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internal auditing services for Telecom Italia Group companies; Tiglio I S.r.l. (2.10% owned by SEAT), a real estate company established in the context of the so-called “Project Tiglio” following the disposal of certain real estate properties (for more information see Item 4 – Business Overview – Project Tiglio); GIS Italia S.r.l. (40% owned by Esri Italia S.pA. which is 49% owned by SEAT), a software company; and QMT (70% owned by Consodata Espana), a newly established Spanish company.

          The most significant disposals which occurred during the course of 2002 were:

	•		the sale in April 2002 of SEAT’s stake (46.4%) in Mondus Limited (a company belonging to the Internet business segment) to Mondus Limited for a sale price of €19.1 million;
	•		the sale in July 2002 of SEAT’s stake (25.0%) in Roncadin Restaurants (a company belonging to the Internet business segment) to Fin.Eco Investimenti SGR S.p.A. for a sale price of €2.1 million;
	•		the sale in July 2002 of SEAT’s stake (49.0%) in Wisequity S.p.A. (a closed-end mutual investment fund) for a sale price of €11.0 million;
	•		the sale in August 2002 of SEAT’s stake (100.0%) in Datahouse (a company belonging to the Business Information segment) to Dun & Bradstreet S.p.A., the Italian subsidiary of the American parent, for a sale price of €15.9 million;
	•		the sale in November 2002 of SEAT’s stake (50.0%) in VIASAT to EXE Fin S.p.A. for a sale price of €2.5 million;

          In terms of cost reduction, the Group’s headcount was reduced from 9,264 in 2001 to 7,715 in 2002 at December 31, 2001 and December 31, 2002, respectively.

Recent Developments

          Spin-off of the Directories, Directory Assistance and Business Information business segments

          The information contained in the following paragraphs does not constitute an offer of securities for sale in the United States or an offer to acquire securities in the United States. The securities to be issued by New SEAT have not been (and are not intended to be) registered under the United States Securities Act of 1933 (the “Securities Act”), and may not be offered or sold, directly or indirectly, in the United States except pursuant to an applicable exemption from the requirements of the Securities Act. Ordinary and savings shares issued by New SEAT Pagine Gialle as a result of the Spin-off are intended to be made available in or into the United States pursuant to an exemption from registration requirements by the Securities Act.

          On April 1, 2003, the Board of Directors of SEAT approved the proposed proportional Spin-off of the Directories business and almost all of the Directory Assistance and Business Information business segments into a newly incorporated company which will assume the name of SEAT. Effective as of the date of the Spin-off, the corporate name of SEAT shall become Telecom Italia Media S.p.A. (“Telecom Italia Media”). On May 9, 2003, SEAT’s extraordinary shareholders’ meeting approved the plan.

          The Spin-off plan contemplates the creation of two independent companies, each focused on its core businesses. In management’s view, SEAT operates in two broad market sectors that have increasingly developed separate and distinct characteristics in terms of strategy, operations and competitive landscape. The first sector is that of targeted advertising and telephone services, in which SEAT operates through its Directories, Directory Assistance and Business Information segments, providing answers to queries via printed, online and telephone products and services.

          The second sector is that of traditional advertising and the Internet, in which SEAT operates through its Internet, TV and other business segments, primarily providing access and content services. Both sectors present interesting development prospects (including broadband access and digital TV).

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          The Spin-off plan provides for a Spin-off on a proportional basis. The allocation of the shares of, respectively, New SEAT and Telecom Italia Media is based on the net assets of each company as of December 31, 2002. Consequently, for every 40 ordinary (or savings, as applicable) shares currently owned, the present shareholders of SEAT will receive:

	•		11 new ordinary (or savings, as applicable) shares of Telecom Italia Media, and
	•		29 new ordinary (or savings, as applicable) shares of New SEAT.

          The shares of both companies will be listed on the Telematico: the effectiveness of the Spin-off is conditioned upon the shares of New SEAT being accepted for listing. The shares of Telecom Italia Media are expected to remain registered with the Securities and Exchange Commission under the Securities Act of 1933 and therefore Telecom Italia Media will remain a reporting issuer under the U.S. Securities Exchange Act of 1934, as amended (the “1934 Act”) and therefore will continue to file periodic reports under the 1934 Act. New SEAT has applied for an exemption from registration under the 1934 Act of its newly issued shares or savings shares with the Securities and Exchange Commission pursuant to Rule 12g3-2(b) under the 1934 Act.

          The Spin-off plan provides for the transfer to New SEAT, of the following companies within the Directories, Directory Assistance and Business Information business segments:

	•		Directories. Directories Italia Seat Pagine Gialle S.p.A. division, Annuari Italia S.p.A., Euredit S.A., TDL Group, Euro directory S.A.;
	•		Directory Assistance. Directories Assistance Seat Pagine Gialle division, Telegate Group, Telegate Holding GmbH, IMR S.r.l.;
	•		Business Information. Consodata S.A., Consodata Group Ltd (including NetCreations Inc. and Pan Adress).

          SEAT’s other companies and business segments will remain in SEAT, which, as noted above, will be known as Telecom Italia Media. The strategic objective of the Spin-off plan is to allow SEAT’s businesses in each of the two sectors to focus on their core business.

          The following organization charts illustrate how Telecom Italia Media and New SEAT will be structured compared to SEAT’s structure as of December 31, 2002.

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          The chart below shows the organizational structure of the SEAT Group as of December 31, 2002:

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     The following is a chart of the organizational structure of Telecom Italia Media after the Spin-off:

          The company aims to strengthen its presence and visibility in such markets in co-ordination with the strategy of the Telecom Italia Group. The business units remaining with Telecom Italia Media to date showed a net loss from operations and had negative cash flow. Management believes that thanks to the better use of resources, both in financial and management terms, Telecom Italia Media will be able to complete the turnaround process recently started by SEAT and achieve a net profit within the next two years.

          The restructuring of the Internet business of Telecom Italia Media focuses largely on the development of multimedia production, content distribution business, the portal business and internet access services. Simultaneously Telecom Italia Media is working on ways to benefit from synergies between the two TV networks (LA7 and MTV), the Virgilio web portal and Tin.it’s Internet access services.

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          The chart shows the organizational structure of New SEAT after the Spin-off:

          Effective as of the date of the Spin-off, the spun-off company will be called SEAT Pagine Gialle S.p.A..

          New SEAT intends to become one of the main telephone directories publishers in Europe, with a significant market share in Italy, the United Kingdom and Germany. New SEAT will seek to benefit from an increased focus on directories publication and further develop the key word search services market, particularly in the online sector. In addition, almost all of the Directory Assistance segment, providing telephone information and call center services, and the Business Information segment (excluding the stake in Databank S.p.A.) will be spun-off to New SEAT.

          The Spin-off plan was approved by the Board of Directors on April 1, 2003 and the Shareholders Meeting on May 9, 2003. With the Spin-off plan, the Shareholders Meeting approved New SEAT’s articles of association, elected the members of New SEAT’s Board of Directors and Board of Statutory Auditors, appointed the independent auditors and the decision was taken to request the admission of listing for the ordinary shares and savings shares on the Telematico.

          Sale of Telecom Italia’s controlling stake in New SEAT

          As a consequence of Telecom Italia’s decision that New SEAT was no longer strategic, Telecom Italia put in place an auction process to sell its majority stake in New SEAT. On June 10, 2003 Telecom Italia entered into a Share Purchase Agreement with a consortium of investors formed by BC Partners, CVC Capital Partners, Investitori Associati and Permira for the sale of approximately 61.5% of the share capital of New SEAT (including shares resulting from the exercise by Telecom Italia of the put/call options with J.P.Morgan for a notional amount of 710,777,200 shares, corresponding to about 6.2% of the share capital of SEAT). The agreed price for Telecom Italia’s direct and indirect stake is €3.033 million. The completion of the sale will be subject to the Spin-off

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becoming effective, the admission to listing of New SEAT that is expected to occur by the beginning of August 2003, and the approval of the relevant anti-trust authorities.

New SEAT is expected to maintain an ongoing business relationship with Telecom Italia, in particular with respect to the following business:

	•		New SEAT will be allowed to continue to use Telecom Italia’s database of telephone subscription customers free of charge.
	•		The contract with Telecom Italia regarding the publishing of advertising and information contents of PAGINEBIANCHE will remain in force. The agreement sets forth the times and conditions for the delivery of copies of PAGINEBIANCHE directories to Telecom Italia pursuant to its universal service obligation.
	•		The contract with Telecom Italia relating to advertising space on the PAGINEBIANCHE and PAGINEGIALLE.
	•		The contract with a company of the Telecom Italia Group to categorize business directories, which allows SEAT to assign to each business customer, irrespective of its telephone service provider, a specific sector for its listing in the PAGINEGIALLE directory and in other products and services with directory content.

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Present Organizational Structure and Developments

          The SEAT Group is part of the Internet and Media business area of the Telecom Italia Group, as shown in the following chart of the Telecom Italia Group’s organizational structure:

Notes:
(1)		Mobile South America.
(2)		Previously included in the International Operations Business Unit.

          The chart below shows how the organizational structure of the SEAT Group was re-organized during the course of 2002. For organizational structure of the SEAT Group after the Spin-off, (Please see “Recent Developments”).

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Business Overview

          In light of the proposed Spin-off discussed above, this section is divided into two parts: the first part provides an overview of the business segments that will remain with Telecom Italia Media; the second part provides an overview of the business segments that will be spun-off into New SEAT.

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“Telecom Italia Media” Business Segments

Internet Services

          Through the Internet services business segment, SEAT offers a full range of Internet services, comprising Internet access services, portal services, on-line advertising services; and web services. SEAT’s Internet services are provided through Tin.it and Matrix. Please see “Item 4. Information on the Company — History — The SEAT — Tin.it Combination”.

