoid the risk of encountering unexpected costs. Regarding mobile broadband, “3” has enlarged its service portfolio to cover various market segments and has continued to improve its offer so as to ensure customers greater freedom of navigation. “3” has made changes to its main offer (Casa3) by taking limits from daily to weekly, keeping unchanged the number of monthly GBs for €15 (30GB). WebCube4 (a nil down payment) or PocketCube 4G LTE (a down payment of €29) can be combined with Piano Casa3; these enable customers to navigate from home or in mobility in Wi-Fi with their own devices and at the speed of an LTE connection. For customers who want to navigate using the residual credit on their SIM card, “3” has introduced Super Internet Ten which is the best offer as far as the price/gigabyte ratio is concerned. With Super Internet Ten customers have 10GB a month available for €5 which they can use on their tablets or any Wi-Fi device. In addition, to meet the requirements of customers who have the occasional need to navigate freely on the internet without ceilings and without restrictions, “3” introduced Super Internet Express 50GB in February which provides 50GB of internet traffic that can be used over a six month period without monthly ceilings or limitations at a price of €40. The offer is not renewable and does not envisage above -ceiling costs. Lastly, in order to continue to increase the converging offer segment (voice + mobile broadband) “3” has enlarged its Special offers. These provide (tied) voice customers with the possibility of navigating freely on the internet with another device at a reduced price. Inside the Special offer we find: Casa3 Special which includes the same number of GBs as Casa3 (30GB) at a discounted price (€10 instead of €15) and Super Internet Special 5GB, introduced in April, that includes 5GB of monthly traffic for €5 instead of €8. Both offers include a Wi-Fi device.
Voice, internet and business services offer The WIND brand WIND provides a wide range of voice services to its corporate customers, to small and medium businesses (SMEs) and to professionals (the SOHO market), with specific offers to suit each market segment. Larger companies are increasingly gearing themselves towards offers in prepaid mode so that they can increase control over their expenses. WIND has an offer based on a business’s budget with “all inclusive” monthly charges: customers establish their telephone spending at a company level by identifying traffic packages shared by all of their SIMs, thus keeping control of their budget at both a global and single SIM level.
Report on operations 13 at March 31, 2017 Faced with the increasing interest in mobile applications (apps) designed to take certain business processes into mobility, WIND has additionally launched Enterprise Mobility Services through strategic partnerships and vertical system integrator agreements. Through the pull sales channel for the population of professionals, self-employed workers and small businesses (WIND Retail, Dealers, Franchising, large retail chains (GDOs)) and through the push sales channel for small and medium businesses WIND Business is present on the market with a new positioning based on three pillars: Smart Assistance, the guarantee of always having a level of assistance suitable for the needs of business customers; Smart Offer, a clear, simple and complete offer at the right price; Smart Innovation, tools for digitalization and smart working.
WIND Business has launched its new rechargeable portfolio Giga Smart Share. This aims to meet the growing need for gigabytes through a flexible and adaptable offer that depends on the personal needs of business customers. Data bundles can be shared among several users or several terminals in the interests of efficiency, savings and flex ibility. The new Giga Smart Share plan also envisages the Extra Giga Smart Share bundle: once the shared data basket is finished a new one with a different size is automatically activated to allow customers work continuity. To satisfy the needs of customers who travel abroad regularly Giga Smart Share offers the possibility of completing the offer with the options Premium and Top Mondo. On the other hand customers who only travel abroad occasionally can activate the daily options with dedicated bundles. The new Servizi Digitali Cre@sito, Pec Smart, Mobile POS, WIND Smart Control, Windlex and Servizi 4 Mobility products 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. This service has a cost of only €2 a month. 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 them and tran sferring them in real time. In order to extend its portfolio of offers and services dedicated to SMEs, WIND has signed a partnership agreement of significant importance with Microsoft in order to be able to offer its customers Office 365, the productivity suite in Microsoft’s Cloud. With Office 365 businesses have at their disposal all the tools they need to work in mobility effectively and everywhere on any device (smartphones, tablets, laptops, PCs, Macs), so that they can handle, modify and share documents in real time while operating with the utmost safety. WIND Business proposes the Microsoft Office 365 services in three packages: Basic, Plus and Top in order to respond to the various needs of businesses, starting from €4 a month per single account. All customers acquiring Giga Smart Share 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.
Report on operations 14 at March 31, 2017 In addition, thanks to the above-mentioned partnership with Microsoft the CRM Dynamics Online solution for WIND Business Customer Relation Management is available. This provides small and medium businesses with a 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 increase business and sales opportunities. 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. Finally, to ensure maximum support with the best technology an advanced technical assistance service is available to all WIND business customers free of charge.
The “3” brand “3” is present on the business market with an offer addressed to professionals and companies. The offer based on prepaid mode has encountered the greatest success on the market, having the dual benefit for business customers of being able to reduce costs and control the expenses they incur with their SIMs. Basing itself on the prepaid platform, “3” has developed a wide range of highly competitive all inclusive offers. Consistent with the trend noted at a market level, during the year the offer evolved in the direction of including increasing levels of contents in bundles, in particular in terms of gigabytes of internet traffic available to the customer. The integrated Ufficio 3 and Ufficio 3 Plus offers have combined a prepaid voice offer with mobile broadband in the WebCube Wi-Fi offer to satisfy SOHO and SME customers having the need to use internet traffic in mobile and shared mode. In addition, to meet the increasing requirements of the market and regulatory authorities regarding traffic abroad, all the My Business voice offers of “3” include international traffic (from Italy to the EU) and EU international roaming traffic with a single tariff scheme having a connection charge and unlimited minutes. Again at zero cost customers can activate a similar tariff scheme for EU roaming internet traffic with a charge at the beginning of the session and up to 500MB/week. On the SME and large markets “3” continued with its modular offer My Business Flex, which allows the sales force to configure the offer most suited to the needs of each customer and agree the charge on the basis of negotiations.
Innovative Services WIND and “3” continued with their proposal offer of digital contents such as apps, games, music, films, e -books and digital magazines which customers can download from Google Play Store and Windows Phone Store using their telephone account as a means of payment without the need for a credit card. T he launch of Windows Store in 2016 has enlarged the perimeter of digital contents by adding the possibility to use contents downloaded from a PC. What is more, since March 2017 “3” customers have been among the first in Italy to be able to use their telephone credit for purchasing digital contents from the whole of the Apple world (iTunes, App Store, Apple Music, iBooks). With a view to improving customers’ digital learning, WIND has taken a key role in a series of initiatives channeled through its monobrand stores having the aim of encouraging the payment of digital items using telephone credit and creating an interconnection between the digital and physical worlds. There are currently more than 60 cities where the mobile ticketing service is active and it is now possible to buy tickets with telephone credit in Florence, Genoa, Milan and several other centers. In addition, at the beginning of 2017 the launch of the mobile ticketing service was carried out in 10 additional cities (Alessandria, Massa, Viareggio
Report on operations 15 at March 31, 2017 and Carrara to name but a few), achieving highly significant coverage in the region of Tuscany where the residents of all the provincial capitals are able to benefit from this convenient service. WIND and “3” have additionally promoted several initiatives to disseminate the service and make it known to the public, receiving positive feedback on the social channels and visibility in the main local and national press. Last year alone WIND and “3” enabled the mobile ticketing service to save more than almost two tonnes of paper, which makes a total of six since the service started.
International Roaming WIND customers can use their mobile telephone services in other countries, including SMS, MMS and data services (GPRS, EDGE, 3G, HSDPA) where available, by w ay of roaming facilities guaranteed by agreements with 508 international operators with 608 foreign networks in 220 different countries, of which 209 covered by terrestrial roaming, 11 solely by satellite and 79 also by LTE. “3” customers can use their mobile telephony services in other countries through roaming facilities guaranteed by 415 agreements with 556 foreign networks in 191 countries, of which 4 satellite only. The Wind Tre portfolio is accompanied by offers valid in the European Union and roaming offers available throughout the world, which respond to the needs of both customers who only go abroad occasionally and those who travel more often.
Sales and distribution Wind Tre continues to improve the quality of its distribution channels and strengt hen 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, 2017 consisted of 1,918 sales points, 703 WIND brand sales points and 1,215 “3” brand sales points. The non-exclusive Wind Tre sales network consists of 5,356 multibrand dealers spread throughout the country further strengthened by a presence in electronic store chains with various distribution models (counters, “3” corners). From the www.wind.it website, optimized for navigation from desktops and mobiles, customers can activate offers and services and buy telephones, smartphones and tablets. Since March 2017 customers can also buy rechargeable SIM cards and telephones online thanks to the collaboration established with partners such as Amazon and Freedompop. WIND is the first telecommunications company in Italy having services that may be bought through Amazon.it: WIND products may be bought at home, without any delivery costs. This partnership with the world’s leading e-commerce portal has reinforced Wind Tre’s commitment to oriented digital services that make their customers’ daily lives easier. In addition, customers can 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. From the www.infostrada.it website it is possible to request the activation of a fixed line offer for a new or existing number. WIND and Infostrada customers can check their usage, change their offer and independently manage their lines in the website customer area and from 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. They can also top-up online, paying by credit card or Paypal.
Report on operations 16 at March 31, 2017 Fixed Telephony and Internet
WIND provides its consumer and microbusiness customers with a vast range of direct fixed network services, broadband internet and data transmission services all marketed under the Infostrada name. WIND provides broadband services to direct customers (unbundling) by renting the “last mile” of the access netwo rk from Telecom Italia, which is disconnected from Telecom Italia equipment and connected to WIND equipment at the telephone exchange. In addition WIND sells ultra-broadband services in FTTH mode (Fiber to the Home) in Milan, Bologna, Turin and Perugia, where it markets offers in optic fiber which allow the end user to reach speeds of up to 1 gigabit a second and in FTTC mode (Fiber to the Cabinet) in the other main Italian municipalities with download speeds of up to 100 Mega and upload speeds of up to10 Mega. In April 2016, WIND and Enel Open Fiber signed a strategic and commercial partnership aimed at accelerating the creation and dissemination of infrastructure in ultra-broadband in Italy’s main municipalities using FTTH technology. On the sites where it is present in unbundling WIND offers an ADSL Vera service; this enables the customer’s line to be stabilized at the maximum supported speed up to a downloading peak of 20 Mega, thus providing users with the best possible performance and ensuring a constantly stable line. The plan that started in January 2015 for expanding the Direct Access network continues; this will lead to the unbundled coverage of over 70% of the lines, further strengthening WIND’s positioning as an alternative operator to Telecom Italia in the fixed sector.
Voice services WIND’s fixed network voice customer base could count on 2.7 million subscribers at March 31, 201 7 representing a decrease of 2.2% over March 31, 2016; the direct customer voice component increased by 1.8% over the corresponding period of the previous year.
The following table sets out the key fixed-line indicators.
Fixed line 2017 2016 3 M 3 M (proforma) Change Customer base (thousands of lines) 2,718 2,779 (2.20%) of which LLU (thousands)(1) 2,497 2,452 1.84% Revenue (millions of euro) (2) 275 264 4.17% Voice traffic (billions of minutes) (3) 2.3 2.6 (13.18%) ARPU (euro/month) 28.1 27.3 2.93% (1) Including LLU, V irtual LLU and O DA. (2) Including TLC and C PE rev enues. (3) V oice traffic outgoing and Incoming off net
Internet and data WIND offers a vast range of internet and data transmission services to both its consumer and business customers. At March 31, 2017, the Group had 2.4 million broadband internet customers. The following table sets out the key internet access figures.
