Proximus SA — AGM Information 2011

Mar 18, 2011

REPORT BY THE BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS ON 13 APRIL 2011 ON THE ANNUAL ACCOUNTS OF BELGACOM S.A. UNDER PUBLIC LAW AS AT 31 DECEMBER 2010

Dear Shareholders,

We have the pleasure of reporting on the operations in the 2010 financial year and of submitting, for your approval, the annual accounts closed as of 31 December 2010.

We first discuss the development of Belgacom S.A. under public law ("Belgacom") in 2010 and in early 2011 and then examine the results for the 2010 financial year. We also report on the most important risks and uncertainties, on the use of financial instruments, on the evolution in research and development activities, on the branches, on the declaration on corporate governance, on the report on internal control and risk-management systems, on the remuneration report and on the positions of conflicting interest.

Development of Belgacom in 2010 and in early 2011

To realize the convergence strategy fully and to have the necessary flexibility to be able to respond quickly to the competition and the evolutions of the market, the Belgacom Board of Directors approved on 22 October 2009, the further integration of the Belgian subsidiaries of the Belgacom Group in Belgacom. This concerns Belgacom, Belgacom Mobile S.A., Telindus Group S.A. (only the national activities), Telindus S.A., Telindus Sourcing S.A. and the Belgacom Skynet S.A. activities.

On 4 January 2010, the shareholders' meetings of Belgacom and the subsidiaries concerned formally approved this integration in a single legal entity. The "new" Belgacom will be more innovative and closer to its markets. It will offer even better "total solutions" in the future, which are perfectly adapted to the needs of our customers. The different brands continue to exist. This integration has an impact on all items of the balance sheet. The merger by absorption resulted in a goodwill amounting to $\epsilon$ 4,774.1 million that, given the long life character of the profitability of the totality of the merged companies, is amortized over 15 years.

In the framework of this convergence strategy, the corporate customer base of Scarlet S.A. has been taken over in March and begin October the activities of Euremis S.A. have been integrated in Belgacom. These operations resulted in a total goodwill of $\epsilon$ 45.2 million.

Furthermore, the intangible assets have been impacted by the renewal of some broadcasting rights and by the prolongation of the GSM license. An annulment procedure has been lodged at the Constitutional Court and at the I.B.P.T. in order to ensure the possibility to recover the amounts paid for this prolongation.

In June 2010, the affiliate Belgacom Bridging ICT has been established in order to strengthen the ICT offer to Small and Medium Enterprises. Furthermore, Belgacom took participations in the digital media and entertainment enterprises Jinni Media Ltd., On Live Inc. and In3Depth S.A.. At the end of September, the affiliate Belgacom W has been liquidated.

The other amounts receivable within one year have mainly been influenced by the reimbursement of a part of the capital of Belgacom International Carrier Services S.A., the international traffic affiliate of the Belgacom Group, and the settlement of V.A.T. surplus payment in December 2009.

The amounts paid out in 2010 for the BeST program, the social agreement 2005 in respect of the work organization (tutorship) and the external mobility projects with the federal government decreased the provision for reorganization costs.

At the beginning of January 2010, $\epsilon$ 5,500.0 million of short term loans have been transformed into long term debt. This refinancing realises a better tuning between the term of the debt on the one hand and the average lifespan of the fixed assets on the other hand.

On 1 October, 2010 Belgacom joined BECIBEL, the V.A.T.-unit that was established within the Belgacom Group. The members of this V.A.T.-unit BECIBEL are Belgacom, Belgacom Group International Services S.A., Belgacom Bridging ICT S.A., ConnectImmo S.A., Telindus Group S.A., Mobile-For S.A., Euremis S.A. and Beldiscom S.A..

At the end of January 2011, a debenture of $\epsilon$ 500 million with a 7 years term was issued. Belgacom will use this money for general exploitation purposes and for the reimbursement of two debentures that expire at the end of November 2011, in particular.

