Y2k Italian Government Committee

1. Y2k Italian Government Committee • The Y2k Problem: • Assessment of country readiness and of market consequences • The Y2k and the Infrastructure-based Society in Italy • (from a Presentation of Prof. Augusto Leggio at the FOREX Conferrence • July 3rd, Milan)

2. The Framework: Fundamental Trends • Political - Decentralization and Autonomy in Decision Making • Economic - Globalization, Single European Currency • Technological –Electronic Commerce, Electronic Money, Convergence of Information Technology, Telecommunications and Media; Y2K • Social – Decrease of the Welfare state, Redefinition of Labor Markets on the Global Scale • Financial – Liberalization of Capital Flow • Industrial - Public Services Privatization

3. Y2k - Economy-wide Impacts (OECD 1998) • Short-term inflationary pressures in countries close to their peak in the economic cycle due to demand for new investment, supply-side disruptions, and significant wage-increases • Negative reactions from financial markets as the level of Y2k-related risk of firms and countries becomes more apparent • Possible declines in productivity growth • Transitory drop in output due to a significant number of failures in critical information systems throughout the economy

4. European Union Y2k Resolutions:Commission (February 25th, 1999) Council (April 14th, 1999) Parliament (June 1st, 1999) • Complete remediation process • Accelerate preparations in public administrations • Develop contingency plans to ensure the business continuity of vital public sectors operations, and ensure that similar plans are established for infrastructures (energy, water, telecommunications, transportation and finance) • Encourage cooperation in the areas of information provision to and protection of consumers, within and between private and public sectors • Disclose information about Y2k readiness of products, services and organizations • Manage public confidence • Avoid litigation

5. Business Risks(Gartner Group November 1998) • Products (Made compliant & tested, modified warranties?) • Investors (Will investors be impacted by failures, delays & perceptions?) • Customers & Partners (Will largest customer base & partners have business interruption problems?) • Supply Chain (Will all mission-critical products & services be compliant in time?) • Internal Solutions ( All found, fixed, defects removed?) • Vendor Solutions (Defects removed, will be delivered as promised?) • PC & LAN (All found & assessed, any mission-critical, training done?) • Embedded Systems (Non compliant all found & replaced?) • Public (Negative disclosure effects or negative perceptions fixed?)

6. Business Risks • Direct Correlation between Business Risk and: • level of ICT investments • internal and external integration of processes • Inverse correlation between Business Risk and: • strategic vision • ability to progamming, to control, to manage Technology • availability of Human and Financial Resources

7. Y2k Time- based Risk Average Time to Level IV is 30 months Level • Small Companies Level 0: No started activity • Small Companies Preliminary activity, Awareness Level 1: • Many Developing Countries • Many Developing Countries Level 2: Problem Determination, Inventory, Process Analysis, Inter/extra dependencies • Middle East ( except Israel ) • Middle East ( except Israel ) IV 60 Level 3: Plan Complete, Business Priority, Human and Financial Resources Committed • Healthcare • Healthcare Level 4: Operational Sustainability • Oil / Natural Gas • Oil / Natural Gas Level 5: Fully Y2k Compliant IV 50 • Education • Education • Some Mid Companies • Some Mid Companies IV 40 • Chemical • Chemical • Transportation • Transportation III 25 • Largest Companies • Largest Companies III 20 • Insurance • Insurance • Investment Services • Investment Services II 15 • Banking • Banking I 3 Russia, China, India, , Thailand, Philippines, Middle East, Argentina, Venezuela, Food Processing, Government Services, Agricolture 0 0 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 % Complete Probability of a Mission-Critical System Failure a - ( Gartner Group - November 1998)

8. · Fiscal year system failures bgin to occur & testing begins 1/1999 - 12/1999 · 11% of vendors default on compliance of their products • 30-50% experience a mission - critical failure 7/1999 - 3/2000 • 10% experience system failures within 12 months after millennium 7/1999 - 3/2000 · 11% of commercial software coninues to be non compliant · Exact impact on the world economy is not possible to predict , however 7/1999 - 3/2000 year 2000 will likely be one of numerous contributors to a negative impact over 3 - years October 1998 January 2000 Mission 0 = 25% III = 25% 0 = 20% III = 15% Critical I = 15% IV = 15% I = 5% IV = 30% Compliance II = 15% V = 5 % II = 10% V = 20 % Pre1998 1998 1999 2000 2001 2002 2003 Worldwide System Failures Only a Portion of IT System Failures will occur at the Millennium Rollover Embedded Systems Spike Predictions ( Gartner Group - November 1998)

9. The Infrastructure-based Society: Energy • Trends • Strong Growth in Consumption • Privatization, Fragmentation of the Productive Process • Entry into the Telecommunications Market • Critical Issues • Huge Differences in per capita Consumption between Countries • Nuclear Energy Pollution • Social and Political Implications • Risks of network instability

