##### Table of Contents

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.20549**

**
 
**

**FORM20-F**

**OR**

**For the fiscal year ended: December 31, 2008**

**OR**

**For the transition period from N/A to N/A**

**OR**

**Date of event requiring this shell company report                    **

**Commission file number1-13882**

**
 
**

**Telecom Italia S.p.A.**

**(Exact name of Registrant as specified in its charter)**

**
 
**

**Italy**

**(Jurisdiction of incorporation or organization)**

**Piazzadegli Affari 2, 20123 Milan, Italy**

**(Address of principal executive offices)**

**
 
**

**Marco PATUANO**

**Chief Financial Officer**

**Telecom Italia S.p.A.**

**Piazza degli Affari 2, 20123 Milan, Italy**

**+39.02.85.95.1**

**marco.patuano@telecomitalia.it**

**(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)**

**
 
**

**Securities registered or to beregistered pursuant to Section 12(b) of the Act:**

**
 
**

**Securities registered or to be registered pursuant to Section 12(g) of the Act:**

**None**

**
 
**

**(Title of Class)**

**Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:**

**None**

**
 
**

**(Title of Class)**

**Indicate the number of outstanding shares of each of the issuer’s classesof capital or common stock**

**as of the close of the period covered by the annual report.**

Ordinary Shares 13,299,979,086 

Savings Shares 6,026,120,661

**
 
**

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act    Yes  x    No   ̈

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934.    Yes   ̈    No  x

Note—Checking the box above will not relieve any registrant required tofile reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. 

Indicate bycheck mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act. (Check one): 

Large accelerated filer  x            Accelerated filer   ̈            Non-accelerated filer   ̈

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statement included in this filing:

U.S. GAAP   ̈    International Financial Reporting Standards as issued by the International Accounting Standards Board  x            Other   ̈

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected tofollow    Item 17   ̈    Item 18   ̈

If this is an annual report, indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

 

 

 

Table of Contents
**TABLE OF CONTENTS**

 

INTRODUCTION
  1
KEY DEFINITIONS
  3
**PART I**
  5
**Item 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**
  5
**Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLE**
  5
**Item 3.    KEY INFORMATION**
  5
3.1 RISK FACTORS
  5
3.2 EXCHANGE RATES
  15
3.3 SELECTED FINANCIAL AND STATISTICAL INFORMATION
  16
3.4 DIVIDENDS
  20
**Item 4.    INFORMATION ON THE TELECOM ITALIA GROUP**
  22
4.1 BUSINESS
  22
4.2 BUSINESS UNITS
  28
4.3 REGULATION
  45
4.4 GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS
  57
4.5 DESCRIPTION OF PROPERTY, PLANT AND EQUIPMENT
  67
**Item 4A.    UNRESOLVED STAFF COMMENTS**
  72
**Item 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS**
  73
5.1 SIGNIFICANT TRENDS IMPACTING OUR CORE BUSINESSES
  73
5.2 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  74
5.3 RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2008
  79
5.4 LIQUIDITY AND CAPITAL RESOURCES
  119
5.5 RESEARCH, DEVELOPMENT AND INNOVATION
  133
5.6 CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  135
**Item 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**
  136
6.1 DIRECTORS
  136
6.2 EXECUTIVE OFFICERS
  143
6.3 BOARD OF AUDITORS
  146
6.4 EXTERNAL AUDITORS
  147
6.5 EMPLOYEES
  148
6.6 COMPENSATION OF DIRECTORS, OFFICERS AND MEMBERS OF THE BOARD OF AUDITORS
  150
6.7 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
  156
**Item 7.    MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS**
  157
7.1 MAJOR SHAREHOLDERS
  157
7.2 RELATED-PARTY TRANSACTIONS
  163
**Item 8.    FINANCIAL INFORMATION**
  164
8.1 HISTORICAL FINANCIAL STATEMENTS
  164
8.2 LEGAL PROCEEDINGS
  165
**Item 9.    LISTING**
  167
9.1 TRADING OF TELECOM ITALIA ORDINARY SHARES AND SAVINGS SHARES
  167
9.2 SECURITIES TRADING IN ITALY
  169
9.3 CLEARANCE AND SETTLEMENT OF TELECOM ITALIA SHARES
  170
 

i 

Table of Contents
**Item 10.    ADDITIONAL INFORMATION**
  171
10.1 CORPORATE GOVERNANCE
  171
10.2 EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
  183
10.3 DESCRIPTION OF BYLAWS
  184
10.4 DESCRIPTION OF CAPITAL STOCK
  185
10.5 DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
  189
10.6 TAXATION
  197
10.7 DOCUMENTS ON DISPLAY
  203
**Item 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**
  204
**Item 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**
  205
**PART II**
  206
**Item 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**
  206
**Item 14.    MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS**
  207
**Item 15.    CONTROLS AND PROCEDURES**
  208
15.1 DISCLOSURE CONTROLS AND PROCEDURES
  208
15.2 MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  208
15.3 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  210
**Item 16.    [RESERVED]**
  211
**Item 16A.    AUDIT COMMITTEE FINANCIAL EXPERT**
  211
**Item 16B.    CODE OF ETHICS AND CONDUCT**
  211
**Item 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  212
**Item 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**
  214
**Item 16E.    REPURCHASES OF EQUITY SECURITIES**
  214
**Item 16G.    CORPORATE GOVERNANCE**
  215
**PART III**
  217
**Item 17.    FINANCIAL STATEMENTS**
  217
**Item 18.    FINANCIAL STATEMENTS**
  218
**Item 19.    FINANCIAL STATEMENTS AND EXHIBITS**
  218
 

ii 

Table of Contents  
**Introduction**

 

**INTRODUCTION**

 

Telecom Italia S.p.A. is incorporated as a joint stock company under the laws of Italy. As used in this Annual Report, unless thecontext otherwise requires, the term Company means Telecom Italia S.p.A. the operating company for fixed and mobile telecommunications services in Italy and the holding company for various businesses, principally telecommunications, and the terms“we”, “us” and “our” refers to the Company, and, as applicable, the Company and its consolidated subsidiaries. 

 

Unless otherwise indicated, the financial information contained in this Annual Report has been prepared in accordance with International Financial ReportingStandards issued by the International Accounting Standards Board (designated as “**IFRS**”). The designation “**IFRS**” also includes all effective International Accounting Standards (“**IAS**”) and allInterpretations issued by the International Financial Reporting Interpretations Committee (“**IFRIC**”), comprising those previously issued by the Standing Interpretations Committee (“**SIC**”). 