Internet and data services 2017 2016 3 M 3 M (proforma) Change Internet customer base (thousands)) 2,354 2,302 2.26% of which narrowband (thousands) 3 6 (50%) of which broadband (thousands) 2,351 2,296 2,40% of which LLU (thousands) 2,083 2,094 (0.53%) of which shared access (thousands) 5 6 (16.7%)
Report on operations 17 at March 31, 2017 Package and convergent services WIND is one of the leading suppliers in Italy of internet, fixed-line voice and data and mobile telephone services, having an integrated infrastructure and a network coverage which extends throughout the country. In order to make WIND's positioning in the sphere of integrated services more exclusive, the push has continued on the Powered Infostrada offer which is addressed to all WIND’s prepaid mobile customers subscribing to a WIND All Inclusive, All Digital, NOI or Call Your Country offer who are offered a choice of one of the fixed-line telephone products Absolute or All Inclusive Unlimited at an absolutely unique and exclusive price. The success of the Internet Everywhere promotion continues; this is geared towards customers who want to navigate from home with ADSL or Fiber or in mobility with Mobile WiFi 4G or a tablet, thanks to the Super Tablet offer which includes a device starting from €0 every 4 weeks with 1 gigabyte of traffic included. The drive towards acquiring both fixed and mobile customers is supported by the new WIND offer Magnum Home Edition which combines fixed-line telephony and ADSL and Fiber connectivity with the new mobile telephone WIND Magnum offer. The sale continues in WIND stores of a vast range of automated solutions for the safety and protection of the home, of which SMART HOME PACK which is the most complete and includes Smart Plug, Motion Sensor, Videocamera and data SIMs in the offer for only €3 every 4 weeks. The opening plan for the new Fiber offer (FTTC and FTTH technology) continues in Italy’s main municipalities. The same services are also available in the Affari version which is dedicated to microbusiness sector customers. In particular, steps in FTTH technology dedicated to cities have been taken in terms of both communication and offers, with the aim of maximizing acquisitions and also gaining credit as far as Fiber technology is concerned. In addition from January Powered Infostrada is also available for all “3” customers at an absolutely exclusive price.
Voice, internet and business services offer WIND provides PSTN, ISDN and VoIP fixed-line network voice services, data services, VAS and connectivity services to the large business market, capitalizing on the experience gained with ENEL and using a dedicated call center. In this segment WIND 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 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 optic fiber connections and by LLU direct access; in areas where direct access is not available, dedicated lines leased from Telecom Italia are used. In addition, WIND also extends its offer for the large business market through cloud services and its commercial proposal with ICT and managed services solutions, on both fixed and mobile networks. WIND has a partnership with the Enterprise division of Google which enables it to propose collaboration and communication solutions to businesses based on Google Cloud Apps. WIND has drawn up an offer, WIND Cloud per Aziende, consisting of a rich catalog of IaaS services and, in particular for medium-sized businesses, pre-configured bundles of data center and connectivity services which are capable of satisfying the needs of these customers and are available in an extremely short period of time. In addition, WIND has launched WIND Cloud Line, an IP PBX cloud solution that combines the mobile and fixed worlds, and Work & Life, a solution created to provide an integrated response to the requests for smart working increasingly to be found in businesses. The fixed network offer portfolio for sole traders requiring up to four lines (analogue or 2 ISDN) consists of the voice and ADSL bundle price lists (All Inclusive Business L and All Inclusive Business Unlimited), which offer unlimited calls
Report on operations 18 at March 31, 2017 to all national fixed and mobile numbers and unlimited ADSL, Absolute ADSL Business price lists, which offer unlimited ADSL connectivity and pay-per-use voice calls, and Noi Unlimited Affari price lists, which offer unlimited calls to all national fixed and mobile numbers, unlimited calls to all fixed and mobile numbers on the WIND- Infostrada telephone account and pay-per-use ADSL. The whole of the offering portfolio is available with WIND network coverage on lines already activated with other operators and also on new lines. For all sole trader customers, existing and new, the possibility continues of subscribing to the new second line offer, which envisages only one additional voice line that can also be used to send and receive faxes, and of using POS devices. Customers of other operators with additional numbers can now finally decide to pass over to Infostrada without losing their telephone numbers. The Absolute ADSL Business and All Inclusive Business Unlimited plans have become even more advantageous as a result of the corresponding Super versions which add mobile telephony to the bundle. To complete the offer ‘plug&play’ packs are being proposed at extremely competitive prices to respond to customers’ most common needs: the Internet Pack, consisting of a Wi-Fi router and a 3G internet key, offered in combination with a data SIM card having two months of completely free traffic included, enables customers to navigate on the mobile network while waiting for activation of the ADSL service and to have a back-up line on the mobile network once activation is completed; the Internet-&-Video Pack on the other hand contains an IP video-camera in addition to the Wi-Fi router and an internet key to enable customers to video-control their working environment, record images and obtain access from laptops or mobile devices. For SMEs, WIND offers a wide range of dual-play (voice + internet) products with tariff plans based on VoIP technology having unlimited traffic to national fixed and mobile numbers and to the international fixed network and unlimited ADSL up to maximum of 20 MB with a minimum guaranteed band of 300 kbps and a static IP address. The offer is available in a 2 line version (All Inclusive Aziende Smart) and in a 3 to 8 line version (All Inclusive Aziende). The VoIP offer becomes even more beneficial thanks to Super All Inclusive Aziende, if combined with the Unlimited subscription or rechargeable mobile plans using up to a maximum of 10 SIM cards, and Super Internet, if combined with the data offers. In addition the fixed offer is also available with fiber access (FTTC), allowing customers to navigate at up to 50 Mbit/s with the same monthly charge as ADSL. Another offer designed for small and medium businesses is WIND Smart Office, which includes a virtual switchboard based on VoiP technology. WIND 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. Also with Super Smart Office customers can use discounts on connectivity if they also activate mobile offers. The WIND 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 typ e of WIND 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. In the portfolio the WIND Impresa offer can always be activated; this provides from a minimum of 6 up to a maximum of 60 simultaneous calls and gives customers the possibility of subscribing to a rental, management and maintenance service for telephone switchboards.
Report on operations 19 at March 31, 2017 Sale and distribution of fixed network services WIND’s distribution strategy is based on the “ominichannel” concept (stores, web and telephone), satisfying the needs of customers who independently select the sales channel which suits them best. In terms of performance, the most important sales channel is the retail channel (monobrand and multibrand stores), which through integrated offers continues to increase in weight. Following this are the 159 call centers and the web, while the activities of the outbound call centers are by now residual and are mostly used for acquiring customers in very specific segments.
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 an d 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 charge to other operators for calls which terminate on their mobile or fixed telephone networks. Interconnection tariffs from mobile to mobile, fro m 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’s customer service activities are coordinated by its Customer Management Department, which is org anized to support the needs of the various segments in the best possible manner: rechargeable customers (mobile), subscription customers (fixed telephony, mobile telephony and internet) and business customers. WIND also provides its customer assistance service in other languages to provide a tailored service for certain particularly important customer segments such as the ethnic communities. Call centers dedicated to residential customers are located throughout the country. The WIND customer care service continues to develop its operational organization, focusing not only on the activation phase but also on the increasing need for mobile-fixed-internet multi-service assistance. The integration between customer care and the sales network continues in order to provide a customer service spread widely through the Company’s retail outlets in local areas, making it more direct and transparent. In a saturated and continually evolving market, one characterized by the constant renewal and extension of the offering portfolio, it is important to retain a vision which puts the customer at the center of his business. There is an important need to follow customer management policies carefully to ensure consistency and synergies between the various sectors, so as to create a discriminating success factor. This vision has always been an asset for WIND and a modus operandi which involves and unites all of its business sectors, ranging from marketing to sales by way of customer care, the technical functions of the network and information technology. A detailed set of activities has been set up for monitoring the various points of contact between the customer and the Group and for assessing satisfaction with WIND and the extent to which it may be recommended to others, using NPS measurement methods. This enables customer needs to be identified promptly and specific targeted replies to be provided, and more generally allows the main areas of development to be identified, in line with the feedback provided by customers themselves. WIND’s Customer Relationship Management department (CRM) therefore 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
Report on operations 20 at March 31, 2017 the relationship in all the segments covered, from the consumer (mobile and fixed) to the corporate market, with an organizational structure focused by market. A success factor for the initiatives carried out by CRM, which is increasingly gaining importance, 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’s CRM provides suitable solutions in terms of product and offer through traditional and digital relation channels. Commercial actions involving customers are also carried out through the distribution network, which has developed from being a new contract acquisition channel to a channel that also looks after customer management. WIND places a great deal of emphasis on managing digital contact points and on online customer assistance tools, ensuring high standards of quality and encouraging their use. The MyWind app had arrived at 15 million downloads at March 31, 2017 and remains extremely popular among customers for its simplicity of use and the completeness of its services, having a 4.2 rating on Android stores and 3.7 on iOS. WIND Talk, the WIND integrated messenger service app, has reached 1.3 million downloads. This offers services, chats with stores through Customer Assistance, credit transfers and mobile ticketing. The app is available for both private and business customers and has a rating of 4.2 for Android and 3.8 on the iOS platform. In November 2016 a new app, Veon, was added to WIND’s portfolio, which provides customers with an integrated experience of assistance services combined with typical Over The Top functionalities and has reached 1.5 million downloads. Veon is in constant evolution and version 2 of the app is planned to be issued by June. The Customer Area “3” app remains the main contact channel for the “3” brand. This has reached 15 million downloads and has a rating of 3.8 on Android stores and 3.5 on iOS. The social networks are an important point of contact, listening, promotion and customer management for WIND. There has been a constant increase in WIND’s fan base, which now totals around 1.3 million fans who follow all the brand’s activities on the leading social media. WIND continues to maintain levels of excellence in the special social care rankings, the “Top Brands” of Facebook and Twitter published on a monthly basis by Blogmeter (Blogmeter.com), for the speed with which it handles contacts. The results of its social campaigns, both paid (sponsored contents or paid advertising) and organic (unsponsored contents), are always among the best on the market, with conversion rates that are constantly among the highest of all the WIND digital touch points. The first IVRs were tested in support of the digital strategy; these propose downloads for non-users and allow users to view the information consulted on the IVR on the applicat ion.
Marketing and Branding
Offline advertising WIND brand In January 2017 WIND began its TV planning with a spot on Fiber, in movie format, containing the final episode of the Elves saga.
In February WIND renewed its ATL format with a new creative strategy exalting the brand’s ‘tone of voice’ and confirming its positioning as a smart-fun name with the return of Fiorello, the par excellence brand ambassador. ‘I’m
Report on operations 21 at March 31, 2017 not changing, I’m staying with WIND’ is the claim of the new format which opened with a value-driven branding campaign and was followed at the end of February and in March by two product spots dedicated to the All Inclusive and Wind Magnum offers. The Samsung Wind Magnum synergy also plays a leading role in a national billboard campaign: Wind Magnum customers can acquire a Samsung Galaxy S7 for only €8. Again in an OOH sphere billboard planning also concentrated on the roll-out of Fiber with three campaigns: the first of a national character was developed in 71 different cities. At the end of February and in mid March two local Fiber-denominated campaigns were planned in Turin and Bologna. Radio was covered with a campaign in partnership with Huawei with the aim of supporting the sales of the offer associating Wind Magnum with the Huawei P9 smartphone.
As far as the press was concerned, a medium as always dedicated to the ethnic target, planning continued in line with previous years and with a creative focus that exalts the idea of ‘Closer to your traditions even when you’re far away from home’.
“3” brand In 2017 the “3” brand presented itself to its customers in new attire. In January a branding campaign centered on the new pay-off ‘the future you want’ talked about the values of technology, transparen cy and trust which characterize the “3” brand’s positioning, as always on the cutting edge of technological decisions. The leading role in the story is taken by a young girl who dreams up solutions to revolutionize daily life and discovers that dreams really can come true through technology. The format continues with two commercial spots: in February ALL-IN with Top-up Always On, unlimited minutes, 30 gigabytes and a new Samsung Galaxy A for €15 a month, and in March for the first time with Fibra Infostrada also available for “3” customers at a price of only €19.95 a year and in cross-selling with the ALL-IN at half price. In line with the TV spots, in February ALL-IN took the star role in a national OOH campaign. Always close to the world of cinema with its Grande Cinema loyalty program which offers “3” customers a fee of charge entry ticket once a week, the “3” brand sponsored the launch of the film ‘Smetto Quando Voglio Masterclass’ on the big screen from 2 February with a product placement project and a national billboard campaign. It was also the main sponsor in March of the 61st ‘David di Donatello’ ceremony for prizes awarded by the Academy of Italian Cinema, which was also on the air on Sky with a spot and a dedicated offer: ALL-IN Gold Edition, up to 30 gigabytes, minutes and SMSs for €30 a month.