10. Y2k Impact on Energy Infrastructure • Impacted sectors: • Production (in EU: nuclear 34%, thermal 43%, hydro 23%) • Transmission and Distribution • Power marketing and Trading • Plants and Generation Dispatch • Metering • Customer Service • Billing • Y2k in Italy: • ENEL: inventory, impact analysis, remediation, encapsulation, mission critical systems ready, control of supply chain, contingency plan (november 1999) • Local distributors of electricity and gas (~ 1.000): Recommendation of Energy and Gas Authority (july 1999) • ENI: assessment, update, test, contingency (august 1999) • SNAM: ready, contingency plan (june 1999)

11. The infrastructure-based Society: Water • Trends • Privatization • Increase of utilization by families and industries • Critical Issues • Not sufficient production • Increase of cost • Risks of pollution

12. Y2k Impact on Water Infrastructure • Water Supply • Source of supply • Transmission • Treatment • Distribution • Maintenance • Operations • Waste water • Collection • Treatment • Holding capacity • Maintenance • Operations • Y2k Impact in Italy • Almost the same as energy & gas (same local companies)

13. The Infrastructure-based Society: Telecommunications • Trends • Liberalization, Privatization, Mobile • Concentration, Mergers and Acquisitions • Convergence of IT, TV, Telecom (Telephony and Data) • Massive Development of Internet • Very high Demand • Critical Issues • Tariffs and Billing in Interconnected Neworks • Complexity • Domino effect of software errors in the network

14. Y2k Impact on Telecommunications Infrastructure • Impacted sectors: • Trunk/junction, local loop, customers data-bases • Network control • Local loop installation & maintenance (line testing & repair) • Switching • Transmission • Basic telephony and data transmission • Value added services • Front-office support • Billing • Y2k in Italy • Telecom Italia: ready & contingency plan (september 1999) • Mobile companies: ready & contingency plans (june 1999)

15. The Infrastructure-based Society: Postal Authorities • Trends • Deregulation • Slow Liberalization and Privatization • ICT alternatives in the most profitable business area • Better Offer by the private sector • Mergers and Acquisitions between public and private organizations • Critical Issues • Market Erosion • More Demanding Customers • Universal service • Labor tensions • Social implications

16. Y2k Impact on Postal Authorities Infrastructure • Impacted sectors: • Automated switching of letters & parcels • Counters • Telex • Telegraph • Hybrid mail (Postel) • Financial Services (money orders & savings) • Y2k in Italy: • Poste Italiane: ready & contingency plan (october 1999) • Postel (national hybrid mail): ready & contingency plan (june 1999)

17. The Infrastructure-based Society: Transportation • Trends • Liberalization (complex) • High Demand • Intermodal Transportation and intensive Use of Information Technology • Critical Issues • Incompatible Infrastructures • Congestion, Environmental and acoustical Pollution • High Investments • Red Balance Sheets at local level

18. Y2k Impact on Transportation Infrastructure • Impacted sectors: • air (airlines, ATC service, providers, airports, regulators) • maritime (seaports, ships) • railways • awareness varies widely • programs vary widely • Y2k in Italy: • air (Alitalia, ENAC, ENAV, main airports): ready, contingency plan • maritime: supply chain of seaports: almost ready • railways (FS): process analysis, contingency plan • highways and roads: process analysis, contingency plan • in general: two - layer industry

19. The Infrastructure-based Society: Banks and Finance • Events • Creation of the Economic and Monetary Union • New and more open Banking Regulatory Environment • High Technological Innovation • Trends • Privatization, Concentration, Mergers and Acquisitions • Strong Growth of Private Pension Plans • Business Process Reenginering, New Product and Service Offerings • Critical Issues • High cost of labor • Instability due to globalization • High level of interdependencies

20. Y2k Impact on Banks and Finance Infrastructure • Impacted sectors: • Banks (System functions, Counters, Payments system) • Insurance companies (difficulty to provide continued insurance cover) • Markets (instability) • Domino effect • Y2k in Italy: • Integration test among main operators (made in june 1999) • High level of Readiness of the highest percentage of operators • Strong effort of regulators (Banca d’Italia, ABI, CONSOB, ISVAP)

21. Conclusions • Italian Y2k Committee Guidelines & Recommendations: • Be aware at the maximum administration/company level • Control the Supply chain • Control the Cash flow • Provide the human and financial resources • Make internal and external Integration tests • Set up a Contingency plan • Set up a stable Group for Contingency plan • Cooperate with Unions and Consumer Associations • Give support to customers • Avoid litigation • Transform Y2k from a cost & a risk to a chance for development