Right and commitments not accrued in the balance sheet

Belgacom has the right to issue Commercial Paper for a total of $\epsilon$ 1,000 million and Euro Medium Term Notes for a total of $\epsilon$ 2,500 million, of which $\epsilon$ 1,850 has been issued end 2010 and $\epsilon$ 500 million in the beginning of 2011.

Results of the 2010 financial year

The merger has a significant influence on the 2010 results. The notes to the annual accounts contain a table (pro forma income statement) that makes the 2009 results comparable with those of 2010. The remarks below refer to those comparable figures.

The increased competition from fixed-line and mobile operators in traditional telephony and the new mobile termination rates and roaming tariffs negatively affected the operating income. The turnover for data services and digital television has known a further increase. Because of these elements, the decrease of the turnover was limited to 1.7 %.

The operating charges were mainly influenced by a strict cost control policy and the decrease of the mobile termination rates and roaming tariffs. The total operating charges decreased by 3.3 %.

The operating profit increased by 7 % from $\epsilon$ 822.2 million to $\epsilon$ 881.4 million.

In 2010, Belgacom International Carrier Services S.A., the international traffic affiliate of the Belgacom Group, has distributed a dividend of $\epsilon$ 21.6 million to Belgacom.

The financial charges have been influenced by the refinancing of $\epsilon$ 5,500 million.

The extraordinary results (extraordinary charges decreased with extraordinary income) primarily originate from the actualisations of the provisions for personnel restructuring plans. Moreover, the extraordinary result was influenced by a write-back of amounts previously written down on Belgacom Skynet S.A.. The important amounts under write-back of amounts written down on financial fixed assets and loss on disposal of fixed assets mainly relate to the liquidation of Belgacom W S.A. and Info2Clear.

The profit for the 2010 financial year amounts to $\epsilon$ 323.8 million, compared to € 244.4 million in 2009 (€ 269.7 million 2009 pro forma).

Appropriation account

After the processing of untaxed reserves, the profit available for distribution amounts to € 324,369 thousand. We propose the following appropriation (in $∈$ thousands):

Profit of the period available for appropriation	324,369
Net transfers from the reserves	401,794
Profit to be distributed	726,163
Return on capital (dividends)	703,486
Other allocations (personnel)	22,677

On 10 December 2010 an interim dividend of $\epsilon$ 160,741 thousand has been paid.

Most important risk and uncertainties

Belgacom's income and net profit may decline if growth in the Belgian telecommunications market continues to slow down. Also, the continuing strong competition in the Belgian market from both cable companies and mobile operators could result in loss of market share. However, Belgacom is taking the necessary measures to stay competitive. These measures could lead to reduced rates, through additional promotions or other means. Furthermore, pursuing a strict cost control policy continues to be one of Belgacom's priorities.

To safeguard its competitive position, Belgacom attaches great importance to maintaining and further developing a high-quality network; the broadband network, among others, continues to be renewed with fibre to the street cabinet. This is producing a strong increase in capacity, which allows new products and services, including Internet and TV services, to be developed. This in turn will enable Belgacom to retain current customers and attract new ones. The need for the development and implementation of new technologies may oblige Belgacom to make significant additional investments.

Certain products and services are subject to national or European regulation, such as broadband services, fixed telephony and mobile termination and roaming tariffs. This regulation can have an impact on the pricing of these products and services and, as a consequence, on turnover and operating profits.

The notes to the annual accounts contain further information regarding the most important ongoing claims and judicial procedures.

Use of financial instruments

Belgacom is exposed to market risks, including interest rate risks and foreign exchange rate risks, associated with underlying assets, liabilities and anticipated transactions. Based on analysis of these exposures, Belgacom selectively enters into derivatives to manage the related risk exposures.

Belgacom manages its exposure to changes in interest rates and its overall cost of financing by using amongst other interest rate swaps (IRS) as well as interest rate and currency swaps (IRCS). These financial instruments are used to transform the interest rate exposure from a fixed to a floating interest rate or vice versa.