Online advertising Significant and continuous investments were made throughout the first quarter of 2017 in the digital media, aimed at ensuring a continuous awareness of all the Group’s brands and all the types of offers in its portfolio. Planning covered all the main desktop and mobile websites, with the use of standard, impact and video formats, the so cial media and search advertising. As far as the WIND brand is concerned, worthy of mention in the first quarter of 2017 are the Porta I Tuoi Amici, All Digital and Always on with an ethnic target campaigns as well as performance activities to support the On-line top-up campaign. In addition the two e-commerce hubs in partnership with Amazon and Freedom Pop were launched in March. Also of note in the first quarter of 2017 was the online launch of Veon, WIND’s new app for chatting and making internet calls, with full-circle coverage of the web and social channels and the dual objective of creating a reputation
Report on operations 22 at March 31, 2017 and encouraging downloads of the app. In addition, use was made of the occasion to develop a viral video campaign and activities in partnership with influencers. Worthy of mention in the period were also the performance campaigns concentrating on the ADSL and Infostrada Fiber offers, which in March were supported in Milan, Turin and Bologna, and also a campaign focusing on the speed of 1 gigabit a second (FTTH technology). The digital activities bearing the name of Wind Business continued with the main aim of collecting leads. As far as the “3” brand is concerned, an ALL-IN campaign in co-marketing with Samsung should be noted, a campaign designed to communicate the benefits of the “3”/Infostrada convergence as well as a display focusing on the new iPhone 7. In addition, in March “3” put its name to a digital campaign aimed at communicating the fact that it sponsors the 2017 David di Donatello awards on Sky properties.
Corporate advertising and special projects In the institutional sphere WIND’s contribution to young businessmen continued through the WIND Business Factor project and the new edition of the WIND Startup Award, which in 2017 rewarded start-ups with a period of pre- incubation at the Luiss Enlabs space at Termini Station in Rome. As part of this initiative WIND launched Italian Tour, a series of events in four Italian cities organized in partnership with TAG and Luiss Enlabs and designed to promote the values of closeness and sustainable innovation. Participation in the 2016/2017 edition was high: 74 start -ups were candidates for the award, while 34 projects were directed at sustainable innovation. In January the Group put its name to its first institutional campaign as WIND and “3” combine: the number one Group in mobile telecommunications in Italy is born. A new entity capable of facing the challenges of the future through its brands with courage and ambition. Which will make innovation its mission. In line with the values of technology, transparency and trust, “3” took the decision to be the main sponsor of the 61st ceremony for presenting the David di Donatello awards, broadcast by Sky on 27 March. The most original and ‘visionary’ film among those in competition received the “3” Future Award. This activity strengthens the link between the “3” brand and the world of the cinema, as always represented by the Grande Cinema 3 loyalty program.
Report on operations 23 at March 31, 2017 NETWORK
The WIND network WIND has developed an integrated network infrastructure providing high capacity transmission capabilities and extensive coverage throughout Italy for both fixed and mobile services. As of March 31, 2017, WIND’s fixed access network covered 69.6% of the Italian population with ADSL broadband+ direct services while mobile network population coverage reached 99.9%. In particular, WIND UMTS/HSPA and LTE are available to 98.6% and 74.0% of the Italian population respectively. The following chart shows WIND mobile’s coverage at March 31, 2017.
As of March 31, 2017 WIND’s mobile and fixed-line access networks are supported by 22,852 kilometers of fiber- optic cable backbone in Italy and 5,153 kilometers of fiber-optic cable MANs. WIND’s network uses a common transport, core and system platform, which is referred to as the “smart network”, for both WIND’s mobile and fixed-line access networks. WIND’s transport and routing network has been upgraded to provide a uniform and scalable IP network platform, which provides additional capacity. The geographical scope of its network and the integrated nature of its operations allow WIND to offer its subscribers mobile, fixed-line and internet product bundles and VAS. As of March 31, 2017, WIND also had 508 roaming agreements with international telecommunications operators around the world.
Fixed-line Network WIND’s fixed-line network consists of an extensive fiber-optic transport network with over 22,852 kilometers of transmission backbone and 5,153 kilometers of fiber-optic cable MANs linking all the capitals of Italian provinces and other major cities in Italy and a radio transmission network with 16,708 radio links in operation. The national voice switching network consists of an NGN/IMS network comprising 4 call control nodes, 4 media gateway controllers and 42 trunking gateways. The national network is supported by NGNs (Next Generation Networks) dedicated to interconnection with international operators consisting of 4 media gateway controllers and 12 trunking gateways. WIND is
Report on operations 24 at March 31, 2017 able to handle all the traffic on proprietary backbone infrastructure, with little need to rent additional capacity from third parties. As of March 31, 2017, WIND’s fixed-line access network had 1,956 LLU sites for direct subscriber connections with a capacity of approximately 3.511 million lines, and had interconnections with 32 GW IP s which allow it to provide carrier selection access for indirect subscribers throughout Italy, as well as WLR services. Since 2015 WIND has made investments in fiber activating the ultra-broadband services for almost 40% of the population, using mainly Fiber to the Cabinet and Fiber to the Home technologies. During 2016, the FTTH service was extended from Milan to Turin, Bologna and Perugia with the intent ion, this year, of covering other cities, leveraging on the agreement signed with Open Fiber (OF). WIND internet network access is implemented by 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 nodes access network consist of 61 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 offers mobile services through its three network layers 2G, 3G and 4G. The first layer, developed in 1998 with GSM technology, provides voice and data services with EDGE enhancement. The second layer, 3G, provides voice service and data services with HSPA+ technology. By 2015 WIND had already completed a massive roll-out of the UMTS refarming at 900MHz, changing the use of the part of its spectrum previously used for the GSM service (one block of 5MHz) in order to foster and enhance the indoor coverage of 3G services, due to the better propagation of the low spectrum frequencies. WIND is also continuing with its intensive plan to deploy the latest mobile generation network based on LTE (long term evolution), also known as “4G” technology, to provide broadband mobile connections.
Report on operations 25 at March 31, 2017 The following table provides an analysis of WIND’s SM/GPRS, UMTS/HSDPA and LTE networks as of March 31, 2017.
GSM/GPRS Radiating sites 14,795 BSC (Base Station Controllers) 222 MSC (Mobile Switching Centers)* 0 HLR (Home Location Register)* 10 SGSN (Service GPRS Support Node)/MME* 6 GGSN (Gateway GPRS Support Node)/PGW/SGW* 6
UMTS Node B 14,532 RNC (Radio Network Controller) 131 MSC-Server* 20 MGW (Mediagateway) 27
LTE Enodeb 4,497 HSS FE 2 HSS CUDB 2
*Shared with UMTS/LTE
The “3” network 3 Italia has developed an integrated network infrastructure providing high capacity transmission capabilities and extensive coverage throughout Italy for mobile services. In particular, UMTS/HSPA and LTE are available to 97.5% and 78.8% of the Italian population respectively. The following chart shows 3 Italy’s mobile coverage at March 31, 2017:
As of March 31, 2017 mobile line access networks are supported by 12,416 kilometers of fiber optic cables backbone in Italy and 1,505 kilometers of fiber-optic cable MANs. The transport of data traffic is carried on a BB IP/MPLS infrastructure consisting of 140 P oPs connected with 10/100Gbps links, interconnected to Big Internet through agreements with IP Transit providers and 3 International Peering Point. As of March 31, 2017, 3 Italia also had 415 roaming agreements with international telecommunications operators around the world.
Report on operations 26 at March 31, 2017 Mobile Network 3 Italia offers mobile services through its two network layers 3G and 4G. The High Speed network HSPA/HSPA+ (High Speed Packet Access) of 3 Italia allows the use of internet services in mobile broadband on smartphones, tablets and other mobile devices, including to subscribers living in digital divide areas meaning areas not reached yet by fixed broadband but covered by "3". On January 1, 2014 the Ministry of Economic Development released the availability of one block of 5MHz in the 900 MHz frequency band. These frequencies - used only by other mobile operators until then - were available in the national territory for 3 Italy. Thanks to this, "3" has been using 900 MHz in order to strengthen indoor coverage in urban and rural areas as well as to further increase the capacity of its high speed network. Through 4G-LTE services (Long Term Evolution) 3 Italia subscribers can experience download speeds of up to 100 Mbps and upload speeds of up to 50 Mbps.
The following table provides an analysis of 3 Italia’s UMTS/HSDPA and LTE networks as of March 31, 2017.
UMTS/LTE Node B 11,483 Enodeb 4,771 RNC (Radio Network Controller) 113 MSC-Server 11 MGW (Mediagateway) 22 SGSN /MME 9 GGSN/EPG 9 HSS 2 HLR-FE 4 HLR-CUDB 3
Report on operations 27 at March 31, 2017 HUMAN RESOURCES
At March 31, 2017, the Wind Tre Group had a workforce of 8,981 employees structured as follows.
No. of employees at Average no. of employees at
03/31/2017 03/31/2016 03/31/2017 03/31/2016 (proforma) (proforma) Senior managers 200 242 204 244 Middle managers 836 906 843 908 Office staff 7,945 8,504 8,010 8,505 Total Wind Tre Group 8,981 9,652 9,057 9,657
During the first quarter of 2017 the Group hired 5 employees while 360 left.
The following table shows the geographical allocation of Wind Tre personnel.
Sites 03/31/2017 Wind Tre 03/31/2016 ex WIND 03/31/2016 ex H3g Rome 31% 33% 23% Milan* 18% 13% 31% Naples* 13% 18% 1% Palermo 7% 6% 11% Ivrea 7% 9% 0% Cagliari 5% 1% 18% Genoa 4% 1% 11% Other 15% 19% 5% Total 100% 100% 100%
(*) The Rho site is included in Milan and the Pozzuoli site is included in Naples.
Organization
The Group’s new organizational structure was introduced during the first quarter of the year by setting up the two business units dedicated to covering the business and consumer market segments and a technology department dedicated to covering all network technologies and information technology with a view to achieving an effective integration of the systems. In addition, a department was set up within corporate staff dedicated specifically to controlling the plan for the integration between the two merged groups. At the same time the process for communicating the new organizational responsibilities was carried out.
Training
A total of 1,463 man-days of training were given in the first quarter of 2017. These mainly involved specialized technical training for the technology department.
Report on operations 28 at March 31, 2017 Of particular note was the start in February of training courses on the implementation of the ZTE network which mostly involved Technology Operations, Access Deployment and Network Engineering. The relative training projects will continue for the whole of the next quarter together with on the job training.
Industrial relations
Following the consolidation of the merger of WIND into H3G, an agreement was reached in February harmonizing the various contractual and legislative provisions. This includes among other things: the possibility of converting the production bonus into welfare services, enabling employees who take this opportunity to obtain the fiscal benefits currently envisaged by law; greater flexibilit y in terms of leave and welfare, thus facilitating the work-life balance (optional maternity leave with full pay for 4.5 months; smart working and telew orking); and economic benefits linked to productivity (ticket restaurant; various indemnities; travel hours; advances on severance indemnities, etc.).
Again as part of the need to integrate the two groups, agreements were reached with the trade unions on t he transfer of personnel between the various locations and in particular between Rho and Trezzano.
Strike action involving all of the Group’s sites took place in the first quarter concerning the need to renew the national collective bargaining agreement for the telecommunications sector. No particular repercussions on operations were noted.
Report on operations 29 at March 31, 2017 REGULATORY FRAMEWORK AT MARCH 31, 2017
Mobile Networks and Services
Mobile termination
In September 2015 AGCOM extended1 the validity of the mobile termination rate of 0.98€Cent/min established in 20112 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 service s 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 euro cents per minute), AGCOM allowed Italian mobile operators to establish their own fair and reasonable mobile termination rates for calls originating from non EU/EEA operators in commercial terms. Both WIND and H3G took advantage of this opportunity set ting prices depending on the origin of the call. In January 2017 AGCOM initiated a new cycle of market analyses for mobile termination. Information is currently awaited from AGCOM in this respect together with the publication of the consultation documents.