 

Unless otherwise indicated, any reference in this Annual Report to ConsolidatedFinancial Statements is to the Consolidated Financial Statements for the year ended December 31, 2008 of the Telecom Italia Group (including the notes thereto) included elsewhere herein. 

 

Telecom Italia adopted IFRS for the first time in its annual Consolidated FinancialStatements for the year ended December 31, 2005, which included comparative financial statements for the year ended December 31, 2004. See “Item 3. Key Information—3.3 Selected Financial and Statistical Information”.

 

**Cautionary Statement for Purposes of the “Safe Harbor”Provisions of the United States Private Securities Litigation Reform Act of 1995.**    The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Annual Reportcontains certain forward-looking statements. Forward-looking statements are statements that are not historical facts and can be identified by the use of forward-looking terminology such as “believes,” “may,” “is expectedto,” “will,” “will continue,” “should,” “seeks” or “anticipates” or similar expressions or the negative thereof or other comparable terminology, or by the forward-looking nature of discussionsof strategy, plans or intentions. 

 

The forward-looking statements in thisAnnual Report include, but are not limited to, the discussion of the changing dynamics of the telecommunications marketplace, including the continuing developments in competition in all aspects of our businesses from new competitors and from new andenhanced technologies, our outlook for growth in the telecommunications industry both within and outside of Italy, including our outlook regarding developments in the telecommunications industry, and certain trends we have identified particularly inour core Italian market, including regulatory measures regarding pricing and access for other local operators. Such statements include, but are not limited to, statements under the following headings: (i) “Item 3. Key Information—3.1Risk Factors”, (ii) “Item 4. Information on the Telecom Italia Group—4.1 Business—4.1.7 Updated Strategy”, (iii) “Item 4. Information on the Telecom Italia Group—4.3 Regulation”, (iv) “Item5. Operating and Financial Review and Prospects”, (v) “Item 8. Financial Information—8.2 Legal Proceedings” and (vi) “Item 11. Quantitative and Qualitative Disclosures About Market Risks”, including statementsregarding the likely effect of matters discussed therein. 

 

Actual resultsmay differ materially from those projected or implied in the forward-looking statements. Such forward-looking information is based on certain key assumptions which we believe to be reasonable but forward-looking information by its nature involvesrisks and uncertainties, which are outside our control, that could significantly affect expected results. 

 

The following important factors could cause actual results to differ materially from those projected or implied in any forward-looking statements: 

 
 · 
our ability to successfully implement our strategy over the 2009-2011 period; 

 
 · 
our ability to successfully achieve our debt reduction targets; 

 
 · 
the continuing impact of increased competition in a liberalized market, including competition from established domestic competitors and global and regional alliancesformed by other telecommunications operators in our core Italian domestic fixed-line and wireless markets; 

 

1 

Table of Contents  
**Introduction**

 
 · 
the impact of the global recession in the principal markets in which we operate; 

 
 · 
our ability to utilize our relationship with Telefónica to attain synergies primarily in areas such as network, IT, purchasing and international mobile roaming;

 
 · 
our ability to introduce new services to stimulate increased usage of our fixed and wireless networks to offset declines in the traditional fixed-line voice business dueto the continuing impact of regulatory required price reductions, market share loss, pricing pressures generally and shifts in usage patterns; 

 
 · 
our ability to successfully implement our internet and BroadBand strategy both in Italy and abroad; 

 
 · 
the impact of regulatory decisions and changes in the regulatory environment in Italy and other countries in which we operate; 

 
 · 
the impact of economic development generally on our international business and on our foreign investments and capital expenditures; 

 
 · 
our services are technology-intensive and the development of new technologies could render such services non-competitive; 

 
 · 
the impact of political developments in Italy and other countries in which we operate; 

 
 · 
the impact of fluctuations in currency exchange and interest rates; 

 
 · 
our ability to build up our business in adjacent markets and in international markets (particularly in Brazil), due to our specialist and technical resources;

 
 · 
our ability to achieve the expected return on the investments and capital expenditures we have made and continue to make (such as those in Brazil);

 
 · 
the amount and timing of any future impairment charges for our licenses, goodwill or other assets; and 

 
 · 
the outcome of litigation, disputes and investigations in which we are involved or may become involved. 

 

The foregoing factors should not be construed as exhaustive. Due to such uncertaintiesand risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statementswhich may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

 

2 

Table of Contents  
**Key Definitions**

 

**KEY DEFINITIONS**

 

The following terms appearing in this Annual Report have the meanings set forth below. 

 

**EU**

means the European Union.****

 

**IASB**

means the International Accounting Standards Board. 

 

**IFRS**

means International Financial Reporting Standards issued by the IASB. IFRS also include all effective International Accounting Standards (“**IAS**”) and all Interpretations issued bythe International Financial Reporting Interpretations Committee (“**IFRIC**”), comprising those previously issued by the Standing Interpretations Committee (“**SIC**”). 

 

**Merger**

means the merger of Old Telecom Italia into Olivetti, which became effective on August 4, 2003. 

 

**Old Telecom Italia and Old Telecom Italia Group**

means Telecom Italia as well as Telecom Italia and its consolidated subsidiaries, respectively, as they existed immediately prior to the effective date of the Merger. 

 

**Olivetti**

unless otherwise indicated, means Olivetti S.p.A., the holding company and controlling shareholder of Old Telecom Italia. 

 

**Olivetti Group**

unless otherwise indicated, means Olivetti and its consolidated subsidiaries, including Old Telecom Italia. 

 

**Ordinary Shares**

means the Ordinary Shares, €0.55 par value each, of Telecom Italia. 

 

**Parent**

means Telecom Italia S.p.A.. 

 

**Savings Shares**

means the Savings Shares, €0.55 par value each, of Telecom Italia. 

 

**Telecom Italia**

means the entity which resulted from the Merger. 

 

**Telecom Italia Group and Group**

means the Company and its consolidated subsidiaries. 

 

**Telecom Italia Media**

Telecom Italia Media is the Telecom Italia Group’s subsidiary operating in the Media business. 

 

**TIM**

means Telecom Italia Mobile S.p.A., the Company’s subsidiary which operated in the mobile telecommunications business, and merged with and into Telecom Italia, with Telecom Italia as thesurviving company, effective as from June 30, 2005. 