Belgacom's currency exposure relates to financial debts in foreign currency and to operational activities in foreign currencies that are not "naturally" hedged. In order to hedge such exposures, Belgacom uses derivatives, mainly forward foreign exchange contracts and occasionally currency options.

Belgacom is therefore exposed to counterparty risks relative to potential failure by counterparty on derivatives. In general, Belgacom does not require collateral or other security from counterparties as these are highly rated financial institutions.

Evolution in research and development activities

In general, the research and development activities cover 4 key steps in the adoption cycle of a technology or of a service based on technology:

• Study of the technology's potential: determination of the technological and commercial opportunities and its positioning in the technology portfolio;
• Introduction of the technology: as the technology is selected, an engineered solution is necessary for deployment, exploitation and day-to-day management;
• Evolution of the technology: once deployed, the technology will continue to evolve in accordance with its potential and market demand;
• The preparation of the introduction of new services. $\bullet$

In 2010, the research and development activities covered the following:

• Study of the potential of new technologies:
• Opportunities raised by IP technology that have become ubiquitous in all types of $\circ$ networks and services such as Synchronous Ethernet for backhauling in the mobile network, evolution to IPv6, Access Gateway to replace the old technologies supporting voice services (PSTN, ISDN);
• Fibre to the Home study (FTTH): technical and economical studies have been $\circ$ conducted to determine the most appropriate evolution path, taking into account evolution of users' bandwidth needs;
• Environment (Green): Belgacom has a continuous focus on the "Green" aspect. $\circ$ Innovations to help increase awareness and to offer future solutions to decrease our CO2 footprint in Belgium are being demonstrated in a newly created Innovation Lounge:
• Smart Metering: new technologies were tested concerning the implementation of $\Omega$ smart meters in the consumer environment.
• Introduction of new technologies:
• IMS (IP Multimedia Subsystems): further developments were executed on this $\circ$ platform to support all the future voice services (Voice over IP...);
• Important IT projects have been launched aiming at improving the customer $\Omega$ experience by offering more interactivity and more flexibility. They also contribute at improving the internal operational efficiency, reducing the troubleshooting time and facilitating the fixed-mobile convergence;
• Continuing research in the context of the Belgium HF project to develop ICT means $\circ$ allowing to better predict heart attacks.
• Evolution of the technology in terms of improvement and existing services extension such as:
• The IPTV platform (TV over IP): after the introduction of High-Definition television, the $\circ$ TV platform continues to be enriched with new functionalities to improve the customer experience. 3D TV has been investigated and demonstrated;

• VDSL2: this technology continues to be deployed and additional functionalities are $\Omega$ being analyzed and developed to further increase its potential.

• The preparation of the introduction of new services:

• Technical pilot projects were deployed in the framework of mobile payment. Different $\Omega$ pilot projects in several sectors were set up in order to prepare a commercial launch.

Belgacom collaborates with universities, industrial partners and several other bodies, such as I.B.B.T. (Interdisciplinair Instituut voor Breedband Technologie), I.W.T. (Agentschap voor Innovatie door Wetenschap en Technologie) and the H.G.I. (Home Gateway Initiative Forum). Belgacom takes part in several User Committees for Strategic Research projects. Together with other players in the ICT industry, Belgacom has prepared the deployment of a Living Lab in Kortrijk. This will create an ecosystem for test-users and application developers to test new and innovative applications.

Branches

The branch in the Grand Duchy of Luxemburg was established in 2002 and is responsible for the management of Luxemburg financial assets. For this purpose, Belgacom has allocated its shares in Belgacom Finance S.A. to this branch.

The branch in Israel, that was formerly part of Telindus S.A., was established in 2000 and provides ICT solutions to local administrations. Begin 2001, the deletion from the register of commerce of the Israeli Branch has been requested.