EU Roaming Regulation
In November 2015 European legislation was issued3 amending the previous regulation4 on roaming, having as its objective the elimination of the difference between roaming tariffs and domestic tariffs for occasional travel (Roaming Like At Home) across the European Union starting from June 15, 2017. The same regulation established a transitional period from April 2016 to June 2017 during which mobile operators are allowed to apply a surcharge. To complete the above mentioned regulation, in December 2016 the European Commission also published the implementing regulation5 designed to define criteria for the fair use policy and for the evaluation of the sustainability of RLAH and a further regulation6 on the maximum tariff applicable until June 15, 2017 for voice calls received by European customers when roaming in one of the European Union countries. The European Parliament approved the proposal to revise the wholesale cap on April 6, 2017; ratification by the European Council and the subsequent publication in the European Official Journal are expected to take place at the beginning of June so that the implementing regulation can be effective before June 15, 2017.
Spectrum
In May 2016, AGCOM initiated a public consultation on “licensed shared access” (LSA) to the spectrum for terrestrial electronic communication systems following the invitation made by the Radio Spectrum Policy Group and the European Commission to national regulatory authorities. The proceedings are still in progress.
1 Resolution 497/15/CO NS 2 Resolution 621/11/CO NS 3 Regulation (EU) 2015/2120 4 Regulation (EU) 2012/531 5 Implementing Regulation (EU) 2016/2286 6 Implementing Regulation (EU) 2016/2292
Report on operations 30 at March 31, 2017 In December, AGCOM announced the start of a fact-finding survey7 on prospects for the development of mobile and wireless systems towards the fifth generation (5G) and the utilization of new portions of the spectrum above 6GHz. In March 2017 AGCOM published a document on the fact-finding survey and the deadline for responses has been set as June 26, 2017.
During 2016 H3G completed the coverage obligations set for the spectrum in the 2600 MHz band in advance with respect to the deadline set at the time of the assignment of the rights of use (LTE auction).
Again during 2016 the former Wind Telecomunicazioni S.p.A. carried out a change of technology (refarming) from GSM to UMTS (3G) on a 2x5 MHz block in the 900 MHz band on a specific portion of the national territo ry.
Pursuant to and in accordance with 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 S.p.A. requested authorization, with effect from July 1, 2017, to change the technology on the entire allocated 900 and 1800 MHz band with expiry date June 30, 2018 and at the same time to extend the term for the above-mentioned rights of use to the new technical conditions at December 31, 2029.
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 for Economic Development as required by the provision of that ministry dated October 24, 2016 and protocolled with no. 67608.
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 Ministry for Economic Development has initiated a procedure for acquiring planning proposals for carrying out pre-commercial testing within radio spectrum 3.6 – 3.8 Ghz. The closing date for submitting applications for participation has been set as May 15, 2017.
National Numbering Plan and SMS/MMS Alias
In May 20168, AGCOM initiated an investigation proceeding to modify and integrate the “National Numbering Plan” as per Resolution 8/15/CIR in relation to “Machine-to-Machine” services. The proceeding came to an end in December 20169.
In July 2016, AGCOM set up a public consultation10 on modifications and additions to the “Numbering plan in the telecommunication sector and implementation regulations” in relation to the use of alphanumeric identification codes. The proceeding is still in progress.
In November 2016, AGCOM published11 the results of the public consultation on modifications and additions to the National Numbering Plan for mobile ticketing services started in May12.
7 Resolution 557/16/C O NS 8 Resolution 43/16/C IR 9 Resolution 639/16/C IR 10 Resolution 158/16/C IR 11 Resolution 527/16/C O NS 12 Resolution 112/16/C IR
Report on operations 31 at March 31, 2017 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. A final decision is currently awaited.
Database of all internet access networks
In December 2016 AGCOM completed the proceeding13 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 .
Fixed-line network
TIM reference offers
During 2016 the Authority started several proceedings for assessing the TIM Reference Offers for 2015 and 2016 relating to: a) wholesale fixed-line services for unbundling access services; b) dedicated capacity transmission services14; c) copper and NGA based bitstream services, VULA and related ancillary services; d) WLR services; e) fixed network interconnection services; f) NGA infrastructure. In December 201615 AGCOM approved the TIM reference offers for 2015 and 2016 relating to dedicated capacity transmission services (point b) above). In January, February and March 2017 AGCOM approved the reference offers for 2015 and 2016 relating to LLU, bitstream copper and NGA and WLR services (points a), c) and d) above). Decisions on the reference offers for points e) and f) are currently awaited.
During December 2016 AGCOM initiated16 a public consultation relating to the economic and technical conditions of the 2013 Reference Offers of TIM for copper bitstream services, copper local loop and sub loop unbundling and co- location services. This proceeding was initiated in execution of sentence no. 3143/2016 of the Council of State relating to AGCOM Resolutions 746/13/CONS, 747/13/CONS and 155/14/CONS. The proceeding is in progress.
Market analysis
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. Again in January 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 both cases information from AGCOM and the publication of the consulting documents is awaited.
13 Determination 1/16/DSD 14 Terminating circuits, interconnection links, kit deliv eries and internal cabling w ithin TIM premises. 15 Deliberation 596/16/C O NS 16 Deliberation 627/16/C O NS
Report on operations 32 at March 31, 2017 Technical working groups
In 2016 the Authority set up a number of working groups designed to address the technical issues relating to wholesale services. In particular the following matters were discussed by the workgroups: 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) 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. Discussions are in progress.
Universal service
By way of Resolution 113/16/CONS of March 24, 2016 AGCOM carried out a preliminary investigation to review the sphere of application of universal service obligations regarding internet access and the related quality objectives; while waiting for the final decision, on March 6, 2017 AGCOM initiated an enquiry into the adoption rate of fixed -line broadband in Italy analyzed by specific speed.
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, on March 31, 2017, 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- broad band fiber-optic offers.
Equal treatment and unbundling of provisioning and assurance services for LLU and SLU services
During May 2016 AGCOM started a proceeding17 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 as to equal treatment in the provision of regulated fixed wholesale access services. The proceeding is in progress.
Proceeding for the revision of SLAs and penalties pursuant to Resolution 623/15/CONS
On the basis of Resolution 623/15/CONS on fixed access markets, 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.
17 Deliberation 122/16/C O NS
Report on operations 33 at March 31, 2017 Review of non-discrimination key performance indicators as per Resolution 623/15/CONS
Following its approval of Resolution 623/15/CONS on fixed access market services AGCOM 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 initial observations. The proceeding is in progress.
Guidelines for wholesale access conditions to ultra-broadband networks receiving government funding
In April 2016 AGCOM published guidelines18 on wholesale access conditions to ultra-broadband networks receiving government funding. The guidelines deal separately with the “incentive” model, based on the co-financing of private propriety networks (through a public grant of up to 70% of the total capital), and the new “direct intervention” model, based entirely on public financing of the public propriety networks.
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 the means to protect 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.
Fixed termination
In September 2016 AGCOM adopted its final decision19 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.
Migration procedures and pure number portability
In October 2015 AGCOM submitted for consultation20 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.
18 Resolution 120/16/CO NS 19 Decision 425/16/C O NS 20 Decision 119/15/C IR
Report on operations 34 at March 31, 2017 Television frequencies and networks Article 1 of the decree of the Ministry of Economic Development dated August 4, 2016 established that the fees to be paid for spectrum rights of use for 2014, 2015 and 2016 should be paid by December 31, 2016. This annual contribution is 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%.
Antitrust issues
Proceeding A428C
On July 15, 2015 AGCM initiated a proceeding against TIM for alleged infringement pursuant to article 15, paragraph 2 of Law no. 287/90 for failing to comply with letters a) and c) of the Authority’s Provision 24339 of May 9, 2013 (a provision issued at the end of proceeding A428). This proceeding, which had been subject to a series of postponements, was brought to an end on December 21, 2016 by way of Provision 26310 under which the Authority resolved: a) that there is no presupposition for the sanction, b) that Telecom Italia S.p.A. should continue with the implementation of the project for the reorganization of the business model ensuring equality of treatment up to planned completion and that it should inform the Authority as to the performance levels of the access service supply systems and the stage of completion of the reorganization project by way of written documentation within thirty days of the date indicated by the Party for completing the implementation stage of the project stated in b).
Proceeding 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 remove the charge of anti-competitive conduct.
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, 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, is expected to be completed by December 31, 2017.
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 and its multibrand sales chain was submitted to the Authority in March 2017. This report must be submitted in March of each year for the commitments to hold.
Report on operations 35 at March 31, 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 Prot ection Code (Legislative Decree no. 196 of June 30, 2003). The Guarantor has carried out certain inspections with regard to the brand “3” whose results are not yet known.
Consumer protection
As regards the proceedings of the Italian Competition Authority (AGCM) on consumer protection matters, one proceeding concerning the Consumer Code regulation and relating to the right of withdrawal as part of remote selling is still pending for the WIND/Infostrada brand (PS10685); this proceeding is expected to be concluded by May 6, 2017 and a fine is possible. A proceeding on teleselling was brought to an end with a fine (PS10026). A new proceeding (PS10571) was recently initiated and a preliminary analysis is in progress. Additional work is currently taking place with requests for documentation in proceedings DS1676 and PS10702.
Two consultations were initiated in 2016 on the activities carried out by AGCOM in the field of consumer protection: the first on the subject of provisions concerning special economic conditions reserved for certain categories of customer (Resolution 378/16/CONS) was recently concluded by way of final decision 46/17/CONS, while the second on the partial modification of Resolution 252/16/CONS was concluded by way of Resolution 121/17/CONS. In addition a public consultation has been set up on measures following seismic events (84/17/CONS). A proceeding initiated in 2016 against the WIND brand on the provision of international roaming services in Europe (31/17/2017) has been brought to an end and a proceeding on the submission of claims by telephone (21/16/DTC) is still pending, while the proceeding initiated in 2016 on migration procedures has been concluded. As far as the “3” brand is concerned the proceeding on the provision of roaming services in Europe (32/17/CONS) has been concluded, as have been the activities for compliance with Decision 579/16 (on the involuntary use of the answering service). A new proceeding has recently been initiated against the “3” brand (1/17/DTC) regarding the LTE reformulation activities that were carried out in 2016.
Report on operations 36 at March 31, 2017 OUTLOOK
After the first signs of stabilization in 2016, the 2017 market is expected to recover slightly in the mobile segment, driven by an increasing demand for data in mobility due to more rational competitive dynamics coupled with an increased focus on customer base ARPU growth. In the first quarter of 2017 the market has seen new brand policies by some operators in anticipation of the entry into the market of Iliad, a fourth infrastructured mobile operator, 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 the expectation is of a progressive slowdown in value contraction d ue to the upcoming arrival of fiber on a larger scale and an overall quality improvement in broadband. In 2017, 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 €7 billion in the telecommunications network, innovation and new technologies over the next few years. Wind Tre has the aim of becoming the most innovative digital telecommunications operator in Italy with the largest and most extensive mobile broadband network in the country. Additionally it is also the Group’s intention to seek new growth opportunities in the business segment of the market. Wind Tre will continue to strengthen its position in the mobile, fixed-line voice and internet segments as well as enhancing its convergent business model. Considerable emphasis will be placed on increasing efficiency and obtaining a further optimization of the cost structure as part of the integration program for the two operating companies.
Report on operations 37 at March 31, 2017
WIND TRE GROUP
Consolidated interim financial statements as of and for the three-month period ended March 31, 2017
FINANCIAL STATEMENTS AND NOTES THERETO
BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TRE SPA
Board of Directors (1)
Chairman Christian Nicolas Roger Salbaing
Directors Maximo Ibarra, 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 (formerly H3G S.p.A.) convened on November 5, 2016, appointed the Board of Directors until the date of the shareholders’ meeting that will meet for the approval of the Company’s financial statements as at December 31, 2018.