          In May 1999, SEAT acquired a 60% interest in a newly-formed joint venture, Finanziaria WEB S.p.A., (“WEB”), with the remaining equity interest being held by De Agostini Invest S.A. (“De Agostini Invest”) In September 1999, WEB purchased a 66% interest in Matrix S.p.A. for a cash consideration of €8.5 million.

          The following is a brief overview of SEAT’s acquisition of Matrix: In June 2000, SEAT acquired a 0.7% direct stake in Matrix for a cash consideration of €16.9 million. On September 20, 2000, SEAT signed an agreement to increase its investment in WEB to 100%, which would involve the acquisition of shares from De Agostini Invest. Pursuant to the agreement, SEAT was to acquire the remaining 40% of WEB from De Agostini Invest for a purchase price of €700 million on June 30, 2003. De Agostini Invest also had an option to subscribe by April 15, 2003 for 166,666,667 newly-issued SEAT ordinary shares by paying €4.20 per share for a total of €700 million. This option was not exercised. On September 20, 2000, SEAT also entered into an agreement with N.V. Vertico S.A. (“Vertico”), a Belgian company at that time owned by Matrix’s promoters, Paolo Ainio and Carlo Gualandri and controlled by ISM, pursuant to which SEAT was to acquire the remaining 33.3% of Matrix held by Vertico, concurrently issuing approximately 191 million SEAT ordinary shares in exchange for this stake, subject to an unavailability clause until December 31, 2003.

          On July 30, 2001, the Shareholders’ Meeting of SEAT adopted a resolution to terminate the clause of the agreement which provided for the acquisition by SEAT of the remaining 40% of WEB and to postpone from July 31, 2001 to December 31, 2003 the capital increase for the acquisition of the remaining 33.3% of Matrix. See “Item 8. Financial Information—Consolidated Statements and Other Financial Information —Legal Proceedings” below for a description of the related litigation.

          On August 3, 2001, Telecom Italia acquired through its subsidiary Huit II, 100% of ISM from its founders in exchange for 186,000,000 SEAT ordinary shares of which 42,802,272 ordinary shares were originally locked up until December 31, 2003. On June 27, 2002 the number of locked-up shares decreased to 26,802,272 shares held by Paolo Ainio and Carlo Gualandri were removed. Therefore these shares in SEAT are now freely tradeable. ISM currently holds, through Vertico, a 33.3% stake in Matrix. As a result of this transaction, the Telecom Italia Group now holds 100% of Matrix. On March 31, 2003 Vertico (now a company of the Telecom Italia Group) waived its right to the capital increase in exchange for the 33.3% stake in Matrix.

          On April 12, 2001, Matrix acquired 24.88% of FreeFinance S.p.A. (“FreeFinance”), an on-line brokerage company, from its major shareholders for €1 million. On July 18, 2001, Matrix acquired an additional 64.5% of FreeFinance for a consideration of €1.7 million. During the first half of 2001, Matrix acquired minority stakes in a variety of companies for a total consideration of €5 million. As of June 20, 2002, Matrix had placed certain of these companies into liquidation, and had already sold or was in the process of negotiating a sale of its stake back to the companies’ other shareholders. Matrix had sold Free Finance on February 20, 2003.

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     Internet Access Services

          Through Tin.it, SEAT provides Internet access services to predominantly residential users and to a lesser extent to small office/home office category of customers (“SOHO”) and SMEs Internet users. The SOHO market consists of businesses that use telephone lines to connect to the Internet, as opposed to dedicated lines, and is made up of small businesses, generally with one to two employees, and businesses conducted out of the home. The SME market consists of businesses having between three and 50 employees. While residential customers have made up the majority of Tin.it’s revenues historically, the SOHO/SME business is growing.

          Tin.it’s Internet access products generate revenue from the following sources:

	•		Subscription Fees. All customers, other than subscribers to the tin.it Free product, pay subscription fees for basic Internet access. Customers also pay additional fees for features that can be added to their premium access service; and
	•		Revenue Sharing Fees. Since the last quarter of 1999, pursuant to an agreement between the Association of Internet Service Providers and Telecom Italia, Internet Service Providers, including Tin.it, have been entitled to share in Telecom Italia’s revenues from the provision of metered Internet access services. Accordingly, in 2002, Tin.it received on average approximately €4.40 from Telecom Italia for each thousand minutes that its subscribers spent on-line, in line with the revenue stream in 2001.

          Tin.it offers three principal access subscription plans:

	•		free dial-up access (tin.it Free);
	•		premium dial-up access; and
	•		ADSL access.

          At December 31, 2002, Tin.it’s subscriber base amounted to approximately 6.6 million registered users and 2.2 million active users (defined as users who connect to the Internet at least once every 45 days).

               During 2002, SEAT re-launched the Tin.it brand and completely reviewed its product range. The most important products are the following:

          Free Dial-up Access — Virgilio ClubNet. Tin.it launched free access services in September 1999 under the “ClubNet” brand. In the second half of 2000, the integration of Tin.it’s operations within those of the SEAT group resulted in the launch of the renewed free access service, Virgilio ClubNet, which was intended to maximize marketing synergies between Tin.it’s subscriber base and the Virgilio portal operated by Matrix. This product does not require the payment of a subscription fee but does require the payment of a local telephone call for the duration of the connection.

          At year-end 2002, Tin.it Free totaled approximately 1.45 million active users with an average daily connection time of 19 seconds.

          Premium Dial-up Access. Premium access is provided to both residential and business users. These products require the payment of a subscription fee and provide a wide range of value-added services, depending on the Premium plan selected. Premium plans offer different combinations of on-line time and value-added services, such as multiple e-mail addresses and 24-hour customer support. In addition, a number of value-added services can be packaged with Premium plans, including services allowing customers to listen to and send e-mail messages by phone, receive faxes and voice messages by e-mail and to subscribe to news services by e-mail. In particular, in the

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second part of 2002 a new offer was launched for Premium Access customers by providing them access to the premium content of the Virgilio portal (Virgilio Piú).

          At year-end 2002, SEAT had 300,000 active subscribers to Premium Dial-up Access services.

          ADSL Access. ADSL based on consumption (“pay-as-you-go”) was launched by SEAT (ADSL Tin.it) and by Telecom Italia (Alice ADSL) with a positive effect on the customer base for both. The revenues for Tin.it ADSL are the subscription fees paid by its customers. Based on a commercial agreement, Telecom Italia pays to SEAT a €20 activation fee and a €50 annual subscription fee for each Alice user (Telecom Italia customers), because Seat is providing services such as authentication, second level customer care for technical matters and Virgilio Più services (e-mail, web space, video call, virus protection and exclusive contents).

          ADSL based on consumption consists of two alternative product packages: “ADSL Tempo” and “ADSL Giornaliero”. The ADSL Tin.it customer pays a monthly fee of €9,71 (Tempo) or €18,71 (Giornaliero) plus the Internet dial-up fee of €0,015 per minute (Tempo) or €0,05 per each day of connection (Giornaliero). At the end of 2002 the users of ADSL Tin.it based on consumption are almost 27% of the total ADSL Tin.it users.

          At year-end 2002, SEAT had 53,000 active subscribers to the ADSL Access services.

     Portal Services

          SEAT provides portal services through Matrix, which operates the Virgilio portal.

          Virgilio is a leading Italian portal, with approximately 5.3 billion web page views in 2002, that caters to the Italian-speaking community on the Internet. Management believes that Virgilio, which has been on-line since July 1996, is one of the most complete Italian portals. It contains a search engine and a website index, and it centralizes services in various interest areas such as stock quotes, weather forecasts, TV guides, games, chats, advertisements and shopping. In order to simplify the use of information, Virgilio offers personalized, interactive services that correspond to the requirements of individual customers. Virgilio derives its revenues principally from advertising, which consists of both displaying advertising banners in its web pages and directing Internet traffic to websites designed, maintained or promoted on its network. In 2002, Virgilio received a yield per thousand pages of €2.50 which represents the advertising revenue per thousand pages for the year 2002.

          Virgilio acts as a traffic and visibility aggregator for its advertisers, clients and partners on the Internet where the portal is a real distribution platform to be used to reach Italian consumers. Its objective is to maintain its leading position through a publishing approach favoring an “open” platform policy: users logging on to Virgilio have access to selected content and services while they have complete visibility and access to all the content available on the Internet, including those outside the portal, thanks to a comprehensive directory of sites available in Italy and to the navigation paths prepared by Virgilio’s staff.

          During the course of 2002, new features were added and a range of new products was launched. A new format was provided to the home page, interaction with content such as news and resources (such as journalists and artists) from the Television business segment was implemented, news management services were introduced for mobile users, and premium content sections (containing games, news, music, cartoons, real time stock quotes) were developed in a new section of the portal (Virgilio Piú) restricted to paying subscribers of the Internet Access Services offers to increase customer loyalty.

          Moreover, a new priority search engine (PG Net) was launched in June 2002. For this service Matrix receives from SEAT a fee for each subscriber present on the priority search engine.

          On April 30, 2002, Virgilio.it began distributing an on-line version of Corriere della Sera, a leading Italian newspaper.

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     On-line Advertising Services

          Matrix’s Active Advertising division is a leading on-line advertising agency in Italy and, as of June 13, 2003 had arrangements with approximately 18 Italian websites to provide advertising services. In 2002, Active Advertising sold approximately 162 million impressions (excluding Virgilio’s impressions).

     Web Services

          SEAT provides web services through Tin.it and Matrix’s Matrix Communication division.