 

**Tim Italia**

means the company deriving from the spin-off of TIM’s domestic mobile operations, effective as from March 1, 2005. After the merger of TIM with and into Telecom Italia, Tim Italia becamea wholly-owned subsidiary of Telecom Italia. Subsequently Tim Italia merged with and into Telecom Italia, with Telecom Italia as the surviving company, effective as from March 1, 2006. 

 

In addition to the foregoing terms, certain technical telecommunication terms relatingto our businesses are defined in the glossary of this Annual Report (see “Item 4. Information on the Telecom Italia Group—4.4 Glossary of Selected Telecommunications Terms”). 

 

In addition, due to the changing nature of our business, we now refer to“Accesses” when considering certain statistical and other data. “Access” refers to a connection to any of the telecommunications offered by the 

 

3 

Table of Contents  
**Key Definitions**

 

Group. We present our customer base using this model because the integration of telecommunications services in bundled service packages has changed the wayresidential and corporate customers contract for our services. Because a single customer may contract for multiple services, we believe it is more accurate to count the number of accesses, or services a customer has contracted for, as opposedto only counting the number of our customers. For example, a customer that has fixed line telephony service and BroadBand service represents two accesses rather than a single customer. In addition, we fully count the accesses of allcompanies over which we exercise control. The following are the main categories of accesses: 

 
 · 
Fixed Telephony accesses: includes PSTN lines (public switched telephone network), ISDN lines (integrated services digital network) and circuits. For purposes ofcalculating our number of fixed line accesses, we multiply our lines to service as follows: PSTN (×1); basic ISDN (×2); primary ISDN (× between 20 and 30 as an average); 

 
 · 
Internet and data accesses: includes BroadBand accesses (wholesale ADSL and retail ADSL lines), narrowband accesses (internet service through the PSTN) and other accesses(unbundled local loops, circuits and other business data accesses including WiFi and fiber optic cable); 

 
 · 
IP TV (Internet Protocol TV); 

 
 · 
Mobile accesses (includes mobile telephony); 

 
 · 
Unbundled local loop: includes accesses to both ends of the copper local loop leased to other operators to provide voice and DSL services (fully unbundled loop,“fully UL”) or only DSL service (shared unbundled loop, “shared UL”); 

 
 · 
Wholesale ADSL: means wholesale asymmetrical digital subscriber line; and 

 
 · 
Other: includes other circuits for other operators. 

 

4 

Table of Contents
**Item 1. Identity of Directors, Senior Management and Advisers /**

**Item 2. Offer Statistics and Expected Timetable**

**Item 3. Key Information**
 **Risk Factors**
 

**PART I**

 

**Item 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

 

Not Applicable 

 

**Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLE**

 

Not Applicable 

 

**Item 3.     KEY INFORMATION**

 

**3.1     RISK FACTORS**

 

In addition to the other information contained in this Annual Report, investors shouldcarefully consider the risks described below before making any investment decision. The risks described below are not the only ones we face. Additional risks not known to us or that we currently deem immaterial may also impair our business andresults of operations. Our business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks, and investors could lose all or part of their investment. 

 

**RISKS RELATEDTOTHETELECOM ITALIA GROUP**

 

***Our business will be adversely affected if we are unable to successfully implement our strategic objectives. Factors beyond our control may prevent us from successfully implementing our strategy.***

 

On December 3, 2008, we set out our strategic priorities for the 2009-2011period. Our strategy is aimed at improving revenues and selective growth, while maintaining financial discipline. To achieve this goal, we will focus on: 

 
 · 
our leading competitive position in the domestic market, developing innovative services (BroadBand and closely related businesses), improving efficiency and reducing debtlevels, including through disposals of non-core assets. More specifically, the 2009-2011 strategic plan pursues a return to growth in our domestic market through: 

 
 –
changing our organization from a technology-based approach (fixed and mobile TLC) to a customer-centric approach (consumer, business and Top Client);

 
 –
reducing **Digital Divide**through decreasing the gap between BroadBand and fixed-line penetration levels; 

 
 –
developing mobile BroadBand; 

 
 –
developing innovative and closely related businesses to increase customer share; 

 
 –
reorganizing our brand architecture to engender a more consistent perception of convergent offerings and customer-centric approach; 

 
 –
seeking new cost-efficiencies in identified business and support areas, including IT, Network Operations, Building and Energy rationalization, Sales and Distributionreengineering, Customer Operations and Delivery and Assurance programs; 

 
 · 
internationally, on our Brazilian operations, strengthening our position in Brazil by leveraging mobile telephony to enable BroadBand growth and exploiting opportunitiesarising from fixed-line/mobile migration; and 

 
 · 
realizing value from the disposal of non-core assets. 

 

Telecom Italia’s ability to implement and achieve these strategic objectives may be influenced by certain factors, including factors outside of its control,such as: 

 
 · 
regulatory decisions and changes in the regulatory environment in Italy and other countries in which Telecom Italia operates; 

 
 · 
increasing numbers of new competitors in the Italian telecommunications market which could cause Telecom Italia to lose further market share; 

 
 · 
increasing and stronger market competition in its principal markets with a consequent decline in the prices of services; 

 

5 

Table of Contents
**Item 3. Key Information**
 
**Risk Factors**

 
 · 
Telecom Italia’s ability to strengthen its competitive position in Italy through its focus on related markets and in international markets, particularly in Brazil formobile telecommunications; 

 
 · 
Telecom Italia’s ability to develop and introduce new technologies which are attractive to the market, to manage innovation, to supply value added services and toincrease the use of its fixed and mobile networks; 

 
 · 
the success of “disruptive” new technologies which could cause significant reductions in revenues from fixed and mobile telephony; 

 
 · 
Telecom Italia’s ability to manage costs; 

 
 · 
the effect of the global credit crisis and recessionary conditions in the major markets in which the Telecom Italia Group operates; 

 
 · 
Telecom Italia’s ability to refinance existing indebtedness when due under the current uncertain conditions in the capital and bank markets as credit marketsworldwide have experienced a severe reduction in liquidity and term funding; 

 
 · 
Telecom Italia’s ability to attract and retain highly qualified employees; 

 
 · 
the effect of exchange rate fluctuations on the operating revenues, margins and financial management of Telecom Italia. 

 

As a result of these uncertainties there can be no assurance that the objectivesidentified by management can effectively be attained in the manner and within the time-frames described. 