(2) The Shareholders’ meeting of the Company (formerly H3G S.p.A.) convened on November 5, 2016 appointed the Board of Statutory Auditors of the Company until the date of the shareholders’ meeting that will meet for the approval of the Company’s financial statements as at December 31, 2018
Consolidated interim financial statements 39 as of and for the period ended March 31, 2017
CONTENTS
BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TRE SPA ...... 39 CONSOLIDATED INCOME STATEMENT ...... 41 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... 42 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 43 CONSOLIDATED STATEMENT OF CASH FLOWS ...... 44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 45 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WIND TRE GROUP AS OF AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2017 ...... 46 1 INTRODUCTION ...... 46 2 GENERAL ACCOUNTING POLICIES ...... 47 3 BASIS OF CONSOLIDATION ...... 51 4 REVENUE ...... 54 5 OTHER REVENUE ...... 54 6 PURCHASES AND SERVICES ...... 54 7 OTHER OPERATING COSTS...... 55 8 PERSONNEL EXPENSES ...... 55 9 RESTRUCTURING COSTS ...... 55 10 DEPRECIATION AND AMORTIZATION ...... 56 11 FINANCE INCOME AND EXPENSE ...... 56 12 INCOME TAXES ...... 57 13 PROPERTY, PLANT AND EQUIPMENT ...... 58 14 INTANGIBLE ASSETS ...... 59 15 FINANCIAL ASSETS ...... 61 16 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD ...... 61 17 DEFERRED TAX ASSETS AND LIABILITIES ...... 62 18 EQUITY ...... 63 19 PROVISIONS ...... 64 20 FINANCIAL LIABILITIES ...... 65 21 DERIVATIVE FINANCIAL INSTRUMENTS ...... 66 22 NET DEBT ...... 68 23 RELATED PARTY TRANSACTIONS ...... 68 24 OTHER INFORMATION ...... 70 25 SUBSEQUENT EVENTS ...... 73
Consolidated interim financial statements 40 as of and for the period ended March 31, 2017
CONSOLIDATED INCOME STATEMENT
2017 2016 (millions of euro) Note 3 months 3 months
Revenue 4 1,514 476 Other revenue 5 38 10 Total revenue 1,552 486
Purchases and services 6 (849) (327) Other operating costs 7 (72) (29) Personnel expenses 8 (114) (41) Restructuring costs 9 (59) - Operating income before depreciation and amortization, reversal of impairment losses/impairment losses on non-current assets and 458 89 gains/losses on disposal of non-current assets
Depreciation and amortization 10 (778) (98) Operating income (320) (9)
Finance income 11 28 - Finance expense 11 (172) (13) Foreign exchange gains / (losses), net (2) - Profit before tax (466) (22)
Income taxes 12 (30) - Profit/(Loss) for the period (496) (22)
Consolidated interim financial statements 41 as of and for the period ended March 31, 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions of euro) 2017 2016 Note 3 months 3 months
Loss for the period (496) (22) Other comprehensive income that will be reclassified
subsequently to profit or loss Gains on cash flow hedging instruments 11 -
Total Other comprehensive income that will be reclassified 18 11 - subsequently to profit or loss
Total comprehensive loss for the period 18 (485) (22)
Consolidated interim financial statements 42 as of and for the period ended March 31, 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At March 31, At December 31, (millions of euro) Note 2017 2016
Assets Property, plant and equipment 13 5,117 5,618 Intangible assets 14 9,940 10,001 Financial assets 15 2,449 2,494 Trade receivables 300 244 Investments accounted for using the equity method 16 77 77 Deferred tax assets 17 106 125 Other receivables 4 30 Total non-current assets 17,993 18,589
Inventories 115 72 Trade receivables 1,211 1,287 Financial assets 15 44 24 Current tax assets 27 27 Other receivables 318 235 Cash and cash equivalents 622 603 Assets held for sale 61 50 Total current assets 2,398 2,298 TOTAL ASSETS 20,391 20,887
Equity and Liabilities Equity Issued capital 474 474 Share premium reserve 3,119 3,119 Other reserves 11,333 11,650 Retained earnings (11,207) (11,039) Total equity 18 3,719 4,204
Liabilities Financial liabilities 20 12,789 12,838 Employee benefits 76 79 Provisions 19 145 140 Other non-current liabilities 99 109 Deferred tax liabilities 17 371 368 Other payables - 1 Total non-current liabilities 13,480 13,535
Financial liabilities 20 206 176 Trade payables 2,132 2,272 Other payables 795 648 Income tax payables 59 52 Total current liabilities 3,192 3,148 Total liabilities 16,672 16,683 TOTAL EQUITY AND LIABILITIES 20,391 20,887
Consolidated interim financial statements 43 as of and for the period ended March 31, 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
2017 2016 (millions of euro) 3 months 3 months
Cash flows from operating activities Profit/(Loss) for the period (496) (22) Net financial costs 144 13 Income taxes 30 - Profit/(Loss) for the period before taxes, interest and profit/losses on disposal assets (322) (9) Adjustments to reconcile the loss for the period with the cash flows from/(used in) operating activities Depreciation, amortization and (reversal of impairment losses)/impairment losses on non-current assets 778 98 Net changes in provisions and employee benefits 7 2 Impairment of trade receivables 43 20 Changes in inventories (43) (1) Changes in current assets/liabilities (114) (21) Interest paid (130) - Net cash flows from operating activities 219 89
Cash flows from investing activities Acquisition of property, plant and equipment (149) (17) Acquisition of intangible assets (91) (42) Assets disposal 13 - Net cash flows used in investing activities (227) (59)
Cash flows from financing activities Banks financing borrowing: Repayments - (20) Parent company and fellow subsidiaries borrowings: Proceeds 171 34 Repayments (144) (1) Net cash flows from/(used in) financing activities 27 13
Net cash flows for the period 19 43
Cash and cash equivalents at the beginning of the period 603 89
Cash and cash equivalents at the end of the period 622 132
Consolidated interim financial statements 44 as of and for the period ended March 31, 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable to the owners of the parent
Retained Share premium earnings/(losses (millions of euro) Issued capital reserve Other reserves carried forward) Equity
Balances at January 1, 2016 474 3,119 9,488 (9,032) 4,049
Total comprehensive income for period
- Loss for the period - - - (22) (22) Transactions with equity holders - - - - -
Balances at March 31, 2016 474 3,119 9,488 (9,054) 4,027
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
Consolidated interim financial statements 45 as of and for the period ended March 31, 2017
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 SpA (hereafter 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 and internet mobile access services in broadband and wireless mode. In addition, it accompanies its offer with a wide range of content, applications and multimedia support. Wind Tre is also active on the digital TV market.
These consolidated financial statements for the quarter ended March 31, 2017 were approved by the Company’s Board of Directors on May 8, 2017. At the date of approval of these consolidated financial statements Wind Tre is controlled by Wind Tre Italia SpA (hereafter referred to as Wind Tre Italia) which in turn is controlled by the Luxembourg based entity VIP-CKH Luxembourg Sàrl (hereafter 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 (hereafter referred to as CK Hutchison) and by Veon Ltd. (formerly VimpelCom Ltd. and hereafter referred to as Veon), which jointly own and operate their respective 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, Netherlands and listed on NASDAQ.
The economic data for the first quarter 2017 are not immediately comparable with those of the same period of the previous year because they refer only to the balance sheet of the former H3G Group, which did not previously draw up interim financial statements under IAS 34 and that therefore the comparative figures have not been subject to review by the audit firm.
On the formation of the Joint Venture at the end of last year the respective holding and operating companies of the telecommunications businesses in Italy of CK Hutchison and VimpelCom, namely Wind Tre Italia and WIND Acquisition Holdings Finance SpA, and Wind Tre and WIND Telecomunicazioni SpA, 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 VimpelCom.
Following the above mentioned transaction WIND Acquisition Holdings Finance SpA and WIND Telecomunicazioni SpA have been merged in Wind Tre Italia and in Wind Tre respectively.
The approval of the transaction obtained from the European Commission, that 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. The agreements have resulted in the commitment of the Wind Tre Group to sell to Iliad frequencies and sites 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 Iliad is creating its own network. As a result of these agreements the carrying amount of the assets to be sold have been reviewed in terms of impairment or by revising their useful lives. In addition, where the sale is
Consolidated interim financial statements 46 as of and for the period ended March 31, 2017
expected to occur within 12 months from the closing date the assets in question have been recognized and measured in accordance with the requirements of IFRS 5 for assets held for sale. These valuations were updated in the interim financial statements as of March 31, 2017.
The following diagram sets out the structure of the Wind Tre Group at March 31, 2017.
The entry into the market of Iliad, the fourth infrastructure mobile operator, required by the European Commission as a mandatory condition for approving the merger between Wind Telecomunicazioni SpA and H3G SpA which took place at the end of last year, is planned for the end of 2017 or the beginning of 2018. For more information on the above transaction please refer to the Wind Tre Group Notes to the Consolidated Financial Statements as of December 31, 2016. In the fixed-line market the progressive slowdown in value contraction continues following the dissemination of new generation ultra-fast fiber connections and the overall improvement in broadband services. In addition emphasis continues to be given to increasing efficiency and obtaining a further optimization of the cost structure as part of the integration program that followed the merger of the two operating companies at the end of 2016.
2 GENERAL ACCOUNTING POLICIES 2.1 Basis of preparation
The consolidated financial statements for the period ended March 31, 2017 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 endorsed by the European Union 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. 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
Consolidated interim financial statements 47 as of and for the period ended March 31, 2017
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, 2016. The consolidated financial statements as of and for the year ended December 31, 2016 are available on request at the registered office of the Parent and on the website www.windtre.it. The income statement and statement of comprehensive income figures provided relate to the three months ended March 31, 2017. As described in the foregoing, comparative data refer only to the H3G group and therefore the comparability of data must take into account this distinction. 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, 2016 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. 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, 2016.
For the purposes of comparison, balances in the statement of financial position have been reclassified where necessary. These reclassifications do not affect the Group’s profit for the year or equity.
In this regard in order to ensure a representation in line with sector practice management has changed the presentation in the financial statements of customer acquisition costs (mainly represented by commissions paid to the sales network) which are capitalized as intangible assets where the criteria provided by the applicable standards for recognition as fixed assets are met and amortized over the minimum contractual life. In previous years these costs were deferred over the minimum contractual life and presented as "Financial assets" in the non-current section; this presentation has no effect on the opening balance of shareholders' equity and results of prior years. For effects related to the different presentation reference should be made to notes 14, 15, 6 and 10 (intangible assets, financial assets, purchases of materials and external services, depreciation and amortization).
Consolidated interim financial statements 48 as of and for the period ended March 31, 2017
2.2 Accounting standards and interpretations
The Group has adopted all the newly issued and amended standards of the IASB and interpretations of the IFRIC, endorsed by the European Union, applicable to its transactions and effective for financial statements for years beginning January 1, 2017 and thereafter.
. New accounting standards and interpretations
Standards effective in 2017
In the first quarter of 2017, no standards or interpretations that have already been endorsed by the EU have become officially applicable.
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 interim financial statements as of March 31, 2017.
Unless otherwise indicated, the Company 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.
Standard, amendment or interpretation Status
Amendment to IAS 7 “Statement of Cash Flows” under the Expected endorsement in Q2 2017. disclosure initiative.
Amendment to IAS 12 “Income Taxes”: Recognition of Deferred Expected endorsement in Q2 2017. Tax Assets for Unrealised Losses.
Table 1 - IFRSs whose effective date is expected for accounting periods beginning on or after January 1, 2017 (the effective date determined by the IASB may differ from the effective date for the EU.
Amendment to IAS 7 “Statement of Cash flows” under the disclosure initiative - The amendment introduces an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB’s Disclosure Initiative, aimed at understanding how financial statement disclosures can be improved.
Amendment to IAS 12 “Income Taxes” – This amendment regarding the “Recognition of Deferred Tax Assets for Unrealised Losses” clarifies how to account for deferred tax assets arising from debt instruments measured at fair value.
Consolidated interim financial statements 49 as of and for the period ended March 31, 2017
Standard, amendment or interpretation Status
IFRS 15 “Revenue from Contracts with Customers” (issued on Endorsed: September 22, 2016. May 28, 2014) including amendments to IFRS 15. Effective date Effective (EU): January 1, 2018. of IFRS 15 (issued on September 11, 2015).