          Tin.it provides different packages that enable SME and SOHO customers to establish a presence on the Internet or provide e-commerce services. In particular, Tin.it’s Easy and Village packages provide SME and SOHO customers with the ability to buy web links, template websites (including design and hosting), domain names, and to establish and manage e-commerce capabilities on the Internet.

          Matrix Communication provides a wide range of web services, including communication consultancy, website construction and maintenance, and technical assistance.

          Pursuant to its strategic plan (which included a change in SEAT Group’s strategy for the business-to-business market) in the first half of 2002, SEAT sold its 46.4% stake in Mondus, a business-to-business service provider which operates a European marketplace on the Internet for SMEs to the founders for €19 million.

Other Businesses and Assets

          In connection with the Spin-off of Tin.it and the SEAT/Tin.it merger, Telecom Italia and its subsidiaries contributed the following businesses to SEAT:

	•		49% Interest in ESRI Italia. The principal business of ESRI Italia is the distribution and customization throughout Italy of territorial and environmental software applications and information systems that utilize Geographic Information System, or GSI technology.
	•		VIASAT S.p.A. VIASAT S.p.A. was formed in 1998 as a 50%-50% joint venture between Telespazio, at which point in time was Telecom Italia’s wholly-owned satellite telecommunications subsidiary, and Magneti Marelli S.p.A. VIASAT is a provider in Italy of satellite automotive telecommunications services in Italy, including:

	•		an anti-theft satellite system to track a missing vehicle and notify authorities of the theft;
	•		security and medical assistance in the event of an emergency; and
	•		infomobility services which allow users, through the GSM network, to determine the route to their destinations.

          On November 22, 2002 SEAT sold its 50% stake (33.54% directly owned and 16.46% owned through its subsidiary Finsatel) in VIASAT to ExeFin S.p.A for €2.5 million.

Project Tiglio

          On May 24, 2002, the Telecom Italia Group and the Olivetti Group reached an agreement with Pirelli & C. Real Estate S.p.A., Pirelli S.p.A., MSMC Italy Holding B.V. and Popoy Holding B.V. with regard to the so called “Project Tiglio”, aimed at integrating real estate assets and entities of the various groups’ companies involved in real estate services and subsequently maximizing their value.

          According to the terms of the agreement, the Telecom Italia Group in October 2002 transferred property and staff in charge of real estate asset management activities to two newly founded companies. In particular, SEAT Group’s contribution through the disposal of real estate assets amounted to €53 million, offset by its purchase of 2% of Tiglio I s.r.l. for €10,613 and its loan to Tiglio I s.r.l. of €2,663. Please see Note 11 to the Consolidated Financial Statements included in this annual report for more information.

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     Competition

          The Italian markets for Internet access, portal services and on-line advertising are highly competitive. In addition, these markets are still in an early stage of development and grows slower than anticipated although the barriers to entry are relatively insubstantial. SEAT expects that intense competition in these areas will increase as:

	•		the number of strategic alliances among its competitors continues to grow;
	•		Internet use in Italy continues to grow slowly and the Internet is generally not used to make purchases in Italy, although 31% of Italian households have access to Internet;
	•		technological developments introduce new platforms for Internet access; and
	•		an increased number of global and local companies enter these markets.

          With respect to SEAT’s Internet access services, Tin.it’s principal competitors are Infostrada-Wind and Tiscali. Tin.it’s market share in the dial-up and ADSL segment as of December 31, 2002 was 22% to the total market share comprising both the business and consumer market of dial-up, ADSL and fiber markets and 27% in the consumer segment.

          In the market for portal services, based on the number of page views, Virgilio’s principal competitor is IOL-Libero, a subsidiary of Infostrada-Wind. Other competitors include MSN, Supereva, Tiscali and Yahoo!.

          SEAT and Active Advertising compete for Internet advertising with advertising agencies representing competitive portals and vertical sites.

          The principal competitors of Tin.it and Matrix Communication for web services include Datanord, Inferentia and E-Tree-Etnoteam.

     Human Resources

          The number of employees in the Internet business segment decreased from 981 at December 31, 2001 to 569 at December 31, 2002.

Office Products and Services

          Through Gruppo Buffetti and Cipi, SEAT distributes office products and services in Italy and operates in the sector of promotional articles and gifts for businesses.

     Buffetti Group

          Gruppo Buffetti is a distributor of office products and services in Italy. The primary target groups are professionals, retailers, SOHO and SME. The Buffetti brand name has been present in the Italian market for over 150 years and enjoys of a 93% brand awareness. A large portion of the products and services offered are designed and sold under Gruppo Buffetti’s own brands, while their actual production is mostly outsourced to third parties. Products are distributed mostly through Gruppo Buffetti’s nationwide franchise network and its new direct-to-business agency network, independent retailers and through the Internet.

          At the beginning of 2002, Gruppo Buffetti underwent a significant internal reorganization. The Group was restructured into three internal operating divisions (Sales, Marketing and Consumer Products). During the course of

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specialized channels and a weakening demand from retail customers. The market did not have a uniform trend in its various product segments. As of December 31, 2002, Gruppo Buffetti’s market share was approximately 19% on printed forms, 18% on filing, 6% on commodities (such as stationery and paper) and 4% on software related to SMEs and professional segments.

          Gruppo Buffetti’s main competitors are Corporate Express, Karnak, Errebian, Data Ufficio and Office Depot. In particular, Office Depot operates in the Italian market through the Viking Office products (direct marketing catalogs). In addition Office Depot has contract business operations under its own brand name (Office Depot) which targets medium to large-sized corporate accounts through a specialized sales force.

          Additional competitors are SEAT’s suppliers such as 3M, and Bic with which SEAT has no exclusive contract and specialized software companies such as Team System, Zucchetti and Dialog.

     Human Resources

          The number of employees in the Office Products and Services business segment increased from 495 at December 31, 2001 to 503 at December 31, 2002.

Television

          The Television business segment was formed in 2001 and consists of the La7 and MTV Italia television channels. SEAT’s management decided to form a separate segment for television services in order to rationalize costs and allow a better interaction with the other business segments for its news oriented and all-music channels.

     Acquisition of Cecchi Gori Communications

          Pursuant to an agreement dated August 7, 2000, SEAT agreed to purchase TMC (now HMC) the owner of the TeleMonteCarlo television network, from the Cecchi Gori Group for an aggregate amount of €516 million. TMC is the third-largest television network in Italy, broadcasting two television channels, TMC (recently renamed La7) and TMC2 (recently renamed MTV Italia). The acquisition of Cecchi Gori Communications added a new distribution platform for SEAT’s services and allowed SEAT to explore potential synergies with its Internet services. The Internet portal Virgilio broadcasts via Internet La7 and some contents produced by MTV can also be obtained on Virgilio Piú. It is also possible to participate in an on-line discussion forum, regarding the various topics analyzed and discussed in a talk-show called the otto e mezzo show broadcasted on La7.

          On April 27, 2001, the ordinary and extraordinary shareholders’ meeting of Cecchi Gori Communications approved the company’s annual report for the fiscal year 2000 and resolved to reduce the share capital to zero and then to increase it up to the original amount in order to cover its losses shown on the financial statements for the fiscal year 2000. SEAT subscribed to the portion of the capital increase necessary to maintain its 25% interest by

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paying approximately €21,175 and also advanced approximately €64,506 for Cecchi Gori Media Holding’s 75% portion.

          As of June 4, 2001, the prescribed deadline for subscribing to the capital increase, Cecchi Gori Media Holding Group had failed to make a payment with respect to its share capital or provide notification of its intent to do so. Accordingly, its shares in Cecchi Gori Communications were cancelled and SEAT currently owns 100% of the share capital of Cecchi Gori Communications (now renamed HMC).

          As described below under “Item 8. Financial Information — Consolidated Statements and Other Financial Information— Legal Proceedings,” the Cecchi Gori Group and its controlling company have filed claims challenging the shareholder resolutions approving the financial statements for the year 2000 and the recapitalization and commenced an arbitration proceeding claiming rescission, invalidity or termination of the purchase and sale agreement of Cecchi Gori Communications and also claiming damages.

          In February 2001, Cecchi Gori Communications reached an agreement with Viacom Networks Europe Inc. (the “Viacom Group”) providing for the acquisition of MTV’s Italian business by Beta Television (now MTV Italia) from the Viacom Group for a consideration of approximately €6,000 and for the acquisition by the Viacom group of 49% of Beta Television’s share capital through the subscription to a capital increase.

          Pursuant to the 2002-2005 business plan, the reorganization of the companies belonging to the Telecom business segment was completed at the end of 2002. The two subsidiaries H.M.C. Broadcasting S.r.l. and H.M.C. Produzioni S.r.l. were merged with and into TV Internazionale S.p.A., the company controlled by HMC, that holds the broadcasting license for La7, which now acts as the holding company for MTV Italia S.r.l.. Moreover, the programming format was completely reviewed and rationalization measures were taken to reduce costs.

          More recently, in March 2003, TV Internazionale S.p.A. was awarded by the ICA a license for the testing of the digital terrestrial television, or DTV. DTV is a recently introduced means of transmitting pictures and sound which comprise a television program, together with other services like text and Internet interactivity. DTV offers many advantages over the “analog” television transmission system. Because the information needed to construct a television program is “coded” into a digital stream of ones and zeroes – similar to the way a computer works - the technical quality can be improved and made more consistent. The digital stream takes up much less capacity in the airwaves, so that the space needed in the past for just one analogue channel can now carry up to seven different programs. This allows for a larger selection of programs for a digital television customer. DTV also allows for access to a wider range of information: digital text is much clearer than the old teletext system. Some digital services also provide access to Internet pages through the television set.

          SEAT’s current plans are to test-preview service among a pool of selected users. No decision has yet been made regarding the beginning of the roll-out. DTV services are currently regulated at the European Union level. Please see under “Regulation—Television.”