 

***The crisis currently affecting the global economy could adversely affect our businesses and therefore could have a negative impact on our operating results and financial condition.***

 

From a macroeconomic standpoint, the crisis currently affectingthe global economy, which is expected to continue for at least the whole of 2009, includes a general contraction in consumer spending, with the impact on consumer spending varying between geographical areas and different markets. 

 

In Italy, the recession is expected to have the greatest impact on the demand forinvestments and on the purchase of consumer durable goods and articles of mass-consumption, whereas it is expected to have less impact on services like telecommunications. In 2009, Gross Domestic Product (“**GDP**”) is expected todecline by approximately 2%. 

 

Telecommunications is proving to be one ofthe industrial segments least affected by pro-cyclical trends since our society has an increasing need to communicate. However, recessionary conditions may weigh heavily on the development prospects of our domestic market, particularly with regardto the penetration of the next phase of value-added services and the volume of business. This applies particularly to the business clientele segment (professionals and small and medium-size businesses), where it is more likely that recessionaryconditions could have a negative effect on revenues. 

 

With respect to theSouth American market, and especially Brazil, it is important to highlight that, at least through the date hereof, the volatility that has been typical of emerging market economies during international economic crises is much less pronounced than inthe past. In this context, the outlook for 2009 is for modest economic growth compared with the rapid growth of the past several years. 

 

The global economic crisis creates significant uncertainty and will adversely impact consumer spending, including on telecommunication services. If we fail tosuccessfully implement our plans to improve efficiency and optimize expenditures, our results of operations and financial condition could be adversely affected. 

 

***Our leverage is such that deterioration in cash flow generation can change the expectations on the Group’s ability to repay its debt and the inabilityto reduce our debt could have a material adverse effect on our business. Existing and worsening conditions in the international credit markets may limit our ability to refinance our financial debt.***

 

Our gross financial debt was €42,794 million at December 31, 2008 compared with €43,636 million at December 31, 2007 and our total net financialdebt was €34,039 million at December 31, 2008 compared with €35,701 million as of December 31, 2007. 

 

6 

Table of Contents
**Item 3. Key Information**
 
**Risk Factors**

 

Due to the competitive environment and the economic conditions in which we operate, there could bedeterioration in the statement of income and balance sheet measures (such as EBITDA, with EBITDA calculated for these purposes as Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) onnon-current assets and Net Financial Debt). Ratios derived from these same measures are used by the rating agencies, such as Moody’s and Standard & Poor’s, which base their ratings on the Group’s ability to repay its debt.

 

Although ratings downgrades do not have an immediate impact onoutstanding debt, except for outstanding debt instruments that specifically contemplate ratings in order to determine interest payments, or on its relative cost to Telecom Italia, downgrades could lead to a greater risk with respect to refinancingexisting debt or higher refinancing costs. 

 

The volatility characterizingthe wholesale capital markets could make it more difficult for us to access the bond markets. In addition, our credit risk could lead to an increase in our refinancing costs. A prolonged duration of the credit downturn with the consequent higherrefinancing costs could have a material adverse effect on the Group’s results of operations and financial condition. 

 

Factors which are beyond our control such as deterioration in the performance by the telecommunications sector, unfavorable fluctuations in interest rates and/orexchange rates, continuing disruptions in the capital markets, particularly debt capital markets, and, in a broader sense, deterioration in general economic conditions also as a result of the current financial crisis, could have a significant effecton our ability to reduce our debt, or the ability of the Group to refinance existing debt through further access to the financial markets. 

 

The management and further development of our business will require us to make further investments. We may therefore incur additional debt in order to finance suchinvestment. Our future results of operations may be influenced by our ability to enter into such transactions, which in turn will be determined by market conditions and factors that are outside our control. In addition, if such transactions increaseour leverage it could adversely affect our credit ratings. 

 

***Systemfailures could result in reduced user traffic and reduced revenue and could harm our reputation.***

 

Our technical infrastructure (including our network infrastructure for fixed-line and mobile telecommunications services) is vulnerable to damage or interruption from information and telecommunicationtechnology failures, power loss, floods, windstorms, fires, terrorism, intentional wrongdoing, human error and similar events. Unanticipated problems at our facilities, system failures, hardware or software failures, computer viruses or hackerattacks could affect the quality of our services and cause service interruptions. Any of these occurrences could result in reduced user traffic and reduced revenue and could harm our reputation. 

 

***Our business depends on the upgrading of our existing networks.***

 

We must continue to upgrade our existing networks in a timely and satisfactory mannerin order to retain and expand our customer base in each of our markets, to enhance our financial performance and to satisfy regulatory requirements. Among other things, we could be required to: 

 
 · 
upgrade the functionality of our networks to permit increased customization of services; 

 
 · 
increase coverage in some of our markets; 

 
 · 
expand and maintain customer service, network management and administrative systems; and 

 
 · 
upgrade older systems and networks to adapt them to new technologies. 

 

Many of these tasks are not entirely under our control and may be affected by applicable regulation. If we fail to execute themsuccessfully, our services and products may be less attractive to new customers and we may lose existing customers to our competitors, which would adversely affect our business, financial condition and results of operations. 

 

7 

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**Item 3. Key Information**
 
**Risk Factors**

 

***We are continuously involved in disputes and litigation with regulators, competition authorities,competitors and other parties. The ultimate outcome of such proceedings is generally uncertain. When finally concluded, they may have a material adverse effect on our results of operations and financial condition.***

 

We are subject to numerous risks relating to legal, competition and regulatoryproceedings in which we are currently a party or which could develop in the future. Legal, competition and regulatory proceedings are inherently unpredictable. Legal, competition and regulatory proceedings in which we are, or may become, involved(or settlements thereof) may have a material adverse effect on our results of operations and/or financial condition. Furthermore, our involvement in legal, competition and regulatory proceedings may adversely affect our reputation. 

 

The Italian Collective Action for Damages for the Protection of Consumers passed inDecember 2007 is currently undergoing substantial modifications by the Italian Parliament and will enter into force on July 1, 2009. The law will allow collective action lawsuits and is similar in many respects to common law class actions.Contracts between public utilities and consumers and the business practices of companies that provide public services (such as Telecom Italia) are covered by the Collective Action law. Therefore there will be a risk of claims against Telecom Italiaby consumers’ associations on behalf of broad classes of consumers. 