Endorsed: November 19, 2016. IFRS 9 “Financial Instruments”. Effective (EU): January 1, 2018. Amendment to IAS 40 “Investment Property” relating to Expected endorsement in H2 2017. transfers of investment property.
Annual improvements 2014–2016 relating to: IFRS 1 “First-time Adoption of IFRS” Expected endorsement in H2 2017. IFRS 12 ”Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures”
IFRIC 22 “Foreign Currency Transactions and Advance Expected endorsement in H2 2017. Consideration”.
Table 2 - IFRSs whose effective date is expected for accounting periods beginning on or after January 1, 2018 (the effective date determined by the IASB may differ from the effective date for the EU.
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 paragraphs relating to the recognition and measurement of revenue introduce a 5-step model: i) identification of the contract with the customer; ii) identification of “performance obligations”, that is to say the separable components that are part of a sole contract but that have to be separated for accounting purposes; iii) determination of the selling price; iv) price allocation for the various “performance obligations” and v) revenue recognition when performance obligations are satisfied. IFRS 15 completes the financial statement disclosures to be presented with the nature, amount, timing and uncertainties of revenues and their cash flows.
The Group has started up the activities deemed necessary to assess the effect of the application of IFRS 15 and to apply the standard with effect from 2018 when the standard becomes effective, with retrospective application to all contracts not completed at January 1, 2018.
IFRS 9 “Financial Instruments” – This replaces IAS 39 “Financial Instruments” and contains a model to evaluate financial instruments based on three categories: amortized cost, fair value through profit or loss and fair value through other comprehensive income”. The standard envisages a new impairment model that is different from that currently included in IAS 39 and is more focused on expected credit losses. The Group has started up the activities deemed necessary to assess the effect of the application of IFRS 9.
Amendment to IAS 40 “Investment Property”; this amendment clarifies that there must be a change in use to transfer assets to, or from, investment properties. To determine that an asset has changed use there should be an assessment of whether the property meets the definition. This change must be supported by suitable evidence.
Changes in annual improvements 2014–2016 possibly affecting the Group in the future are:
IFRS 12 ”Disclosure of Interests in Other Entities”; clarification of the scope of the standard.
Consolidated interim financial statements 50 as of and for the period ended March 31, 2017
IAS 28 ”Investments in Associates and Joint ventures”; clarification of measuring at fair value of an associate or joint venture.
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 interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice.
Standard, amendment or interpretation Status
IFRS 16 “Leases” Expected endorsement in H2 2017
Table 3 - 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). The Group has started up the activities deemed necessary to assess the effect of the application of IFRS 16.
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 investment in the entity; the ability to use its decision-making power to determine the amount of the results arising from its investment in the entity. The existence of control is checked whenever facts and circumstances indicate a change in one or more of the three qualifying elements of the 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, 2017 in accordance with the IFRS adopted by the European Union (EU) in drawing up these statements and approved by the respective Boards of Directors.
Consolidated interim financial statements 51 as of and for the period ended March 31, 2017
The consolidation procedures used are as follows: the assets and liabilities and income and expenses of consolidated subsidiaries are included on a line-by-line basis, 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; except for business combinations under common control as noted below the purchase method of accounting is used to account for business combinations 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 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 if material, 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.
Share/quota Basis of consolidation Registered office % holding capital / measurement
Euro 03.31.2017 03.31.2017 Subsidiaries WIND Retail Srl Italy 1,026,957 100 Line-by-line WIND Acquisition Finance SA Luxembourg 60,031,000 100 Line-by-line 3lettronica Industriale SpA Italy 16,000,000 100 Line-by-line Associates Galata SpA Italy 1,000,000 10 Equity Others MIX Srl Italy 99,000 9.75 Cost Consel Italy 51,000 1 Cost Janna Scarl Italy 13,717,365 17 Cost QXN Italy 500,000 10 Cost Dono per…Scarl Italy 30,000 33.33 Cost
Consolidated interim financial statements 52 as of and for the period ended March 31, 2017
Participation in Galata SpA has been considered as an investment in an associate given that significant influence can be exercised under corporate agreements.
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 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” principle). Where the values transferred are higher than these historical values, both the acquirer and the seller must eliminate the excess by reducing equity.
In relation to the date from which a transaction under common control can be considered, OPI 1 and predecessor accounting allow the backdating of the accounting consequences if the aim of the transaction is to reorganize a Group after a major transaction has occurred at a higher level. The backdating can be applied up to the date of when the major transaction occurred.
The economic data for the first quarter 2017 are not immediately comparable with those of the same period of the previous year as a result of the different contribution to the consolidated income statement of the former H3G SpA and the former WIND Telecomunicazioni SpA involved in the merger that took place in 2016. A proforma income statement is included in the Report on operations to simulate the effects of the merger since January 1, 2016.
Consolidated interim financial statements 53 as of and for the period ended March 31, 2017
4 REVENUE The following table provides an analysis of Revenue for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change 3 months 3 months Revenue from sales 196 92 104
- Telephone services 1,127 311 816 - Interconnection traffic 135 53 82 - International roaming 13 9 4 - Judicial authority services 2 - 2 - Other revenue from services 41 11 30 Revenue from services 1,318 384 934 Total 1,514 476 1,038
Revenue from sales mainly refers to the sale of mobile telephone handsets and accessories.
The Telephone services mainly refer to revenues from 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 and revenue from MVNO.
Other revenue from services mainly refer to business spaces, sites and network sublease.
5 OTHER REVENUE Other revenue amounts in total to €38 million in the three months of 2017 and refers principally to release to income statement of capital contribution for the period and penalties that have been accrued on a definitive basis.
6 PURCHASES AND SERVICES The following table provides an analysis of Purchases and services for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change
3 months 3 months Purchases of raw materials, consumables, supplies and goods 215 87 128 Interconnection traffic 139 56 83 Rental of local network and circuits 98 4 94 Outsourcing costs for other services 93 14 79 Lease of civil/technical sites and use of third party assets 90 49 41 Customer acquisition costs 73 43 30 Maintenance and repair 44 33 11 Advertising and promotional services 34 10 24 Power consumption and other utilities 34 11 23 National and international roaming 11 7 4 Consultancies and professional services 11 3 8 Change in inventories (32) - (32) Other services 39 10 29 Total purchases and services 849 327 522
Consolidated interim financial statements 54 as of and for the period ended March 31, 2017
7 OTHER OPERATING COSTS
The following table provides an analysis of Other operating costs for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change
3 months 3 months Impairment losses on trade receivables and current assets 43 20 23
Annual license and frequency fees 16 5 11
Accruals to provision for risks and charges 6 1 5
Other operating costs 7 3 4
Total other operating costs 72 29 43
8 PERSONNEL EXPENSES
The following table provides an analysis of Personnel expenses for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change 3 months 3 months
Wages and salaries 100 32 68
Social security charges 26 8 18
Post-employment benefits 6 2 4
Other personnel expenses 4 2 2
(Costs capitalized for internal works) (22) (3) (19)
Total personnel expenses 114 41 73
On February 24, 2017, an agreement was reached to harmonize the various contractual and regulatory disciplines following the merger at the end of last year. For more information, see the Report on Operations.
9 RESTRUCTURING COSTS The item, amounting €59 million at March 31, 2017, is mainly due to the accrued costs for implementing the business’s restructuring and reorganization plan, drawn up with the objective of the incorporation.
Consolidated interim financial statements 55 as of and for the period ended March 31, 2017
10 DEPRECIATION AND AMORTIZATION
The following table provides an analysis of Depreciation and amortization for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change 3 months 3 months
Depreciation of property, plant and equipment
- Plant and machinery 631 47 584
- Industrial and commercial equipment 5 - 5
- Other assets 6 2 4
Amortization of intangible assets with finite lives
- Industrial patents and similar rights 56 15 41
- Concessions, licenses, trademarks and similar rights 12 6 6
- Other intangible assets 68 28 40
Total depreciation and amortization 778 98 680
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.
11 FINANCE INCOME AND EXPENSE
Financial management generated a negative net finance expense of €144 million in the first three months of 2017 (€13 million first three months of 2016l).
The following table provides an analysis of Finance income for the three months of 2017 compared with the corresponding period of 2016.
Change (millions of euro) 2017 2016
3 months 3 months Cash flow hedges reversed from equity 2 - 2 Fair value measurement of non-hedging derivatives 2 - 2 Other 24 - 24 Total finance income 28 - 28
Other financial income at March 31, 2017 consists mainly of the interest of €23 million arising on the receivable from the parent Wind Tre Italia SpA under the intercompany agreements entered in April 23, 2014 and in August 4, 2014, for which details may be found in note 15.
Consolidated interim financial statements 56 as of and for the period ended March 31, 2017
The following table provides an analysis of Finance expense for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change 3 months 3 months Interest expense on: Bond issues 148 - 148 Shareholders loans 12 12 - Bank loans 13 - 13 Cash flow hedges, reversed from equity (30) - (30) Fair value measurement of derivatives 17 - 17 Other 12 1 11 Total finance expense 172 13 159
Finance expense consists mostly of accrued interest on financial liabilities outstanding at March 31, 2017, for which further details may be found in note 20.
Interest expense on shareholders loans refers to costs incurred during the first quarter 2017 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 €30 million and the negative ineffectiveness recorded on hedging derivatives by €17 million.
12 INCOME TAXES
The following table provides an analysis of Income tax for the three months of 2017 compared with the corresponding period of 2016.
(millions of euro) 2017 2016 Change 3 months 3 months Current tax 10 - 10 Deferred tax 20 - 20 Total income taxes 30 - 30
The net charge for the period is made up of the following: current income taxes expense of €10 million (of which €3 million for tax of the subsidiary WIND Acquisition Finance SA and €7 million for IRAP tax) charged on the consolidated taxable income for the period and estimated against the effective tax rate on the entire exercise; net deferred tax income of €20 million, arising from the release of deferred tax liabilities.
Consolidated interim financial statements 57 as of and for the period ended March 31, 2017
13 PROPERTY, PLANT AND EQUIPMENT
The following table sets out the changes in Property, Plant and Equipment during the first three months of 2017.
(millions of euro) Carrying Carrying amount at amount at Additions Depreciation Disposals Others December March 31, 31, 2016 2017 Land and buildings 1 - - - - 1 Plant and machinery 5,503 142 (633) (1) (7) 5,004 Equipment 43 - (2) - - 41 Other 71 7 (7) - - 71 Total 5,618 149 (642) (1) (7) 5,117
The cost, accumulated impairment losses and accumulated depreciation at March 31, 2017 can be summarized as follows.
(millions of euro) At March 31, 2017 Accumulated Accumulated Carrying Cost impairment losses depreciation Amount Land and buildings 1 - - 1 Plant and machinery 16,439 (2) (11,433) 5,004 Equipment 556 - (515) 41 Other 529 - (458) 71 Total 17,525 (2) (12,406) 5,117
Plant and machinery presents a net increase of €134 million mainly due to the purchases and operations of radio links and high frequency equipment for the expansion of the mobile access network, exchanges and electronic installations and plant and machinery under construction (IT infrastructures and 3G and LTE technologies). As part of the plan for the development of the Group’s production structure, disposals have been made of equipment, infrastructure and transmission systems having a carrying amount of €1 million, which are no longer usable; these relate mostly to radio links and high frequency equipment. At March 31, 2017, transmission equipment, telephone systems and commutation switchboards owned by the Parent company and having a carrying amount of €102 million (€98 million at December 31, 2016) were held by customers for use. Transmission equipment for direct access through “unbundling of the local loop” having a carrying amount of €2 million at March 31, 2017 (€2 million at December 31, 2016) was held on deposit by Telecom Italia SpA.
Plant and machinery additionally includes the expenditure incurred to acquire the exclusive rights for the use of cable products and optic fiber for a total of €74 million at March 31, 2017 (€78 million at December 31, 2016).