     La7

          After its acquisition in 2000, the La7 television channel was providing generic content in competition with the other national television networks (mainly the state-owned RAI television channels and the channels of Mediaset S.p.A., a company that is part of the Fininvest Group). Following a decline in advertising revenues and after an evaluation by SEAT of the costs of competing against other generic-content television channels, in September 2001 SEAT decided to implement a different strategy for its television services by changing the editorial content of La7.

          Pursuant to its strategic plan, La7 has become a focused television channel, providing news-oriented programming with prime time entertainment programming in the evenings targeting young professionals, and is currently interacting with the Internet Services business segment in order to provide on-line news information through the use of video-streaming technology. La7 started broadcasting under the new format on March 18, 2002.

          The change in format of La7 forced SEAT to rescind contracts and agreements with employees and professionals hired under the pre-existing plan. Please see “Item 5. Operating and Financial Review and Prospects — Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 — Operating Loss” for a discussion of the economical consequences of such rescissions.

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     MTV Italia

          MTV is a television channel providing music programs and programming for young people (11-35 years segment) on a 24-hour basis. The brand MTV is a well known brand in the music industry and in the television network business. MTV Italia started broadcasting its programs on Beta Television frequency on May 1, 2001. MTV Italia’s strategy is to increase brand awareness and customer loyalty in the specific market segment in which it operates.

          MTV continues to have its own advertising agency acting through its subsidiary MTV Pubblicità S.r.l.

     Outsourcing of Advertising Services

          On November 9, 2002, SEAT reached an agreement for the outsourcing of its advertising agency services to Cairo Communication S.p.A.. The agreement provides for Cairo Communication to place La7 advertising space among potential clients for the next three years. The outsourcing contract allowed for the ending of the operations of the internal advertising agency, H.M.C. Pubblicità S.r.l., which has been put into liquidation.

          MTV continues to have its own advertising agency acting through its subsidiary MTV Pubblicità S.r.l.

     Competition

          The total market share measured by audience in Italy in 2002 for La7 and MTV Italia is approximately 3%. As per the year 2001, the reduction in advertising spending in 2002 reflects the impact of the economic downturn on investments and expectations by the companies and customers. According to market research conducted by AC Nielsen, the television advertising market in 2002 generated a total of approximately €3.900 million in revenues compared to €3,392 million in 2001.

          In recent years, the use of satellite receivers and the presence in the Italian market of pay-per-view program providers has increased. Consequently, La7 faces competition from all-news channels broadcast by Italian competitors, as well as foreign competitors, who have access to the Italian market. Such channels include Italian channel RAI, RAINews (owned by state-owned Italian television RAI), Mediaset and the U.S. networks CNN and Fox News.

          MTV Italia competes with established Italian and foreign music channels broadcast on both digital satellite and analog terrestrial technology, such as ReteA-All Music, MatchMusic, VIVA, and Magic TV.

     Human Resources

          The number of employees in the Television business segment increased from 559 at December 31, 2001, to 591 at December 31, 2002.

Professional Publishing

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          The Giallo Professional Publishing Group, which was established during the course of 2000, has specific responsibility in this business area with interests in companies publishing specialized information in the following sectors:

•

in the hotel, restaurant and entertainment industry (Ho.Re.Ca):

	-		through Mark up, an Italian monthly publication providing specialized information on the economics, strategies and policies of goods and services; and
	-		Fuoricasa, an Italian monthly publication providing specialized information on entertainment.

	•		in electronics, information technology and audiovisual communication through Gruppo Editoriale JCE S.p.A., the publisher of magazines which specialize in telecommunications, electronics and computers;
	•		in ceramics, architecture and urban design; through Gruppo Faenza Editrice, the publisher of a magazine and books specializing in architecture and house décor which has operations in Italy and Spain; and
	•		in tourism with reference to in- and outgoing tourism activities, where the offer of each country and regional area is matched with a tour operator’s request through TTG Italia S.p.A., the publisher of magazines specializing in business travel and tourism and in the organization and promotion of events such as exhibitions and road shows.

          Meanwhile the Giallo Professional Publishing Group also offers services and expertise in the Stands & Exhibitions business.

          The Professional Publishing business segment has been among the worst-hit segments of Telecom Italia Mobile. SEAT is evaluating the possibility of disposing of its Professional Publishing-activities because of the severe contraction of investments by advertisers during all of 2002.

     Competition

          The total Italian business market amounts to €560 million.

          In 2002, the volume of the Italian publishing market remained unchanged compared to 2001 with a total of €500 million in revenues. The market share of the companies in the Professional Publishing group was approximately 7.5%, followed by Agepe and Tecniche Nuove with 5.5% each, and Reed Elsevier with 5%. The other competitors all have less than a 5% market share.

     Human Resources

          The number of employees in the Professional Publishing business segment decreased from 163, at December 31, 2001 to 155 at December 31, 2002.

     Others

     Giallo Voice

          SEAT provides call center services through four call-centers (IMR S.r.l., Teleprofessional S.r.l, OPS S.r.l and Call Center Services S.r.l.). Teleprofessional S.r.l., OPS S.r.l. and Call Center Services S.r.l. will remain with Telecom Italia Media after the Spin-off. Giallo Voice provides services for the Directories business segment. Giallo Voice acquired a majority stake in each of the four call-centers during the course of 2001 for a total consideration of €12,700. Pursuant to contractual provisions of the purchase agreements of the four call-centers in June and July 2002, Giallo Voice increased its stake in IMR from 51% to 100%, in Call Center Services from 66% to 100% and in OPS from 51% to 66%. Call Center Services S.r.l. was subsequently merged with and into Giallo Voice in December 2002.

          Teleprofessional S.r.l. is based in Monza and, for the past 15 years, it has offered mainly telemarketing services; OPS S.r.l. is based in Milan and specializes in technological innovation for call center services; Call Center Services

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S.r.l., now part of Giallo Voice, is located in Cernusco sul Naviglio, Milan, and focuses on call center services for the business–to-business market.

          On January 20, 2003 Giallo Voice S.p.A. entered into a purchase agreement to purchase the remaining 34% of the share capital of Teleprofessional S.r.l. (for a purchase price of €1,450,000). On May 26, 2003 the merger agreement was entered into and both companies merged.

          With these three companies, Giallo Voice can rely on approximately 450 call-center stations that already offer services aimed particularly toward companies in information technology and in the telecommunications, manufacture, publishing, non-profit and financial industry.

          Giallo Voice offers such telemarketing services to small-and medium-sized enterprises (“SME”) and to large companies that outsource their customer relations management services.

     Databank

          SEAT provides business information services. After the spin-off the services provided by Databank would remain with Telecom Italia Media. Databank is an Italian company which specializes in customer asset improvement and industry forecasts by providing information, surveys, research and analyses related to 350 economic sectors, 1,500 markets and 10,000 companies and their clients. It is also involved in competitive intelligence, analyzing and evaluating the services on markets and distribution channels. Similarly to Consodata for the French market, Databank provides intelligence and data in relation to the Italian Internet market (especially Internet sites, rankings).

New SEAT Business Segments

Directories

          Through the companies of the Directories business segment SEAT publishes printed dual on-line consumer classified directories in Italy and the United Kingdom and provides other services such as special editions by topic and operator-assisted or on-line research services.

     The Yellow Pages — (Pagine Gialle)

          SEAT sells advertising with multicolor formatting in its three Yellow Pages products principally to small and medium-sized businesses, operating on a local or regional, rather than a national basis. In 2002, SEAT published 202 editions plus 5 Pagine Gialle Professional editions of its Yellow Pages for a total of 296,000 paying advertisers. The three Yellow Pages products are as follows:

          Business-to-Business Yellow Pages — (Pagine Gialle Lavoro). Pagine Gialle Lavoro is a Yellow Pages directory that lists the name, address and telephone number of each business customer of Telecom Italia. The listings are organized in approximately 2,200 headings. In 2002, SEAT published and distributed 87 annual editions

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of Pagine Gialle Lavoro covering various cities and provinces within Italy. Each Italian business customer receives one copy of Pagine Gialle Lavoro per telephone line at no cost.

          Business-to-Consumer Yellow Pages — (Pagine Gialle Casa). Pagine Gialle Casa is a Yellow Pages directory that lists the name, address and telephone number of those Italian businesses that SEAT characterizes as businesses providing goods and services to residential consumers. The listings are organized into approximately 1,000 categories. In 2002, SEAT published and distributed 202 editions of Pagine Gialle Casa covering various neighborhoods, towns, cities and geographic regions.

          Business-to-Business Regional Yellow Pages — (Pagine Gialle Professional). Pagine Gialle Professional is a Yellow Pages directory that lists the name, address and telephone and facsimile numbers of businesses selected by size and type of company. In 2002, SEAT published and distributed 5 editions of Pagine Gialle Professional, one for each of the following regions: Northwestern Italy comprising Piemonte, Valle d’Aosta Lombardia Ligura, Northeastern Italy comprising (Friuli, Trentino Alto Adige and Veneto), Emilia Romagna, Lazio and Umbria. Pagine Gialle Professional is provided in print and CD-ROM versions at no cost to approximately 900,000 major Italian businesses.

          Starting with the 2002 edition for the listings in the city of Rome, SEAT launched a new format and a new graphic design for the Yellow Pages. The directories are printed in a new font (Nomina), which was first used for the White Pages in 2001. A new four-color process on white paper (White Spot Light) permits better visibility of the advertisements. The “Home” and “Office” volumes have been redesigned: new logo, new covers, new graphics and the use of the White Spot Light technique. The printing is done on white paper that is then colored yellow, ensuring greater visibility for advertisers. The advertisements have a lighter print compared to the background of the page which in connection with a recently created typeface makes research on this database easier.