Corporate governance statement

Belgacom governance model

At Belgacom, the Articles of Association are strongly influenced by the specific legal status of the company. As a limited liability company under public law, Belgacom is in the first instance governed by the Law of 21 March 1991 on autonomous public sector enterprises ("the 1991 Law"). For matters not explicitly regulated by the 1991 Law, Belgacom is governed by Belgian corporate law. The key features of Belgacom's governance model are:

• A Board of Directors, which defines Belgacom's general policy and strategy and supervises operational management:
• The creation by the Board of Directors within its structure of an Audit and Compliance Committee, a Nomination and Remuneration Committee and a Strategic and Business Development Committee:
• A President & Chief Executive Officer, who takes primary responsibility and ownership for operational management (including, but not limited to, day-to-day management);
• A Management Committee, which assists the President & Chief Executive Officer in the exercise of his duties.

Designation applicable Code on Corporate Governance

Belgacom designates the 2009 Belgian Code on Corporate Governance as the applicable Code (www.corporategovernancecommittee.be).

Departure from the 2009 Belgian Corporate Governance Code

Belgacom complies with the principles and provisions of the 2009 Belgian Corporate Governance Code, except provisions 4.6, 4.7 and 8.8. Although provision 4.6 stipulates that mandates of Directors should not exceed four years, the mandates of Belgacom Directors are for six years as prescribed by article 18 of the 1991 Law. Where provision 4.7 states that the Board appoints its Chairman, article 18 § 5 of the 1991 Law foresees that the Chairman is appointed by the King. Given its current shareholder structure, contrary to provision 8.8, the Articles of Association do not provide for shareholders representing 5% of the capital to submit proposals to the Annual General Meeting. Under the current Articles of Association, shareholders must represent at least

one-fifth of the company's share capital to be entitled to do so. The General Shareholders meeting of 13 April 2011 is invited to accept a modification of article 33 of the Articles of Association, allowing shareholders, that alone or together represent at least 3% of the share capital, to submit proposals to the Annual General Meeting.

Composition and functioning of the governing bodies and their committees in 2010

Board of Directors:

As provided for in the 1991 Law, the Board of Directors is composed of:

• Directors appointed by the Belgian State in proportion to its percentage of ownership;
• Directors appointed by a separate vote among the other shareholders, for the remaining seats.

At least 3 of these Directors must be independent according to the criteria of article 526ter of the Belgian Code of Companies and the criteria of the Belgian Corporate Governance Code. The Board of Directors is composed of maximum 16 members, including the person appointed as President & Chief Executive Officer. Today the Board is composed of 14 members.

Changes in the composition of the Board of Directors

The mandate of Mr. Philip Hampton came to an end on 14 April 2010. The General Shareholders Meeting of 2010 has renewed the mandates of Mrs. Lutgart Van den Berghe and of Mr. Pierre-Alain De Smedt for a period of 6 years which will end at the General Shareholders Meeting of 2016. Mr. Georges Jacobs will resign as member of the Board at the General Shareholders Meeting of 13 April 2011 for having reached the age limit of 70 years.

Name	aqe	position	term
Theo Dilissen	57	Chairman	$2004 - 2015*$
Didier Bellens	55.	President & CEO	$2003 - 2015$
Martine Durez	60	Director	1994 - 2012
Mimi Lamote	46	Director	$2006 - 2012$
Michèle Sioen	45	Director	$2006 - 2012$
Michel Moll	63	Director	1994 - 2012
Paul Van de Perre	58	Director	1994 - 2012

Members of the Board of Directors appointed by the Belgian State:

* As Chairman until 2012

Members of the Board of Directors appointed by the General Shareholders' meeting:

Name	age	Position	term
Jozef Cornu	66	Independent director	$2009 - 2015$
Guido J.M. Demuynck	60	Independent director	$2007 - 2013$
Pierre-Alain De Smedt	66	Independent director	$2004 - 2016$
Carine Doutrelepont	50	Independent director	$2004 - 2013$
Georges Jacobs	70	Independent director	$2004 - 2011$
Oren G. Shaffer	68	Independent director	$2004 - 2013$
Lutgart Van den Berghe	58	Independent director	$2004 - 2016$