Consolidated interim financial statements 58 as of and for the period ended March 31, 2017
14 INTANGIBLE ASSETS The following table sets out the changes in Intangible assets during the first three months of 2017.
(millions of euro) Carrying Transfer to Carrying amount at other amount at Additions Amortization Disposals December natural March 31, 31, 2016 account 2017
Industrial patents and intellectual property rights 316 21 - (34) - 303
Concessions, licenses, trademarks and similar rights 5,364 2 (11) (14) - 5,341
Other intangible assets 718 68 - (88) (5) 693
Goodwill 3,603 - - 3,603
Total 10,001 91 (11) (136) (5) 9,940
The cost, accumulated impairment losses and accumulated amortization at March 31, 2017 can be summarized as follows.
(millions of euro)) At March 31, 2017 Accumulated Accumulated Carrying Cost impairment losses amortization amount Industrial patents and intellectual property rights 2,012 - (1,709) 303
Concessions, licenses, trademarks and similar rights 10,557 (1,518) (3,698) 5,341
Other intangible assets 3,614 (93) (2,828) 693
Goodwill 4,027 (75) (349) 3,603 Total 20,210 (1,686) (8,584) 9,940
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, 2017 amounted to €4 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 59 as of and for the period ended March 31, 2017
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 February 2018 Installation and provision of public telecommunications networks on the Italian national territory April 1998 April 2018 (2)
Provision of public digital mobile communications services using DCS 1800 technology, including June 1998 June 2018 (3) the 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- January 2001 December 2029 (5) 2000 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 July 2002 July 2022 the 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, January 2012 December 2029 1800 and 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 SpA in WIND Telecomunicazioni SpA and the merger of WIND Telecomunicazioni SpA in H3G SpA.
(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.
(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 SpA and H3G SpA respectively with effect from 1 January 2002. It also holds the rights of use on a national basis of a coupled block of 2x5 MHz at 900 MHz, with the allocation decision dated May 19, 2010 having effect from June 1, 2010 and expiring on December 31, 2021.
(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 SpA and H3G SpA 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.
Transfer to other natural account for €11 million includes the reclassification of the licenses, which will be transferred to Iliad in 2017, to assets held for sale. In addition, Concessions, licenses, trademarks and similar rights for €1,300 million refer 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 costs incurred by Infostrada SpA, now merged, for the purchase in 1998 of the right of way on the Italian railway network and the purchase of the right to use the existing optic fiber on the network and, commencing in 2013, to the capitalization of expenditure for the backbone rights of way of TERNA/TELAT, with a net value of €110 million at March 31, 2017. Other intangible assets mainly relate to the residual value of the customer list, amounting to €197 million, identified upon allocating the goodwill at December 31, 2006 that arose from the merger of the former parent WIND Acquisition Finance SA and to customer acquisition costs amounting to €248 million. Goodwill pertains to the legal entity WIND Retail Srl for €23 million and to the parent Wind Tre SpA 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 60 as of and for the period ended March 31, 2017
15 FINANCIAL ASSETS
The following table sets out Financial assets at March 31, 2017 and at December 31, 2016.
(millions of euro) At March 31, 2017 At December 31, 2016
Non-current Current Total Non-current Current Total
Financial assets measured at cost 2 - 2 2 - 2
Derivative financial instruments 1,410 - 1,410 1,460 - 1,460
Financial receivables 1,037 44 1,081 1,032 24 1,056
Total 2,449 44 2,493 2,494 24 2,518 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.
Derivative financial instruments include the positive fair value of derivative financial instruments, detailed as follows: i) embedded derivatives on bond issues amounting to €381 million; and ii) cross currency swap hedging derivatives on financial liabilities amounting to €1,029 million. Additional details on the composition of the balance and respective changes are to be found in note 21.
Financial receivables, amounting to €1,081 million at March 31, 2017, mainly include the loans granted by Wind Tre to Wind Tre Italia SpA for €1,066 million (of which €41 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 €925 million (with repayment date in April 2024 and an annual fixed interest rate of 9%) was fully disbursed at March 31, 2017 with capitalized interest of €231 million. The second loan for up to a nominal value of €75 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, with accrued capitalized interest of €9 million.
The increase in Financial receivables over December 31, 2016 is mainly due to the capitalization of accrued interest made during the first quarter 2017.
16 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD The balance on investments accounted for using the equity method of €77 million at March 31, 2017 regards the investment of 10% in Galata SpA, a company formed on February 18, 2015 with a share capital of €1 million and having its registered office in Rome, with which Wind Tre SpA entered into a tower services agreement in 2015, for an initial term of 15 years, for the provision of a broad range of services on the technologies sites hosting Wind Tre SpA equipment.
Consolidated interim financial statements 61 as of and for the period ended March 31, 2017
17 DEFERRED TAX ASSETS AND LIABILITIES
The following tables provide the variation of Deferred tax assets and Deferred tax liabilities by origin at March 31, 2017 and at December 31, 2016.
(millions of euro) At December 31, At March 31, Decrease Increase 2016 2017 Measurement of financial assets/liabilities 125 (19) - 106
Deferred tax assets 125 (19) - 106
Employee benefits 2 (2) - -
Accelerated depreciation and amortization 8 (1) - 7
Fair value of Property, plant, and equipment 19 - 142 161
Depreciation of Purchase Price Allocation 491 (29) - 462
Allowance for doubtful accounts (53) - (58) (111)
Amortization and depreciation of non-current assets (44) - (72) (116)
Losses carryforward for offset (34) 34 - -
Provisions for risks and charges (taxed) (21) - (11) (32)
Deferred tax liabilities 368 2 1 371 The decrease during the period of €19 million in deferred tax assets is mainly referable to change in tax rates applicable to subsidiaries. Deferred tax liabilities at March 31, 2017 are mainly due to temporary differences on Depreciation of Purchase Price Allocation. The following table provides an analysis of Deferred tax assets and Deferred tax liabilities at March 31, 2017 and December 31, 2016, 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, 2017 2016 -within 12 months - 5 -after 12 months 106 120 Total 106 125
(millions of euro) At March 31, At December 31, 2017 2016 -within 12 months - 25 -after 12 months 371 343 Total 371 368
Deferred tax assets of €1,356 million were not recognized on temporary differences that can be carried forward indefinitely due to the lack of reasonable certainty as to their recoverability (€1,173 million at December 31, 2016). These arise from previous years losses carried forward and from finance expenses which due to legislative limits are currently non-deductible.
Consolidated interim financial statements 62 as of and for the period ended March 31, 2017
18 EQUITY The following table sets out the composition of Shareholders’ Equity at March 31, 2017 and December 31, 2016.
(millions of euro) At March 31, At December 31,
2017 2016
Issued capital 474 474
Share premium reserve 3,119 3,119 Other reserves and retained earnings (accumulated losses), including profit/(Loss) for the year 126 611
- Reserve for remeasurement of employee defined benefit plans (IAS19) (11) (11)
- Cash flow hedge reserve (70) (81)
- Parent company legal reserve 10 10
- Sundry reserves and retained earnings (accumulated losses), including loss for the period 197 693
Equity attributable to the owners of the parent 3,719 4,204
Total Equity 3,719 4,204
The Parent Company's share capital amounts to €474,303,795.00, fully paid, consisting of 94,860,759 shares each of nominal value €5.00 wholly owned by the sole shareholder Wind Tre Italia. The number of the Parent Company’s shares has not changed during the year. Following the confirmation and extension of the pledge on the shares of the Parent Company 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 quarter 2017 as well as the loss for the period mainly arose from the following: 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 period 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.
Consolidated interim financial statements 63 as of and for the period ended March 31, 2017
19 PROVISIONS
The following table sets out changes in Provisions during the first three months of 2017.
(millions of euro) At December 31, At March 31, Increases (Utilization) (Release) 2016 2017 Litigation 56 6 (2) - 60 Universal service contribution 5 - - - 5 Handset assistance 1 - (1) - - Dismantling and removal 30 - - - 30 Other provisions 48 3 (1) - 50 Total 140 9 (4) - 145 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 main pending legal proceedings in note 24).
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 and removal costs which may be incurred as a result of contractual obligations which require the asset to be returned to its original state and condition.
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, 2017 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.
Consolidated interim financial statements 64 as of and for the period ended March 31, 2017
20 FINANCIAL LIABILITIES The following table sets out an analysis of Financial liabilities at March 31, 2017 and changes with respect to December 31, 2016.
(millions of euro) At March 31, 2017 At December 31, 2016 Non-current Current Total Non-current Current Total Bond issues 10,232 201 10,433 10,293 160 10,453 Loans from shareholders 1,728 - 1,728 1,717 - 1,717 Bank loans 679 1 680 677 8 685 Loans from others 127 1 128 128 1 129 Derivative financial instruments 23 3 26 23 7 30 Total financial liabilities 12,789 206 12,995 12,838 176 13,014
The following tables provide the most important information regarding bank loans and bond issues outstanding at March 31, 2017.
(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 2017 31, 2016 2017 Bond issues Euribor 3m Frn PURPLE III 2020 Eur 400 400 400 100% EUR 07/15/2020 100.3% + 4.125% SSN PURPLE II 2020 B EUR 379 383 375 100% EUR 07/15/2020 4.00% 101.6% Euribor 3m Senior Secured Floating Rate Notes 2019 € (DOVE) 150 150 150 100% EUR 04/30/2019 100.8% + 5.25% Senior Secured Fixed Rate Notes 2020 $ (DOVE) 526 524 516 100% USD 04/30/2020 6.50% 103.4% Senior Notes 2021 € (PURPLE I) 1,789 1,758 1,750 100% EUR 04/23/2021 7.00% 103.6% Senior Notes 2021 $ (PURPLE I) 2,704 2,690 2,627 100% USD 04/23/2021 7.38% 104.0% Senior Secured Notes 2020 € (PURPLE II) 2,107 2,127 2,100 100% EUR 07/15/2020 4.00% 101.6% Senior Secured Notes 2020 $ (PURPLE II) 1,803 1,847 1,783 100% USD 07/15/2020 4.75% 101.5% Euribor 3m Senior Secured Floating Rate Notes 2020 € (PURPLE II) 575 574 575 100% EUR 07/15/2020 100.1% + 4.00% Totale 10,433 10,453 10,276
(millions of euro) Carrying Carrying Nominal amount at amount at amount at March 31, December March 31, Residual Bank loans 2017 31, 2016 2017 Commitment Currency Due date Interest rate Senior Facility Agreement - - Term Loan B1 680 685 700 700 EUR 11/26/2019 Euribor +4.25 - RCF R1 - - - 400 EUR 11/26/2019 Euribor +4.25 Total 680 685 700 1,100
The following table provides the breakdown of effective interest rates and lending currency, net of derivative financial instruments, of loans at March 31, 2017.