          Greater specialization and more detailed information were added by introducing over 200 new categories that respond to the most recent market requirements (for example, e-commerce, online banks, Internet cafes and cyberpubs, health, etc.). In addition, to make it easier to locate nationally known brands, the “Trovamarche,” or brand-finder index, has been overhauled and optimized.

          Based on the high use and enjoyment levels of several sections found in the old editions, new sections have been added, such as the Restaurant Guide, with information on venues categorized by specialties and cuisine, and the section on Bars & Nightspots, following the model of some of the most famous and widely circulated national guides. The new format and the enhanced features of all the editions of the Yellow Pages (amounting to 202 editions) will be available by September 2003. A new advertising campaign was launched in October 2002.

          Talking Yellow Pages — (Pronto Pagine Gialle). 89.24.24 Pronto Pagine Gialle: your personal assistant “with you 24 hours a day.” 89.24.24 is the phone voice portal that operates 24 hours a day. Through 89.24.24 Pronto Pagine Gialle, consumers can find information about economic subjects, flight and train schedule, chemist shops, cinemas, weather, traffic, airlines, airports, museums, theatre shows and live music concerts. All information is retrieved and delivered by a member of the service staff who is able to better understand consumer needs and looking for the most suitable match closes to the caller, or other information, properly matching that need.

          The members of the service staff are professionally trained to respond to caller’s needs. They interact with the consumer and take care of the search and try to find the best solution working on a complete and updated data base.

          Advertisers describe their activity through keywords such as: product and services, brands, time schedules, etc. Each keyword accomplishes two things: On the one hand it can be used as input for the search engine to find the information, on the other hand it is the most precise way to describe consumer needs. Finally each advertiser has the choice of either being freely listed or ask for a priority listing.

          89.24.24 Pronto Pagine Gialle gives callers a range of additional services such as: maps via sms, call completion, information delivery via sms, e-mail and fax.

          89.24.24 is reachable by every wire line and mobile carrier in Italy.

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          89.24.24 Pronto Pagine Gialle business model is based on a double revenue stream: on the one hand revenues from advertisers and on the other hand from phone calls.

          SEAT also applies technology to the development of value-added services for its existing telephone directory products. For example, SEAT uses a digital map database to support delivery businesses in areas already covered by an electronic map.

          On-Line Yellow Pages — (Pagine Gialle.it). Pagine Gialle.it is an Internet-based product through which users can search an on-line directory for descriptions and information on approximately 150,000 advertisers and also limited listing information for approximately 3 million Italian businesses. Similar to Pagine Gialle, the database is accessible through subject areas within categories such as “restaurants” or “hotels”. Pagine Gialle.it allows a subscribing business advertiser to include information on its products and services as well as links to its web page. Following the upgrade of Pagine Gialle.it through the introduction of an enhanced search-engine and a link to the search engine of the Virgilio portal (“Virgilio.it”), in October 2002 the website underwent significant restyling with the introduction of a new format and layout, enhanced search engine features and more areas divided by topic.

          Pursuing a closer integration with the internet platform, in June 2002 SEAT launched PG Net, a new product which offers to Pagine Gialle.it customers the possibility to gain greater visibility with respect to other advertisers in the Virgilio.it database.

     The White Pages — (PagineBianche)

          PagineBianche is a directory containing the names, addresses and telephone numbers of Telecom Italia’s and other main Italian telecommunications operators’ business and residential customers. It is published with two-color formatting available for advertisements. SEAT publishes a total of 103 editions of PagineBianche covering each city, town and geographic region of Italy. SEAT owns PagineBianche, sells advertising in PagineBianche, retains 100% of the advertising revenues, and bears all production costs. In accordance with Italian law, Telecom Italia continues to distribute PagineBianche and pays for the distribution. As part of the conditions to the SEAT-Tin.it combination, SEAT will have to put out for tender the sale of advertising for PagineBianche telephone directories beginning January 1, 2008.

          PagineBianche is provided to Telecom Italia’s and other main Italian telecommunications operators’ residential and business customers and contains approximately 600,000 advertisers. The total circulation of PagineBianche in 2002 was approximately 27 million copies.

          In accordance with a European Union directive and the related Italian decree, Italian telecom operators must provide access to their telephone subscriber databases to independent telephone directory operators and Italian telephone subscribers must be provided with at least one “universal directory” containing the complete telephone listings of residential and mobile subscribers within their local geographic area. SEAT launched its first edition of the universal directory in October 2002 starting with the Rome edition. In the Rome edition, the new directories include subscribers to the services of Telecom Italia, as well as those working through Infostrada, Albacom, Atlanet, Colt and Fastweb. In the 2003 editions the White Pages contained the information of 16 different telecom operators. The directories will be distributed by Telecom Italia with the usual procedures.

          The cover features brand new graphics, plus a new logo. One of the most important innovations of the new printed directories is that, in addition to the new graphic layout of the advertisements and a new font to make the directories easier to read, there is also a section where the telephone carriers can publish their subscription terms and a list of services. In the middle of the volume, there are two new sections: “PAGINEBIANCHEINFORMA”, listing emergency and public service numbers, and “GESTORINFORMANO”, with more commercial information about the services and offers of the various carriers.

          Thanks to an innovative integrated multiplatform system, Pagine Bianche will be available to everyone anywhere – on paper (with the new telephone books), on the Web (at PagineBianche.it, also in the WAP and PDA versions), on CD (in two versions, one for businesses and one for private customers) and through the voice service at 89.24.24. The advantages of the system are constantly updated information and easy use. As of June 13, 2003, SEAT publishes 103 editions of the White Pages.

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          On-Line White Pages — (Pagine Bianche.it). Pagine Bianche.it is an Internet directory assistance service. It contains the complete and updated telephone directory of all Italian subscribers, 19 million residential customers and 4 million businesses, and performs rapid searches by name or by telephone number at the national, provincial and local levels. The service is free of charge and was launched in September 1999. SEAT offers advertising space on PagineBianche.it. For a fee, the subscriber can add to the already available information contained in the White Pages listing additional information such as e-mail addresses, mobile phone numbers and other information of the listed business or activity. Starting in June 2003, PagineBianche.it is sold in bundling with the printed version of PagineBianche; the same advertisement will appear on paper, on-line and on CD Rom.

TDL Infomedia

          TDL Infomedia, through its subsidiary, Thomson Directories, is the second largest directory publisher in the United Kingdom, with a market share of approximately 14%. Thomson Directories distributes 173 editions of the Thomson Local Directory and one new WebFinder directory, which have a combined circulation of over 22 million copies covering approximately 85% of the United Kingdom’s population. Thomson Directories, proprietary business database is compiled by contacting the listed businesses in order to verify and modify, if necessary, the data obtained from a variety of sources, including British Telecom.

          In addition to printed directories, Thomson Directories also offers on-line directory advertising through the Internet sites ThomsonLocal.com and ThomWeb.co.uk and business information products. Thomson Directories’ Internet sites offers comprehensive directory services and provides access to a database of approximately 2 to 3 million businesses in the United Kingdom.

          Internet advertising packages sold on ThomWeb.co.uk and ThomsonLocal.com comprise online business listing with a more prominent position and an “enhanced listing” section and links to the advertiser’s website, an online version of the customer’s printed advertisement and guaranteed placement in the “preferred listings” section.

          Business Information products consist of the sale of information from Thomson proprietary database relating to U.K. businesses to both wholesale and retail customers. In the wholesale category, sales are relatively concentrated to a small number of large companies which basically pay license fees to have access to Thomson proprietary database. Products for retail customers consist in tools such as Business Search Pro, which is a CD-ROM providing detailed information on 2.1 million business listings in the U.K. and enabling customers to download data on a “pay-as-you-go” basis and new connections.

          As of December 31, 2002, Thomson Directories had approximately 93,000 print directory customers, approximately 23,000 on-line directory customers (fully overlapping the print directory customers) and approximately 5,500 business information products customers.

          TDL Infomedia continually seeks to introduce new products and features in order to create incentives for customers to renew their prior year’s advertising subscription and increase their expenditure on TDL’s products. Typically these product innovations are rolled out over a two to three year period. In 2000 TDL launched color advertisements in the classified section of 39 directories. The roll-out of such color advertisements was extended to an additional seven directories in 2002 and it is intended to be rolled out across eleven more directories in 2003.

          In December 2002, TDL published a new directory of web addresses, WebFinder, which was distributed throughout Central London. This product supported the launch of the new WebFinder.com online search engine, which took place in January 2003.

          Regarding the Internet strategy, in April 2002, TDL launched a new proprietary Internet site, ThomsonLocal.Com, complementing the existing Thomweb.co.uk. This local information portal features an enhanced business finder, the “WebFinder” search engine and a “search nearby” facility, as well as local area information.

          During 2002, TDL entered into separate paper and printing agreements with 3 paper suppliers based in Sweden and Finland and 2 printers based in Italy and Sweden. Each agreement is due to expire in 2004 (except for the paper agreement with one of the Swedish suppliers (Holmen A.B.), which is due to expire in 2005) with fixed rates.

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          The U.K. classified directories market has been subject to review by the U.K. Office of Fair Trading. Following the most recent review, on May 11, 2001 the Office of Fair Trading announced that the price cap limiting annual price increases in advertising rates by Yell Group Limited, which is viewed as the incumbent market leader, should be tightened from Retail Price Index minus 2% to Retail Price Index minus 6% for directories published from January 2002. Although TDL was not required to offer any similar undertaking, the cap imposed on Yell Group Limited has the indirect effect of constraining TDL’s ability to increase advertising rates.