 

For information concerning the most important legal, competition and regulatory proceedings in which we are involved, see “Note—Contingent liabilities and assets, other information, commitments and guarantees” of the Notes tothe Consolidated Financial Statements included elsewhere in this Annual Report. 

 

***Risks associated with Telecom Italia’s ownership chain.***

 

Telco—a company in which interests are held by Generali group (28.1%), Intesa SanPaolo S.p.A. (10.6%), Mediobanca S.p.A. (10.6%), Sintonia S.A. (8.4%) and Telefónica S.A. (**Telefónica**)(42.3%)—is Telecom Italia’s largest shareholder, holding an interest of approximately 24.5% of the voting rights. 

 

Although Telco does not own a controlling interest in Telecom Italia’s voting shares, Telco may exert a significant influence on all matters to be decided by avote of shareholders, including appointment of directors (in the Shareholders’ Meeting on April 14, 2008 12 out of 15 Board members were elected, as a result of Telco’s proposal). In principle, the interests of Telco in decidingshareholder matters could be different from the interests of Telecom Italia’s other Ordinary Shareholders, and it is possible that certain decisions could be taken that may be influenced by the needs of Telco. In addition, Telefónica isthe largest shareholder of Telco. Presently Telefónica and Telecom Italia are direct competitors in certain countries outside of their respective domestic markets; nevertheless, the agreement among the above mentioned parties provides thatthe Telecom Italia and Telefónica groups will be managed autonomously and independently. Such agreements provide that the directors designated by Telefónica in Telco and Telecom Italia shall be directed by Telefónica to neitherparticipate nor vote at board of directors meetings which discuss matters relating to members of the Group in countries where Telefónica and Telecom Italia compete. Specific additional matters have been agreed with respect to TelecomItalia’s operations in Brazil. For further information, please see “Item 7 Major Shareholders and Related-Party Transactions—7.1 Major Shareholders—7.1.1 The Shareholders’ Agreements” and “Item 10. AdditionalInformation—10.1 Corporate Governance”. See also “Note—Contingent liabilities and assets, other information, commitments and guarantees” of the Notes to the Consolidated Financial Statements included elsewhere herein.

 

Telco is a holding company and the sole operating company in which ithas an interest is Telecom Italia. Therefore, should Telco be unable to obtain funding from its shareholders, present or future, or from other sources, its cash flows would be entirely dependent upon the dividends paid on the Telecom Italia sharesfor its funding needs. 

 

***The Italian State, through the Treasury, isin a position to exert certain powers with respect to Telecom Italia.***

 

Although no shareholder is in a position to prevent a takeover of Telecom Italia, the Italian State, through the Treasury, is in a position to exert certain powers with respect to Telecom Italia through the exercise of the special powersincluded in Telecom Italia’s Bylaws pursuant to compulsory legal provisions. The exercise of such powers could make a merger with or takeover of Telecom Italia more difficult or discourage certain bidders from making an offer. 

 

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On March 26, 2009, the European Court of Justice declared that Italy through the special powers, failed tocomply with its obligations under the EC Treaty. According to the Court’s ruling, the alleged infringement of the EC Treaty arises due to the applicable Italian legal provisions not making sufficiently clear the conditions for the exercise ofthe Treasury’s special powers, so that investors are not in a position to know in what situations the powers will be used. Although such ruling may be relevant and binding for the Italian Government, the ruling does not have any immediate,direct impact on the aforementioned provisions and on the Company’s bylaws. 

 

For further information, please see “Item 7 Major Shareholders and Related-Party Transactions—7.1 Major Shareholders—7.1.3 Continuing Relationship with the Italian Treasury”. 

 

**RISKS RELATEDTOTHETELECOMMUNICATIONS INDUSTRYAND FINANCIAL MARKETS**

 

***The value of our operations and investments may be adversely affected by political and economic developments in Italy or other countries. The current globaleconomic crisis could reduce purchases of our products and services and adversely affect our results of operations, cash flows and financial condition.***

 

Our business is dependent to a large degree on general economic conditions in Italy and our other principal markets such as Brazil, including levels of interestrates, inflation, taxes and general business condition. A significant deterioration in economic conditions could adversely affect our business and results of operations. We may also be adversely affected by political developments in other countrieswhere we have made significant investments. Certain of these countries have political and legal systems that are unpredictable. Political or economic upheaval or changes in laws or their application in these countries may harm the operations of thecompanies in which we have invested and impair the value of these investments. 

 

Uncertainty about current global economic conditions poses a significant risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news (including high levels of unemployment) or declines inincome or asset values, which could have a material negative effect on the demand for our products and services. Economic difficulties in the credit markets and other economic conditions, such as a recession currently being experienced or the riskof a potential recession, may reduce the demand for or the timing of purchases of our products and services. A loss of customers or a reduction in purchases by our current customers could have a material adverse effect on our financial condition,results of operations and cash flow and may negatively affect our ability to meet our growth targets. Other factors that could influence customer demand include access to credit, consumer confidence and other macroeconomic factors. 

 

***Because we operate in heavily regulated business environments, regulatorydecisions and changes in the regulatory environment could materially adversely affect our business.***

 

Telecom Italia’s fixed and mobile telecommunications operations, as well as its BroadBand services and television broadcasting businesses, are subject to extensive regulatory requirements in Italy andits international operations and investments are subject to regulation in their host countries. 

 

As a member of the European Union (the **EU**), Italy has adapted its telecommunications regulatory framework to the legislative and regulatory framework established by the EU for the regulation of theEuropean telecommunications market. Included within the EU framework is the obligation on the part of the Italian regulator responsible for the regulation of the telecommunications, radio and television broadcasting sector (the **ItalianCommunications Authority** or **AGCom**) to identify operators with “significant market power” (“**SMP**”) based on a market analysis in relevant separate retail and wholesale markets, identified in an EC Recommendation,in which it is considered necessary to intervene to protect free competition. The framework established criteria and procedures for identifying remedies applicable to operators with “significant market power”. 