(millions of euro) At March 31, 2017
<5% 5% Euro 3,461 2,628 9 127 - 6,225 US dollars 1,794 526 2,695 - - 5,015 Total 5,255 3,154 2,704 127 - 11,240 Consolidated interim financial statements 65 as of and for the period ended March 31, 2017 Changes in balances of bonds at March 31, 2017 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 which the Group must test if the amount drawn down from the Revolving Credit Facility (“RCF”) exceeds 35% of the total. No amounts had been drawn down from the RCF at March 31, 2017. An analysis of the derivative financial instruments balance and of the respective changes is found in note 21. 21 DERIVATIVE FINANCIAL INSTRUMENTS The following table provides details of the outstanding Derivative financial instruments at March 31, 2017 and changes over December 31, 2016, analyzed by the type of risk hedged. (millions of euro) At March 31 2017 At December 31, 2016 Fair Value (+) Fair Value (-) Fair Value (+) Fair Value (-) - Exchange rate risk 725 - 744 - - Interest rate risk - 24 - 27 Total cash flow hedges 725 24 744 27 - Exchange rate risk 304 - 317 - Total fair value hedges 304 - 317 - Non-hedge accounting derivatives 381 2 399 3 Total non Hedge Accounting Derivatives 381 2 399 3 Total 1,410 26 1,460 30 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, 2017 At December 31, 2016 Fair Value (+) Fair Value (-) Fair Value (+) Fair Value (-) Current - 3 - 7 Non current 1,410 23 1,460 23 Total derivatives 1,410 26 1,460 30 The fair value of cross currency swap and plain vanilla interest rate swaps is determined through directly observable inputs such as interest rates curves (Level 2 in the fair value hierarchy). 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 fair value of loans is calculated using the DCF model (Level 3 in the fair value hierarchy). With respect to the latter, the entire change in the period is due solely to movements in the fair value of the instrument as a whole and therefore not to the sale or purchase of the underlying. The following tables provide an analysis of financial assets and liabilities measured at fair value by hierarchy at March 31, 2017 and at December 31, 2016. Consolidated interim financial statements 66 as of and for the period ended March 31, 2017 (millions of Euro) Level 1 Level 2 Level 3 Total Assets at fair value Derivative financial instruments - 1,029 381 1,410 Total assets - 1,029 381 1,410 Liabilities at fair value Derivative financial instruments - 26 - 26 Total liabilities - 26 - 26 (millions of Euro) Level 1 Level 2 Level 3 Total Assets at fair value Derivative financial instruments - 1,061 399 1,460 Total assets - 1,061 399 1,460 Liabilities at fair value Derivative financial instruments - 30 - 30 Total liabilities - 30 - 30 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 2017 and 2016 there were no transfers either from Level 1 to Level 2 or vice versa or from Level 3 to other levels or vice versa. It should also be noted that at March 31, 2017 there no additional financial instruments measured at fair value other than those indicated in the tables above. Consolidated interim financial statements 67 as of and for the period ended March 31, 2017 22 NET DEBT The following statement shows the Group’s net financial debt analyzed into its principal components, as described in notes 14, 19 and 20 relating to financial items in the statement of financial position. At March 31, At December 31, (millions of euro) 2017 2016 Bond issues 10,232 10,293 Shareholders loans 1,728 1,717 Bank loans 679 677 Loans from others 127 128 Derivative financial instruments 23 23 Non-current financial liabilities 12,789 12,838 Bond issues 201 160 Bank loans 1 8 Loans from others 1 1 Derivative financial instruments 3 7 Current financial liabilities 206 176 TOTAL GROSS FINANCIAL DEBT 12,995 13,014 Cash and cash equivalents (622) (603) Financial receivables 41 (21) Current financial assets (41) (21) Derivative financial instruments (1,410) (1,460) Financial receivables (1,030) (1,026) Non-current financial assets (2,440) (2,486) NET FINANCIAL DEBT 9,892 9,904 Net debt does not include guarantee deposits of €7 million at March 31, 2017 and of €5 million at December 31, 2016. 23 RELATED PARTY TRANSACTIONS Transactions with related parties 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. Transactions with the associate Galata SpA arise from the service agreement signed with Wind Tre SpA for the provision of a wide range of services on technological sites that host Wind Tre equipment. During the first quarter 2017, Group companies 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 Sàrl. The table below provides a summary of the main effects on the income statement and statement of financial position following transactions during the year with related parties, all companies of the VimpelCom and CK Hutchison groups, joint venturers at 50% in the parent company VIP-CKH. 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 68 as of and for the period ended March 31, 2017 (thousands of euro) Financial income/ Trade Other Financial Financial Trade Other Revenue (expenses) Expenses receivables receivables receivables payables payables payables Parent companies Vimpelcom ltd - - (3) - 115 - - - - VIP-CKH LUXEMBOURG Sàrl 3 - - 3 - - 289,238 - - Wind Tre Italia S.p.A. 18 15,948 504 - 133 1,065,965 1,439,325 2,521 - Total Parent companies 21 15,948 501 3 248 1,065,965 1,728,563 2,521 - Associates companies Galata 350 - 47,579 - 3,121 - - 41,628 (30) Total Associates companies 350 - 47,579 - 3,121 - - 41,628 (30) Other related companies Armenija Telefon Kompani 2 - - 2 - - - 22 - DiGi (Malaysia) - - - 7 - - - 1 - DTAC/UCOM (Thailand) - - 1 25 - - - 7 - GrameenPhone (Bangladesh) 9 - 7 - - - - 70 - KaR-Tel 3 - 1 15 - - - - - Kievstar 188 - 5,053 - - - - 6,708 - Telenor Maritime - - 50 - - - - 66 - Mobitel LLC Georgia - - 1 - - - - 6 - Orascom Telecom Algeria SpA 8 - 12 1,039 - - - 33 - Banglalink Digital Communications Limited - - - 735 - - - - - Pakistan Mobile Communications Ltd. - - 1 331 - - - - - SKY MOBILE LLC ------1 - Telenor Magyarorszag KFT (Hungary) 51 - 10 43 - - - 136 - Telenor Mobile Communications AS (Norway) 5 - 3 (1) - - - 649 - Telenor Pakistan (Pakistan) - - 1 - - - - 4 - Telenor Serbia (Serbia) 337 - 124 206 - - - 18 - Unitel - - - 3 - - - - - VimpelCom Lao Co, Ltd ------2 - Vympel-Kommunikacii 232 - 966 - - - - 1,893 - Wind Telecom SpA 42 - (2) - 229 - - - 411 Vimpelcom International services - - - - 22 - - - - Tacom LLC (Tajikistan) ------1 - Telenor Sverige AB 2 ------20 - Weather Capital Special Purposes I SA 26 ------Klarolux Investments Sarl 7 ------Global Luxembourg SARL 7 ------Global Telecom SARL 7 ------Global Telecom Finance SCA 7 ------Global Luxembourg Finance SCA 7 ------Global Telecom Acquisition 6 ------Global Telecom One Sarl 6 ------Global Telecom Oscar 10 ------Telenor Bulgaria EAD 12 - 2 8 - - - 43 - DTAC TriNet Co., Ltd. 164 - 2 149 - - - 351 - Telenor A/S 2 - 2 1 - - - 68 - Telenor Montenegro 28 - - 17 - - - - - Vodafone Hutchison Australia Pty Ltd. 4 - - 66 - - - (1) - PT. Hutchison 3 Indonesia ------Hutchison 3G UK Limited 106 - 14 337 - - - 17 - Telefonica Ireland Limited 1 - 3 - - - - 59 - Hutchison Drei Austria GmbH 13 - 16 37 - - - 224 - HI3G Access AB 2 - - 87 - - - 2 - Hutchison Whampoa Europe Investments S.a.r.l - - 275 - - - - 562 - HI3G Denmark ApS 8 - - 29 - - - 2 - Hutchison 3G Ireland Limited - - 1 - - - - 3 - Hutchison Global Enabling Services Limited - - - 27 - - - - 4 Hutchison Telephone Company Limited 41 - 3 341 - - - 1 - Hutchison Telephone (Macau) Company Limited - - 2 4 - - - 2 - Hutchison Global Communications Limited 170 - 803 170 - - - 475 - New Millennium Corp. ------Hutchison 3G Italy Investments S.a.r.l. ------Hutchison Whampoa 3G Content S.a.r.l. ------(212) - Hutchison Whampoa 3G IP S.a.r.l. 25 - 684 (132) - - - (17,692) - Hutchison Whampoa 3G Procurement S.a.r.l. ------(11,529) - Hutchison Telecommunications (Vietnam) S.à r.l.- BCC - - 1 ------Total Other related companies 1,538 - 8,036 3,546 251 - - (17,988) 415 Total Related companies 1,909 15,948 56,116 3,549 3,620 1,065,965 1,728,563 26,161 385 Consolidated interim financial statements 69 as of and for the period ended March 31, 2017 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 3 months’ notice for the termination of cell site leases and 6 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 31 March At 31 December 2017 2016 Cell sites 199 149 Offices 47 34 Outlets 25 16 Motor vehicles 4 2 Total 275 201 Main pending legal proceedings 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, 2017, 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 At March 31, 2017, a number of proceedings relating to the termination of agency agreements were pending at different stages of judgment. The agents dealers in these proceedings are seeking typically payment from the former WIND Telecomunicazioni SpA 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 of up to €5 million for each proceeding (amount redefined by Law no. 135/12 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 orders to cease the alleged unfair practices (one of these proceedings relates to Wind Tre’s non-compliance with the AGCM’s order to stop the alleged underlying unfair practice). The company has filed an appeal with the Lazio Administrative Court (Lazio TAR) against these fines and the related administrative litigation is pending. In 2016 AGCM initiated four new proceedings (in February, April, July and December) against Wind Tre for alleged unfair commercial practice: the first has been closed without ascertaining any unfair practice; the second and the third one have been closed with the payment respectively of a fine of €455 thousand and a fine of €450 thousand (for both fines Wind Tre has filed an appeal before the Lazio TAR). The Group is still waiting for the AGCM’s final Consolidated interim financial statements 70 as of and for the period ended March 31, 2017 decision in the fourth proceedings. In 2017 AGCM initiated a new proceedings against Wind Tre for alleged unfair commercial practice which is still pending. 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 two 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 two assessments. Other contingent assets and liabilities The Wind Tre Group had the following contingent liabilities at March 31, 2017. Proceedings concerning electromagnetic radiation There are pending proceedings regarding the installation of base radio stations. The proceedings typically concern the emission of electromagnetic radiation. At March 31, 2017 five proceedings for electromagnetic emissions were pending as a consequence of BTS installations. Audit of dealers’ fees In 2001 WIND Telecomunicazioni SpA, 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. Wind Tre / Crest One SpA On October 9, 2009, Crest One SpA (‘‘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. The date of the next hearing, originally scheduled for January 30, 2018, has been brought forward to July 18, 2017. 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, Consolidated interim financial statements 71 as of and for the period ended March 31, 2017 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 decided to appoint an expert asking for a technical support to verify whether damages have been suffered by Fastweb for the following claimed period or not. The technical verification is ongoing. Other disputes During the first 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. Guarantees No Group company has granted any security or guarantee, either directly or indirectly, in favor of parent companies or companies controlled by the latter. The collateral pledged by Group companies at March 31, 2017 as a security for liabilities may be summarized as follows: a special lien pursuant to article 46 of the Consolidated Banking Law on certain assets, present and future, belonging to the Parent as specified in the relevant deed, in favor of the lenders under the Senior Facility Agreement, as from time to time amended and restated, and other creditors specified in the relevant deed; a pledge on the Parent’s trademarks and intellectual property rights, as specified in the relevant deed, pledged in favor of the lenders under the Senior Facility Agreement, as from time to time amended and restated, and other creditors specified in the relevant deed; a pledge on the shares representing 100% of the corporate capital of the subsidiary WIND Acquisition Finance SA owned by the Parent in favor of a pool of banks pursuant to the related share pledge agreement; a pledge under English law on a bank account of the Parent in favor of the lenders under the Senior Facility Agreement and the other creditors specified in the related deed of pledge; an assignment under English law of receivables arising from hedging contracts of the Parent in favor of the lenders under the Senior Facility Agreement, as from time to time amended and restated, and the other creditors specified in the related deed of assignment. Finally, in order to provide a security for its obligations, the Parent has assigned by way of security its trade receivables, receivables arising from intercompany loans and receivables relating to insurance policies, present and future, as described in the specific instrument, to the lenders under the Senior Facility Agreement, as amended and supplemented from time to time, the hedge counterparties of the hedging agreements entered into by Wind Tre SpA Consolidated interim financial statements 72 as of and for the period ended March 31, 2017 and WIND Acquisition Finance SA and the other secured creditors specified in the confirmation deed related to the assignment of receivables, including in favor of the holders of the notes issued by WIND Acquisition Finance SA. Moreover, Wind Tre SpA has assigned by way of security its receivables arising from the put and call option dated May 26, 2005 and from the agreement for the purchase of the interest in the corporate capital of Wind Tre SpA dated May 26, 2005, as described in the relevant deed, to the lenders under the Senior Facility Agreement, as amended and supplemented from time to time. A description is provided below of personal 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 €126 million at March 31, 2017 includes: sureties totaling €14 million issued by insurance companies, mainly relating to participation in tenders; sureties totaling €112 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, 2017 that would require adjustments or additional disclosures in the consolidated financial statements. Consolidated interim financial statements 73 as of and for the period ended March 31, 2017