          In October 2002, SEAT increased its stake in TDL Infomedia from 99.6% to 99.73% following the acquisition of “A Investment Shares” from the Management of TDL Infomedia in accordance with the Share Purchase Agreement entered into among SEAT and Apax, 3i, Advent and participating management and employees.

     Euredit

          Euredit publishes the Business-to-Business European Directory — (Europages).

          SEAT is the exclusive Italian licensee for the sale of advertising in Europages, a European business directory containing information on approximately 120,000 exporters of goods and services for the printed version and 500,000 suppliers for the on-line and CD-ROM versions. Businesses are classified among more than 600 headings. Europages is published in six languages in either print version or on CD-ROM and distributed at no cost to each listed company and selected exporters in 33 countries.

          Euredit offers advertising space on Europages through both sales agents in 26 countries and a telephone marketing program from Euredit headquarters in Paris, France. SEAT, earns commissions for the sale of advertising space in Europages.

          Euredit also sells on-line advertising space in its proprietary site, Europages.com, in which the Euredit database consisting of approximately 500,000 business addresses is available for consultation. The site, available in 16 different languages, provides visitors with enhanced search tools as well as with links to the corporate sites of the main European Yellow Pages operators throughout Europe.

     Other Directories and Related Products and Services

          PagineBianche CD Italia is the retail edition of PagineBianche in CD-ROM format. This product is sold directly by the customer service branch of SEAT.

          Pagine Bianche Office. Pagine Bianche Office together with Pagine Gialle Lavoro is a database of about 4 million businesses in CD-ROM format distributed free of charge. The available information includes fixed telephone line numbers, fax numbers, e-mails, URL and companies’ telephone numbers. Pagine Bianche Office had 120,000 customers in 2002.

          Business-to-Business Industry Sector Listings — (Annuario SEAT Neoexpo). Annuario SEAT is a multi-volume business-to-business directory. It contains selected Italian businesses grouped by industry and services offered.

          City Maps — (TuttoCittà). TuttoCittà is available in all editions of PagineGialle Lavoro and in 65 editions of PagineGialle Casa; there are 35 editions of TuttoCittà available in a separate volume. TuttoCittà provides a city map and information about local public services, including transportation, leisure activities and local attractions. Starting from July 2002, TuttoCittà made Italian city maps available on-line.

          Annuario Kompass (formerly known as Kompass Italia) – Information on over 60,000 Italian companies: names, activities, products and services, decision-makers and their functions, key figures. It is part of a worldwide network of 66 publishers of industry annuals and provides on-line, on-disc and printed services relating to specialist economic information for the business-to-business market. Until August 2002 this service was provided by Kompass Italia which in August 2002 transferred its operating activities and personnel to Annuari Italiani S.p.A. and therefore is no longer an operating subsidiary.

          Business-to-Business directories: Guida agli acquisti per gli Enti Pubblici, a sale guide for shopping in hotels and a comprehensive guide to Italian hotels (both on paper and on line).

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          Through the brand-name Giallo Promo, SEAT also sells direct marketing services and provides merchandising services.

     Operations

          Distribution and Sales. In December 1998, SEAT began subcontracting the distribution of all Pagine Gialle products in response to a ruling from the Italian Antitrust Authority that the previous co-packaging and distribution system with Telecom Italia restricted competition. SEAT uses two independent distributors to deliver its Pagine Gialle products throughout Italy. Telecom Italia distributes all White Pages directories published by SEAT.

          SEAT’s directories sales force is divided into three groups: territorial sales, large customer and telephone sales, each of which covers a specific type of customer. At the end of 2001, SEAT completed the reorganization of SEAT’s sales channels and the commissions structure for SEAT’s sales agents; SEAT now deals directly with its sales agents through an agency contract without the use of sub-agents.

          Paper Supply Arrangements. The market for directory paper is controlled by a limited number of specialized paper mills that are being further reduced, as a result of ongoing consolidation in the paper sector. SEAT seeks to diversify its use of paper suppliers in an effort to reduce printing paper expenses and increase the stability and quality of its paper supply.

          Accordingly, SEAT reduced the quantity of paper purchased from the Italian supplier Cartiere Burgo S.p.A. from 45% of its requirements in 2000, to 7% in 2002. As of June 13, 2003, SEAT’s purchases from Cartiere Burgo S.p.A. are being maintained at the same percentage of paper supply requirements. Cartiere Burgo S.p.A. is also backed up by further potential local suppliers. In 2002, SEAT entered into a three-year supply contract with the Swedish paper supplier Holmen Paper A.B., and into a two-year contract with the Finnish paper suppliers UPM-Kymmene OY, Stora Enso Publication Papers OY Ltd. and Stromsdal Corporation. These contracts obligate the supplier to sell, and SEAT to purchase, a target amount of paper at a fixed price for their duration. SEAT received approximately 93% of its printing paper from these suppliers in 2002, and does not expect this to change. SEAT also maintains commercial relations with certain paper suppliers in the United States and Canada, in order to obtain access to the North American paper market and evaluate the prospects for long-term supply agreements with those suppliers.

          Printing — Relationship with ILTE. Since SEAT’s sale in August 1998 of ILTE, its former printing subsidiary, SEAT has continued to use ILTE as its exclusive provider of printing, binding and cellophane wrapping services for its directory-publishing activities. In 1998, SEAT entered into an exclusive supply contract with ILTE, that expires on December 31, 2007. The prices were renegotiated in 2002, based on benchmarking against major European directory printers. A future price increase will be based upon a maximum of 50% of Istat, the Italian cost of living index. The contract also stipulates timing and qualitative performances criteria, with penalties if they are not met. SEAT provides paper that meets quality specifications to ILTE which provides the other principal raw material for printing, such as ink. Although SEAT is required to use ILTE for its printing needs throughout the duration of the agreement, SEAT has an option to terminate the entire agreement, or the exclusivity requirement with respect to 30% of SEAT’s printing needs, in the event that ILTE is unable to meet the performance criteria set out in the agreement.

          Billing and Credit Management Systems. SEAT’s advertising customers are invoiced for the cost of advertisements placed in its publications on an agreed upon timetable when the order is placed. The “canvassing” for advertising orders begins approximately 11 months prior to publication of the relevant edition. Revenue from advertising sales is recognized upon publication of the relevant directory. Prior to extending credit to a customer, the customer, SEAT performs a credit check.

     Competition

          SEAT’s market share in Italy in the telephone directory segment is approximately 90%. In 1997, the Italian publishing company Arnoldo Mondadori Editore S.p.A. (“Mondadori”), and Pagine Italia S.p.A. (“Pagine Italia”), both subsidiaries of Fininvest S.p.A., the parent company of the Fininvest S.p.A. group of companies (“Fininvest”), launched Pagine Utili, an on-line and paper-based Yellow Pages directory. Pagine Utili has a 5% market share, SEAT currently has no other significant national direct competitors for its printed directory products.

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     Human Resources

          The number of employees in the Directories business segment decreased from 2,281 at December 31, 2001, to 2,220 at December 31, 2002.

Directories Assistance

          The Directories Assistance business segment includes:

	•		Telegate Group
	•		IMR S.r.l.; and
	•		Pronto Pagine Gialle 89.24.24 (a division of SEAT)

          SEAT’s strategy for Directories Assistance is focused on increasing Pronto Pagine Gialle’s relatively small market share of the Italian telephone directory assistance market and the expansion of Telegate in European countries other than Germany, specifically the U.K. and Spain.

     Telegate

          SEAT currently holds a direct and indirect interest of 78.4% of Telegate AG. This is a result of the capital increase approved by the shareholders’ meeting of Telegate AG of November 18, 2002. The shareholders’ meeting resolved to increase the share capital by €46,973,700.00 against the issuance of 12,730,000 new shares at an issue price of €3.69 including a premium of €2,69. Of this amount, €6,360,740.83 was contributed by SEAT, €23,950,229.17 by Telegate Holding GmbH and €16,662,730.00 by the remaining shareholders. Currently the subscribed share capital of Telegate AG amounts to €20,954,355.00

          Telegate had 2,383 employees at the end of 2002 (primarily call-center operators) and its main operations are in Germany although it is also active in Italy, Spain, the UK and the United States.

          In 2002, SEAT continued the implementation of its international strategy for the Directories Assistance business segment:

	•		Telegate’s main service in Germany is the telephone number 11.88.0. In 2002, it handled a total of approximately 93.6 million calls.
	•		In December 2002, Telegate began providing services through its subsidiary 11.88.66 Ltd. in the UK through the telephone number 11.88.66.
	•		Through Telegate Italia S.r.l. (“Telegate Italia”), its Italian subsidiary, Telegate also provides telephone services for 89.24.24 Pronto Pagine Gialle.

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          By dialing each call-center number, users can transfer calls, access information relating to telephone numbers and access other information services (weather updates, films at cinemas and other events) via a hotline for booking and buying tickets. Telegate handled more than 119 million calls during 2002.

     Pronto Pagine Gialle

          Pronto Pagine Gialle is a relatively new business unit that was transferred out of Directories Italia and into Directory Assistance in 2002. Pronto Pagine Gialle’s activities relate exclusively to the provision of telephone directory assistance services to the general public in Italy, via the branded telephone number service “89.24.24.” Pronto Pagine Gialle receives a share of the call charges levied by the telephone network operators on the users of its 89.24.24 services. In addition small and medium size business and corporate clients wishing to receive priority listing on Pronto Pagine Gialle 89.24.24 service are also advertising customers for Pronto Pagine Gialle. These advertising services are promoted by the SEAT sales force responsible for the promotion of other paper and on-line directory products.

     IMR S.r.l.

          SEAT provides call-center services through Giallo Voice, consisting of four call-centers (IMR S.r.l., Teleprofessional S.r.l., OPS S.r.l. and Call Center Services S.r.l.). After the Spin-off, IMR S.r.l. will be part of New SEAT. In June and July 2002, Giallo Voice increased its stake in IMR S.r.l. from 51% to 100%.