 

During 2006 and 2007, AGCom concluded the first round of the analysis of the marketsand introduced regulatory measures as a result of this analysis. Since the end of 2007 AGCom conducted various proceedings to carry out a second round of market analyses to determine whether to maintain, amend or withdraw the obligations in forcerelating to competition. During 2008 AGCom concluded the second round of analyses of the mobile markets. In particular, as to the mobile call termination market, AGCom set a four year “**glide path**” (i.e. a gradual declining reductionin tariffs) of the maximum termination rates for each operator such that by 2012 all termination rates 

 

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will be the same on each network. As to the mobile access and call origination market, AGCom has confirmed that the market is competitive and does not warrant ex anteregulation. The market analysis proceedings on the fixed markets were suspended until the AGCom approval of the Telecom Italia Undertakings in December 2008 (for further information please see “Item 4 Information on the Telecom ItaliaGroup”—Item 4.2 Business Units): they are now underway and should be closed by the year 2009. 

 

In Italy, Telecom Italia is subject to universal service obligations, which require it to provide fixed-line public voice telecommunications services in non-profitable areas. Telecom Italia is the onlyoperator in Italy which has this obligation. 

 

In addition, in the firstround of market analysis, the AGCom identified Telecom Italia as an operator having significant market power in all the relevant fixed markets and in the mobile termination market. As a result, we are subject to a number of regulatory constraints,including: 

 
 · 
a requirement to conduct our business in a transparent and non-discriminatory way; 

 
 · 
a requirement to have our retail prices for fixed voice telephony services subject to a price cap (i.e. the mechanism which adjusts the operator’s prices according tothe price cap index that reflects the overall rate of inflation in the economy and the ability of the operator to gain efficiencies; the basic formula is RPI-X, where RPI is the retail price index and X represents the expected efficiency ofoperator) or ex ante price tests in order to assess the “replicability” of the offer (i.e. the possibility for an efficient competitor to match Telecom Italia’s retail prices using Telecom Italia’s wholesale access services inthe most efficient way). These price control mechanisms place certain limits on our ability to change our prices for certain services; and 

 
 · 
a requirement to provide interconnection services, leased lines and unbundled access to the local loop to other operators at cost-orientated prices, subject to specificnetwork caps. 

 

These constraints have had an adverseimpact on Telecom Italia’s fixed line network pricing and service offerings and future regulatory decisions may continue to have an adverse impact on its market shares and margins. 

 

In December 2008, AGCom approved Telecom Italia’s voluntary undertakings to improve the equality of treatment in the provision ofaccess services where Telecom Italia has SMP. In addition, the majority of the retail markets and a few of the wholesale markets have been removed from the EC Recommendation which, together with the impact of Telecom Italia’s undertakings oncompetition developments, could lead AGCom to reduce the regulatory burden, mainly in the retail markets. 

 

The limited predictability inherent in regulatory interventions and the evaluation by the European Commission of the impact of Telecom Italia’s undertakings on the competitive developments of themarkets, expected by April 2009, could however result in some limitations in realizing any such benefits. 

 

We are unable to predict the impact of any proposed or potential changes in the regulatory environment in which we operate both in Italy and internationally. Changes in laws, regulation or governmentpolicy could adversely affect our business and competitiveness. In particular, our ability to compete effectively in our existing or new markets could be adversely affected if regulators decide to expand the restrictions and obligations to which weare subject or extend them to new services and markets. Finally, decisions by regulators regarding the granting, amendment or renewal of licences, to Telecom Italia or to third parties, could adversely affect our future operations in Italy and inother countries where we operate. 

 

***We operate under licenses,authorizations and concessions granted by government authorities.***

 

Many of our activities require licenses, authorizations or concessions from governmental authorities. These licenses, authorizations and concessions specify the types of services permitted to be offered by the operating company holding suchlicense, authorization or concession. The continued existence and terms of our licenses, authorizations and concessions are subject to review by regulatory authorities and to interpretation, modification or termination by these authorities. Althoughlicense, authorization and concession renewal is not usually guaranteed, most licenses, authorizations and concessions do address the renewal process and terms. Moreover, licenses, authorizations and concessions as well as their renewal terms andconditions may be affected by political 

 

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and regulatory factors. As licenses, authorizations and concessions approach the end of their terms, we intend to pursue their renewal to the extent provided by therelevant licenses, authorizations or concessions, although we cannot guarantee that we will always complete this process successfully. 

 

Many of these licenses, authorizations and concessions are revocable for public interest reasons. The rules of some of the regulatory authorities with jurisdictionover our operating companies require us to meet specified network build-out requirements and schedules. In particular, our existing licenses, authorizations and concessions typically require us to satisfy certain obligations, including minimumspecified quality, service and coverage conditions and capital investment. Failure to comply with these obligations could result in the imposition of fines or revocation or forfeiture of the license, authorization or concession for the relevantarea. In addition, the need to meet scheduled deadlines may require us to expend more resources than otherwise budgeted for a particular network build-out. 

 

***Strong competition in Italy may further reduce Telecom Italia’s core market share for telecommunication services and may cause further reductions inprices and margins thereby having an adverse effect on its results of operations.***

 

Strong competition exists in all of the principal telecommunications business areas in Italy in which Telecom Italia operates, including, most significantly, the fixed-line and mobile voice telecommunications and BroadBandbusinesses. The use of the single European currency and the liberalization of the Italian telecommunication market (since January 1998) have intensified competition by facilitating international operators’ entry into the Italian market anddirect competition with Telecom Italia’s fixed-line and mobile telephony businesses, particularly in the local and long-distance markets, and BroadBand. 

 

Competition has continued to intensify. As of the date of this Annual Report, there are a number of significant competitors offering fixed-line and BroadBandservices and three other operators (in addition to Telecom Italia) offering mobile services in the Italian domestic market. Some virtual mobile operators have been operating in the Italian mobile market since 2007 as a result of commercialagreements reached with operators of mobile networks, some of which “originated” from fixed line operators. 

 

Moreover convergence creates economic links among Telecommunications (**TLC**), Information Technology (**IT**), Media and Devices/Consumer Electronic(**Devices/CE**) markets, enabling lateral competition for different participants in these markets (from competition within the same technology to competition on the whole value chain). The ability to compete will determine value transfer amongmarkets. 

 

This competition may further increase due to the consolidationand globalization of the telecommunications industry in Europe, including Italy, and elsewhere. 

 

We anticipate that in the short to medium-term there may be a stronger entry of peer-level international competitors into markets with existing operators, increasing the direct competition we face in ourItalian domestic fixed-line and mobile telephony businesses, in the local and long-distance markets, and BroadBand. 