          IMR S.r.l. is based in Turin, where its main activity is to assist Pronto Pagine Gialle in its directory assistance services.

     Competition

          In Germany, Telegate’s main competitors are free Internet-based search-engines. As of December 31, 2002, Telegate’s market share in Germany was approximately 32%.

     Human Resources

          The number of employees in the Directories Assistance business segment decreased from 3,775 at December 31, 2001 to 2,712 at December 31, 2002.

Business Information

          SEAT provides direct marketing and database services through its subsidiaries Consodata, NetCreations, PanAdress, Databank and Datahouse. These companies operate in the business-to-business market, providing a wide range of direct marketing services, including direct mail campaign management, preparing demographically tailored mailing lists, data treatment and enhancement, and marketing database management.

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(1)		After the spin-off Databank S.p.A. would be included in Telecom Italia Media.
(2)		On August 13, 2002, SEAT sold its stake in Datahouse to Dun & Bradstreet S.p.A., for €15.9 million.

          In compliance with the goals and strategy set forth in the 2002-2005 business plan, which provides for the divestiture of non-core assets, SEAT is still evaluating the possibility of disposing of its Business Information activities due to weakening demand of services in the business-to-business market, and the decrease of investments in the direct marketing area which persisted during the course of 2002.

     Consodata

          Consodata, a French company, is a leading European company in the development and management of information about consumer trends. The acquisition was originally part of SEAT’s strategy to strengthen its position in the consumer marketing intelligence services sector.

          Consodata is active in three business areas:

	•		Information gathering services, using traditional and on-line questionnaires with different criteria to identify consumer profiles (lifestyle);
	•		geomarketing, profiling and cartography (marketing intelligence); and
	•		direct marketing, consumer information services, management and/or enhancement of proprietary and third-party databases (one-to-one).

          SEAT currently holds 98.60% interest in Consodata. Pursuant to its 2002-2005 business plan, SEAT is currently evaluating the possibility of disposing of its interests in Consodata. In accordance with the agreement reached with Consodata minority shareholders, before any such sale, SEAT will transfer its interests in Pan-Adress and NetCreations to Consodata. In an agreement with the founders of Consodata dated August 2, 2002, SEAT amended certain terms and conditions of previous agreements among the same parties dated July 31, 2000, and February 11, 2002, respectively. The new agreement provided for a put option in favor of the founders (which hold the minority stake) on their stake in Consodata, exercisable only if SEAT disposes of its controlling stake in Consodata;

          On February 12, 2003 pursuant to a put option exercised by the founders of Consodata, SEAT acquired 1,108,695 ordinary shares of Consodata at €44 per share (corresponding to an 8.17% interest) for a total consideration of €48.8 million. Please see under “Business Overview—Business Information—Consodata”.

          On April 15, 2002, Consodata S.p.A. (Consodata’s subsidiary for Italian operations) (“Consodata”) acquired an additional stake of 36% in Consodata Marketing Intelligence S.r.l. for a total consideration of €3,780,000. On May 19, 2003 Consodata entered into an agreement to purchase the remaining 2.69% of the share capital of Consodata Marketing Intelligence. Consodata now owns 100% of Consodata Marketing Intelligence S.r.l.

     Datahouse

          Datahouse is an Italian company which specializes in real estate market intelligence. Datahouse provides information on Italian real estate properties through a database of more than 20 million documents, partly retrieved from land registries, bankruptcy court procedures files and databases specialized in security. Datahouse makes its content available on-line for a fee and targets professionals in the legal and banking businesses, real estate agencies and brokers. On its Internet site, Datahouse also offers additional services including a search engine in cooperation with Altavista.it and other enhanced research features relating to the real estate market.

          On August 13, 2002, SEAT sold its stake (100%) in Datahouse to Dun & Bradstreet S.p.A., the Italian subsidiary of the U.S. parent, for a sale price of €15.9 million (at the closing SEAT bought back its minority stake (48%) in Datahouse for €11.0 million and was repaid by the purchaser of an intercompany debt of €6.5 million.)

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     Pan-Adress

          Pan-Adress is a wholly owned subsidiary of SEAT specializing in off-line direct marketing. Pan-Adress was acquired in July 2001 by SEAT from the Beisheim Holding Switzerland, a sister company to the Metro Group, one of the leading German companies in the direct marketing sector. Pan-Adress was founded in 1962, is currently based in Munich, and offers a broad range of products and services as well as experience in mailing list management, based on databases.

     NetCreations

          NetCreations is a U.S.-based company which specializes in opt-in e-mail data collection, database management and e-mail marketing services. At the end of 2002, its database contained over 45 million e mail addresses of consumers who have identified and confirmed areas of special interest to them. NetCreations has partnerships with over 400 websites and provides direct e-mail marketing services to over 2,000 clients. NetCreations is the U.S. leader in Opt-In® e-mail marketing services. Through the Opt-In® service NetCreations obtains authorization for the handling of personal data from the contacts in its own database, and is thus capable of offering businesses precise targets of possible customers to whom promotional messages can be addressed.

     Competition

          Consodata’s main competitors are: Axciom, Wegener, Experian, InfoUSA, Doubleclick, SE Equifax, D&B, Claritas, Nielsen, Caci. Databank competition’s consists primarily of Eurisko, Centrale bilanci, Cerved, Prometeia, D&B, Gartner Gr., Ipsos Explorer, Nielsen, while Datahouse competes with SE Equifax, Consit and Crif.

     Human Resources

          The number of employees in the Business Information business segment decreased from 912 at December 31, 2001 to 812 at December 31, 2002.

Intellectual Property

          SEAT’s success and ability to compete in Italy depends to a significant extent on the marketing effectiveness of the PAGINE GIALLE brand name and logo, as well as the names and logos of SEAT’s other products and services. In order to protect its proprietary rights, SEAT has received Italian and international registration in respect of approximately 235 product names, including “PAGINE GIALLE,” “PAGINE GIALLE On-Line” (its new name PAGINE GIALLE.it, “TuttoCittà,” its former company name, “SEAT S.p.A.,” its new name “SEAT PAGINE GIALLE S.p.A.,” “Pronto PAGINE GIALLE 892424,” “PAGINE BIANCHE” and PAGINE BIANCHE.it. SEAT, as an Internet Service Provider, also holds a number of trademark registrations in Italy and the European Union, including for Tin.it, ClubNet, E-Vai, Premium and C6 (“Here You Are”) and about 190 domain names registration including SEAT.it, PagineGialle.it, PagineBianche.it, PagineGialleon-line.it, Tin.it, Clubnet.it, Atlantide.it and E-vai.it. Tin.it also licensed software and other technology from various third parties.

Property

          SEAT has offices throughout Italy, but its principal offices are located in Turin, Italy. The following is a list of SEAT’s principal real property holdings as of December 31, 2002 all of which are used as office space and owned by SEAT without any major encumbrances.

          The following real estate was included as part of the Project Tiglio, as described above, in October 2002 and is still rented by SEAT:

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          SEAT is not aware of any environmental issues that may affect its use of its assets and management believes SEAT is fully compliant with Law 626/94 which sets environmental standards for all companies operating in Italy.

Regulation

Directories

          The directory market is fully liberalized. The provision of a local telephone subscriber’s directory however, is also an important part of the Universal Service Obligation. Currently in Italy, Telecom Italia is designated to provide the service under the Universal Service Obligation, which requires Telecom Italia to provide local telephone subscriber directory services in the whole of Italy. Telecom Italia is using SEAT’s PAGINEBIANCHE directory to fulfill its duty to provide the local telephone subscriber directory under the Universal Service Obligation.

          Any voice telephony operator is obliged to guarantee the availability of subscriber data on a fair, transparent and non-discriminatory basis and to provide directory and directory assistance services. Moreover, since the SEAT-Tin.it merger in 2000, Telecom Italia is obliged to guarantee the availability of subscriber data without charge.

          From January 1, 1998 the potential designation of companies other than Telecom Italia has been authorized in order to guarantee maximum efficiency (art.3 dPR 318/97). The National Regulatory Authority for Communications (Autorità per le Garanzie nelle Comunicazioni – AGCom) by resolution 36/02/CONS allows for a tender for various telecommunication services. This provision is not applicable to the directory business since the market is already open to competition and a tender would re-introduce exclusive rights, not allowed in the European or Italian regulatory environments. The new EU regulatory framework (EU Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services) confirms this interpretation: the EU directory market is fully liberalised and no barriers for new market participants exist since subscriber data is available to third parties.

          This EU Directive however requires that at least one comprehensive directory is made available to end users in a form approved by the relevant authority, whether printed or electronic, or both, and is updated on a regular basis, and at least one on an annual basis. The adoption under Italian law is expected by the end of July 2003.

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          AGCom called for consultation on the possible introduction of electronic support (CD Rom) as part of the scope of universal services of telephone directories. The initial data on CD Rom usage has highlighted that there is a substantial lack of utility of the product as it cannot be used by all customers and that therefore cannot be considered a universal service.

          AGCom, by resolutions 36/02/CONS and 180/02/CONS in application of dPR 77/01, has fixed the criteria for the constitution of the comprehensive customer database (“Universal Database”) for the general directory containing the information of all subscribers (fixed and mobile) in order to guarantee more readily the availability of subscribers data for directories and directory assistance services. Licensed Operators with direct access to subscribers are obliged to create and operate this Universal Database. The Universal Database will be made available to all parties who provide a telephone directory service or directory assistance service on a fair, transparent and non discriminatory basis.

          The fixed network operators have reached a partial agreement on the technical specifications for the production of the Universal Database.

          The mobile network operators have signed a similar agreement. Once the fixed network operators agreement is finalized, the agreement between the mobile network operators will need to be revised to ensure both agreements are consistent. The Privacy Authority (“Garante per la protezione dei data personali”) has provided guidelines regarding the acquisition of consent to processing of customer data. Subscribers must be informed, free of charge, about the purpose of a directory available to the public or obtainable through directory inquiry services, in which their personal data can be included and of any further usage possibilities based on search functions embedded in electronic versions of the directory. Subscribers will be given the opportunity not to be included in a public subscriber directory. Existing fixed network subscribers will be treated with an opt-out approach, new subscribers and mobile with an opt-in approach. Under the opt-out approach a subscriber has the option to be deleted from the directory under the opt-in approach the subscriber has the choice to be listed.

          Starting with the Rome directories in October 2002, SEAT produced a multi-brand product (PAGINEBIANCHE) which included subscribers of Telecom Italia and competitors, that complied with the regulations prior to implementation of the Universal Database.

          SEAT’s management believes that these requirements do not impose any limitations on SEAT’s competitiveness in the directories market.

     Directory Assistance – 89.24.24 service

          AGCom is evaluating the appropriateness of introducing by mid-2003 a number specifically assigned to directory assistance services (12XY) within the National Numbering Plan. The existing National Numbering Plan assigns codes and numbers for fixed telephony services, mobile, value added services, but does not identify any specific code for directory enquiry services. The introduction of a specific code for directory enquiry is consistent with present or past initiatives in other European countries. This initiative would provide equal opportunities for all the parties offering directory assistance services, whether they be network operators, or service providers like SEAT S.p.A.

Internet

          Seat-Tin.it is present in the residential and SME (Small and Medium Enterprises) retail market for both dial-up and ADSL Internet access. Seat-Tin.it acquires from Telecom Italia all network services for the realization of such offers: access (mainly, call origination for dial up calls, ADSL wholesale access, IP transport, national and international bandwidth).

     Retail market – dial-up

          After the first quarter 2002, Seat-Tin.it activated new numbers for dial-up calls: (i) 7020001033 for premium, and (ii) 7020001099 for free dial-up calls. The old geographic numbers are still in operation. The financial relationship with Telecom Italia was based on revenue sharing both for the old (geographic) and new (70X) numbering.

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          On October 7, 2002, the Ministry of Communications assigned to Seat-Tin.it the right of use of 70X numbering. As a consequence, Seat-Tin.it negotiated and signed with Telecom Italia a contract related to 70X dial-up calls which provides: from January 1, 2003 (i) SEAT is entitled to all the revenues of 70X calls and (ii) Seat-Tin.it pays the correspondent call origination and IP transport to Telecom Italia. The publication of Law 59/02 and subsequent implementation of the relevant resolution by AGCom (9/02/CIR) require Telecom Italia to grant Internet Service Providers the same economical conditions for network services that it does to other licensed telecommunication operators.

          For the remaining SEAT Tin.it regular traffic, Seat Tin.it shares its revenue with Telecom Italia only for geographic numbering.

     ADSL/ATM Broadband

          The applicable regulatory provisions (AGCom decision 407/99, 217/00/CONS, 15/00/CIR, 06/03/CIR) require Telecom Italia make a wholesale offer to access broadband ADSL Internet services available to competing operators, before providing services to its own customers. This wholesale offer forms the basis upon which Seat Tin.it defines its offer conditions for broadband ADSL Internet access for its customers.

          As an ISP, SEAT prices its services to its customers based on the wholesale offering. With the 06/03/CIR resolution, the AGCom has reviewed the economic conditions of the wholesale offer by Telecom Italia in order to guarantee suitable financial spaces for competition and required Telecom Italia to decrease its prices. Like other operators, also SEAT has benefited from this price reduction.

     WIFI Services

          SEAT has obtained the authorization for the experimentation of the public Radio-LAN, access to public electronic communications networks, and services in the 2.4 GHz band (WIFI service). The authorization does not allow any commercial visibility. The regulations for the issue and the authorization for offering of the commercial services in the 2.4 GHz and 5 GHz bands has been published (Decree dated May 28, 2003). SEAT has opened its own experimental WIFI access areas (currently, more than 50 locations). Currently, the access is limited to no more than 3,000 selected customers. SEAT intends to open its own WIFI access areas and to form agreements with other authorized parties to grant access for its customers (Internet roaming).

E-Commerce

          EU Directive 200/31/CE on Electronic Commerce has implemented in Italy by Law No. 70/03 which establishes specific harmonized rules to ensure that businesses and citizens can supply and receive e-commerce services throughout the EU. These include:

	•		Conclusion and validity of electronic contracts;
	•		Transparency requirements. It subjects commercial communications over the Internet, such as advertising and direct marketing, to certain transparency requirements to ensure consumer confidence and fair dealing;
	•		Liability of Internet intermediaries. It establishes an exemption from liability for intermediaries, who play a passive role as a “mere conduit” of information from third parties and limits service providers’ liability for other “intermediary” activities, such as the storage of information; and
	•		On-line dispute settlement.

Television

          In February 2003, MTV Italia and TV Internazionale requested and obtained from the Italian Ministry of Communications the authorization for the first commercial tests of digital terrestrial television (DTV).

          A new regulatory framework regulating broadcasting is expected to be implemented by mid 2003. The provisional text confirms the switch-off of the analog broadcasting network and the full roll-out of DTV broadcasting by 2006.

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Competition Law

          SEAT is subject to Law No. 287 of October 10, 1990, the Italian competition law of general application, and to the competition rules of the EU (the “Law No. 287”). Law No. 287 prohibits:

	•		agreements, including resolutions and concerted practices, aimed at fixing prices, limiting production or access to markets and technological developments, sharing of markets, applying different conditions for the same services to the detriment of competitors, and subjecting contracts to the acceptance of conditions that, according to their nature and common practice, are not linked to the object of the contract;
	•		abuses of dominant position, including practices aimed at fixing prices, limiting production or access to markets and technological developments, applying different contractual conditions for the same services to the detriment of competitors, as well as subjecting contracts to the acceptance of conditions that, according to their nature and common practice, are not linked to the object of the contract; and
	•		concentrations of enterprises, such as mergers, acquisitions of controlling interests and concentrative joint ventures, which would result in the creation or strengthening of a dominant position. All concentrations in relation to which the combined overall turnover, in Italy, of the companies involved is higher than €377,013 or the turnover of the company being acquired is, in Italy, higher than €39,000, must receive a prior authorization from the Antitrust Authority. These thresholds are adjusted every year to take account of inflation. Failure to file prior notification of a concentration to the Italian Antitrust Authority will result in a fine of up to 1% of the turnover of the parties involved in the concentration, or higher in the case of fines for violation of a prohibition of a concentration.

          The Italian Antitrust Authority administers Law No. 287, either on its own initiative or following a complaint submitted by any interested party, and has the power to investigate and ascertain compliance with Law No. 287. When the Italian Antitrust Authority finds evidence that Law No. 287 has been violated, the parties involved, including the interested party, are notified of the opening of a formal investigation. The party under investigation and the interested parties have the right to be heard and to file written arguments with the Italian Antitrust Authority. Pending the investigation, the Italian Antitrust Authority may also require the parties involved and third parties to disclose information or to submit documents that it considers useful for the investigation. In addition, the Italian Antitrust Authority may appoint experts and carry out direct inspections at the investigated party’s premises in order to examine and seize relevant documents.

          If at the conclusion of the investigation the Italian Antitrust Authority determines that Law No. 287 has been violated, it may order the investigated party to cure the relevant violation and, in the case of serious violations, impose fines ranging from 1% to 10% of the turnover relating to the relevant activities. Any failure to comply is sanctioned with an additional fine of up to 10% of the turnover of the investigated party.

          The competition rules of the EU also apply directly in Italy. The main principles of EU competition law are contained in Articles 85 and 86 of the Treaty of Rome. Article 85 prohibits collusion between competitors that may affect trade between Member States and has the object or effect of restricting competition within the EU. Article 86 prohibits any abuse of a dominant position within a substantial part of the EU that may affect trade between Member States. These rules are primarily enforced by the European Commission, which cooperates with the national competition authorities, and through the national courts. The Italian Antitrust Authority has the power to apply Article 85(1) and Article 86, following its own procedures and imposing, if necessary, the fines provided for under Law No. 287. In September 1991, general guidelines were published by the European Commission on the application of EU competition law in the telecommunications sector. These guidelines outline the EU’s approach to common competition issues. On November 5, 1998, following the EU’s guidelines, the Italian Antitrust Authority amended the form required for filing notices of concentration.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

          The following discussion should be read in conjunction with the consolidated financial statements included elsewhere in this annual report. Such financial statements have been prepared in connection with U.S. GAAP.

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Background

          As previously described, effective October 1, 2000, SEAT acquired Tin.it in a two-step transaction through the exchange of newly-issued ordinary shares for 100% of the outstanding shares of Tin.it. After the acquisition, Telecom Italia owned a majority interest in the combined company. Accordingly, under U.S. GAAP, the transaction was accounted for as a reverse acquisition, whereby SEAT was considered the acquiree even though legally it was the acquiror. As a result, the results of operations data included in the table below presents the historical operations of Tin.it to October 1, 2000 and the consolidated results of operations of SEAT and Tin.it since that date. Please see Note 4 to the Consolidated Financial Statements included in this annual report.

Results of Operations

          The following table sets forth SEAT’s statement of operations for the years ended December 31, 2000, 2001 and 2002. These amounts have been derived from, and should be read in conjunction with, SEAT’s audited consolidated financial statements as of December 31, 2001 and 2002 and for the years ended December 31, 2000, 2001 and 2002 included in this annual report.