 

Competition in Telecom Italia’s principal lines of business could lead to: 

 
 · 
further price and margin erosion for its products and services; 

 
 · 
a loss of market share in core markets; 

 
 · 
loss of existing or prospective customers and greater difficulty in retaining existing customers; 

 
 · 
obsolescence of existing technologies and more rapid deployment of new technologies; 

 
 · 
an increase in costs related to investments in new technologies that are necessary to retain customers and market share; and 

 
 · 
difficulties in reducing debt and funding strategic and technological investments if it cannot generate sufficient profits and cash flow. 

 

Although we have taken a number of steps to realize additional efficiencies and torebalance revenue mix through the continuing introduction of innovative and value added services to enhance domestic growth, and although our 

 

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plans take into account that we face significant competition from a number of operators in all the markets in which we operate, if any or all of the events describedin the preceding paragraph should occur, the impact of such factors could materially adversely affect our results of operations and financial condition. 

 

***Our business may be adversely affected and we may be unable to increase our revenues if we are unable to continue the introduction of new services tostimulate increased usage of our fixed and wireless networks.***

 

In order to sustain growth in revenues despite increased competition and lower prices, particularly in our core Italian domestic market, our strategy has been to introduce new services in our fixed-line, wireless and BroadBand business andin new addressable closely related markets (**IPTV**, **ICT**, **Online advertising**, **Digital Home and Service Exposure**). In recent years our strategy to increase revenues has been to focus on increasing the loyalty of our customerbase, increasing penetration of the BroadBand retail market and IPTV and fostering the growth of mobile interactive services. These markets have been growing in recent years in line with increased use of the Internet and the enhanced servicesoffered by mobile operators. However, if these markets do not continue to expand, our revenues may not grow, or may even decrease, as revenues from other parts of our business, particularly our traditional fixed-line business, may decline due tocompetition or other price pressures. 

 

In addition, these strategicinitiatives have required, and will continue to require, substantial expenditure. Although these initiatives are core to our strategy, we may be unable to introduce commercially these new products and services and, even if we introduce them, therecan be no assurance they will be successful. 

 

***Continuing rapidchanges in technologies could increase competition, reduce usage of traditional services or require us to make substantial additional investments.***

 

Many of the services we offer are technology-intensive and the development or acceptance of new technologies may render such services non-competitive, replace suchservices or reduce prices for such services. In addition, as the convergence of services accelerates, we make and will have to make substantial additional investments in new technologies to remain competitive. The new technologies we choose may notprove to be commercially successful. In addition, Telecom Italia may not receive the necessary licenses to provide services based on new technologies in Italy or abroad, or may be negatively impacted by unfavorable regulation regarding the usage ofthese technologies (for example, uncertainty on Next Generation Access Networks regulatory requirements). Furthermore, our most significant competitors in the future may be new entrants to our markets who do not have to maintain an installed base ofolder equipment. 

 

As a result, we could lose customers, fail to attractnew customers or incur substantial costs in order to maintain our customer base or to maintain revenues from such customer base. 

 

***The mobile communications markets have matured in recent years and competition has increased.***

 

In recent years, although mobile communications business has largely offset the decreased revenues in our Italian fixed-line business,mobile communications markets are approaching maturity levels in the voice services segment although the data and value-added services segments are growing. 

 

Continued growth in the mobile telecommunications markets in which we operate will depend on a number of factors, many of which are outside our control. Thesefactors include: 

 
 · 
the activities of our competitors; 

 
 · 
competitive pressures and regulations applicable to retail and wholesale prices; 

 
 · 
the development and introduction of new and alternative technologies for mobile telecommunications products and services and their attractiveness to our customers;

 
 · 
the success of new disruptive or substitutive technologies; and 

 
 · 
the development of the mobile communications markets. 

 

In addition, as our core domestic Italian market has become increasingly saturated, the focus of competition has shifted to customer retention from customeracquisition, and increasing the value of existing customers. Such focus could result in increased expenses to retain customer loyalty or if we are unable to satisfactorily offer better value to our customers our market share and revenues coulddecline. 

 

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**Risk Factors**

 

If the mobile telecommunications markets in which we operate do not continue to expand, or we are unable toretain our existing customers or stimulate increases in customer usage, our financial condition and results of operations may be harmed. 

 

***We may be adversely affected if we fail to successfully implement our Internet and BroadBand strategy.***

 

The development of Internet and BroadBand services is an important element of ourgrowth strategy and means to increase the use of our networks in Italy and abroad. Our strategy is to replace the mature, traditional voice services with value added content and services to consumers and small and medium-sized companies. TelecomItalia’s ability to successfully implement this strategy may be affected if: 

 
 · 
Internet usage in Italy grows more slowly than anticipated, for reasons such as changes in Internet users’ preferences or lower than expected PC penetration rategrowth; 

 
 · 
BroadBand penetration does not grow as we expect; 

 
 · 
competition increases, for reasons such as the entry of new competitors, consolidation in the industry or technological developments introducing new platforms for Internetaccess and/or Internet distribution or other operators can provide BroadBand connections superior to those that we can offer; and 

 
 · 
we experience any network interruptions or related problems with network infrastructure. 

 

Any of the above factors may adversely affect the successful implementation of our strategy, our business and results of operations.

 

***We may be adversely affected if we fail to successfully implementour Information and Communications Technology (ICT) strategy.***

 

We intend to focus on IT-TLC convergence by addressing the ICT market, in particular offering network and infrastructure management, as well as application management and professional services. We expect to experience increasing competitionin this market as additional competitors (mainly Telco operators through acquisition and partnership with IT operators) also enter this market. 

 

We will need to make additional investments in this market as Italy has significantly lower IT investment over GDP compared with the U.S. and other Europeancountries. 

 

There is no assurance that the services offered will besuccessful; as a result we could fail to attract sufficient customers which would allow this market to become profitable. 

 

***Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobilecommunications usage.***

 

The effects of, and any damage caused by,exposure to an electromagnetic field were and are the subject of careful evaluations by the international scientific community, but until now there is no scientific evidence of harmful effects on health. We cannot rule out that exposure toelectromagnetic fields or other emissions originating from wireless handsets will not be identified as a health risk in the future. 

 

Our mobile communications business may be harmed as a result of these alleged health risks. For example, the perception of these health risks could result in alower number of customers, reduced usage per customer or potential consumer liability. In addition, although Italian law already requires strict limits in relation to transmission equipment, these concerns may cause regulators to impose greaterrestrictions on the construction of base station towers or other infrastructure, which may hinder the completion of network build-outs and the commercial availability of new services and may require additional investments. 

 

***Fluctuations in currency exchange and interest rates may adversely affect TelecomItalia’s results.***

 

In the past, we have made substantialinternational investments, primarily in U.S. dollars, and have significantly expanded our operations outside of the Euro zone, particularly in Latin America. 

 

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**Risk Factors**

 

We generally hedge our foreign exchange exposure, but do not cover translation risk relating to our foreignsubsidiaries. Movements in exchange rates of the Euro relative to other currencies (in particular Brazilian Real) may adversely affect our consolidated results. A rise in the value of the Euro relative to other currencies in certain countries inwhich we operate or have made investments will reduce the relative value of the revenues or assets of our operations in those countries and, therefore, may adversely affect our operating results or financial position. 

 

In addition, we have raised, and may raise in an increasing proportion in the future,financing in currencies other than the Euro, principally the U.S. dollar and British pound. We systematically hedge the foreign currency risk exposure relating to non-Euro denominated liabilities, through cross-currency and interest rate swaps.

 

Furthermore, we enter into derivative transactions to hedge our interestexposure and to diversify debt parameters in order to reduce debt cost and volatility within predefined target boundaries. However, no assurance can be given that fluctuations in interest rates will not adversely affect our results of operations orcash flows. 

 

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**Item 3. Key Information**
 
**Exchange Rates**

 

**3.2    EXCHANGE RATES**

 

We publish our consolidated financial statements in euros. References to “€”, “euro” and “Euro” are to the euro, the single unified currency that was introduced in Italy and 10 other member states of the EU onJanuary 1, 1999. References to “U.S. dollars”, “dollars”, “U.S.$” or “$” are to U.S. dollars, the currency of the United States of America. 

 

For convenience only (except where noted otherwise), certain euro figures have been translated into dollars at the rate (the“Euro/Dollar Exchange Rate”) of €1.00= U.S.$1.3919, using the noon buying rate in The City of New York for cable transfers in foreign currencies asannounced by the Federal Reserve Bank of New York for customs purposes (the “Noon Buying Rate”) on December 31, 2008. 

 

These translations should not be construed as a representation that the euro amounts actually represent such dollar amounts or have been or could be converted intodollars at the rate indicated. 

 

For the purpose of thisAnnual Report, “billion” means a thousand million. 

 

Thefollowing table sets forth for the years 2004 to 2008 and for the beginning of 2009 certain information regarding the Noon Buying Rate for Dollars expressed in U.S.$ per €1.00. 

 

**Calendar Period**
  **High**  **Low**  **Average(1)**  **At Period end**
2004
  1.3625  1.1801  1.2438  1.3538
2005
  1.3476  1.1667  1.2448  1.1842
2006
  1.3327  1.1860  1.2563  1.3197
2007
  1.4862  1.2904  1.3705  1.4603
2008
  1.6010  1.2446  1.4726  1.3919
2009 (through April 1, 2009)
  1.3730  1.2547  1.3023  1.3223
**Monthly Rates**
  **High**  **Low**  **Average(1)**  **At Period end**
October 2008
  1.4058  1.2446  1.3267  1.2682
November 2008
  1.3039  1.2525  1.2744  1.2694
December 2008
  1.4358  1.2634  1.3511  1.3919
January 2009
  1.3718  1.2804  1.3208  1.2804
February 2009
  1.3064  1.2547  1.2797  1.2662
March 2009
  1.3730  1.2549  1.3050  1.3261
April 2009 (through April 1, 2009)
  1.3223  1.3223  1.3223  1.3223
 
(1)
Average of the rates for each month in the relevant period, except for April 2009 for which the dates used are through April 1, 2009. 

 

The Ordinary Shares, par value €0.55 (the “**Ordinary Shares**”) and Savings Shares, par value €0.55 (the “**Savings Shares**”) of TelecomItalia trade on *Mercato Telematico Azionario* (“**Telematico**”), managed by Borsa Italiana S.p.A. (“**Borsa Italiana**”) in euro. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect theU.S. dollar equivalent of the euro price of the Ordinary Shares and the Savings Shares and the price of the Ordinary Share American Depositary Shares (“**Ordinary Share ADSs**”) and the Savings Share American Depositary Shares(“**Savings Share ADSs**”), on the New York Stock Exchange (“**NYSE**”). Cash dividends are paid in euro. Exchange rate fluctuations will affect the U.S. dollar amounts received by owners of Ordinary Share ADSs and SavingsShare ADSs upon conversion by the Depositary of cash dividends paid in euro on the underlying Ordinary Shares and Savings Shares. See “Item 10. Additional Information—10.5 Description of American Depositary Receipts”. 

 

On completion of the Merger, Telecom Italia (formerly Olivetti) became a successorregistrant to Old Telecom Italia under the Securities Exchange Act of 1934, as amended (the “**1934 Act**”) and, therefore, became subject to and continues to file periodic reports under the 1934 Act required for a foreign privateissuer. Telecom Italia (formerly Olivetti) obtained a listing of the Ordinary Shares and Savings Shares issued at completion of the Merger, on the NYSE where such Ordinary Shares and Savings Shares trade in the form of ADSs. 

 

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**Item 3. Key Information**
 
**Selected Financial And Statistical Information**

 

**3.3    SELECTED FINANCIAL AND STATISTICAL INFORMATION**

 

The summary selected financial data set forth below are consolidated financial data ofthe Telecom Italia Group as of and for each of the years ended December 31, 2008, 2007, 2006, 2005 and 2004, which have been extracted or derived from the Consolidated Financial Statements of the Telecom Italia Group prepared in accordance withIFRS as issued by IASB and which have been audited by the independent auditor Reconta Ernst & Young S.p.A.. 

 

Until December 31, 2004, Telecom Italia prepared its consolidated financial statements and other interim financial information in accordance with Italian GAAP. 

 

Furthermore, pursuant to SEC Release No. 33-8879,*“Acceptance from ForeignPrivate Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards Without Reconciliation to U.S. GAAP”,*Telecom Italia includes Selected Financial Data prepared in compliance with IFRS, withoutreconciliation to U.S. GAAP. 

 

The selected financial data below should beread in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report. 

 

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**Selected Financial And Statistical Information**

 
  **Year ended December 31,**   **2008(1)**  **2008(1)**  **2007(1)**  **2006(1)**  **2005(1)**  **2004(1)**   
**(millions of**

**U.S.dollars,**