Functioning of the Board of Directors

The Board of Directors meets whenever the interests of the company so require or at the request of at least two Directors. In principle, the Board of Directors meets every year in five regularly scheduled meetings. The Board of Directors must also evaluate the strategic long-term plan in an extra meeting each year. In general, the Board's decisions are made by simple majority of the Directors present or represented, although for certain issues a qualified majority is required. The Board of Directors has adopted a Board Charter which, together with the charters of the Board Committees, reflects the principles by which the Board of Directors and its Committees operate. The Board Charter provides, among other things, that important decisions should have broad support, understood as a qualitative concept indicating effective decision-making within the Board of Directors following a constructive dialogue between Directors. They should be prepared by standing or ad hoc Board Committees with significant representation of non-executive, independent Directors within the meaning of Article 526ter of the Belgian Company Code. All charters were updated on 24 February 2011.

Committees of the Board of Directors

In accordance with the bylaws, Belgacom has an Audit and Compliance Committee, a Nomination and Remuneration Committee and a Strategic and Business Development Committee.

Mr. Pierre-Alain De Smedt (Chairman), Messrs. Michel Moll, Oren G. Shaffer and Paul Van de Perre are the members of the Audit and Compliance Committee.

Mr. Theo Dilissen (Chairman), Ms. Martine Durez, Mr. Georges Jacobs and Ms. Lutgart Van den Berghe are the members of the Nomination and Remuneration Committee.

Mr. Theo Dilissen (Chairman), Mr. Didier Bellens, and Messrs. Guido J.M. Demuynck and Oren G. Shaffer are currently the members of the Strategic and Business Development Committee

In annex 1 you can find the activity report of the Nomination and Remuneration Committee.

The Board of Directors in its meeting of December 23, 2010 decided to create an ad hoc Committee, consisting of Mr. Jozef Cornu, Mrs. Carine Doutrelepont and Mr. Paul Van de Perre in order to examine together with management the company's response in the legal proceeding initiated in June 2003 by KPN Group Belgium against Belgacom (former Belgacom Mobile S.A.).

Activity report and remuneration of members of the governing bodies

The remuneration and compensation of the directors has been decided by the General Meeting of 2004. The calculation of this compensation has not changed in 2010: an annual fixed compensation of $\epsilon$ 50,000 for the Chairman of the Board of Directors and of $\epsilon$ 25,000 for the other members of the Board of Directors, with the exception of the President & CEO, is foreseen. All members of the Board of Directors, with the exception of the President & CEO, have the right to an attendance fee of $\epsilon$ 5,000 per attended meeting of the Board of Directors as well as to an allowance of $\epsilon$ 2,000 per year to cover communications costs. Finally attendance fees of $\epsilon$ 2,500 have been foreseen for each member, with the exception of the President & CEO, per attended meeting of an advising committee to the Board of Directors. For the Chairmen, these attendance fees are doubled. For the Chairman of the Board of Directors, the allowance for communications costs is also doubled.

The Directors, with the exception of the President & CEO, do not receive performance-based remuneration such as bonuses or long-term share-related incentive programmes, nor do they receive benefits linked to pension plans.

In 2010 Belgacom organized 5 Board of Directors meetings (Board), 5 meetings of the Audit and Compliance Committee (ACC), 8 meetings of the Nomination and Remuneration Committee (NRC) and 2 meetings of the Strategic and Business Development Committee (SBDC).

Name	Board	ACC	NRC	SBDC	Total
	(total 5)	(total 5)	(total 8)	(total 2)	Remuneration
Theo DILISSEN	5/5		8/8	2/2	154,000€
Didier BELLENS	5/5			1/2	0€
Jozef CORNU	5/5				52,000€
Guido J.M. DEMUYNCK	4/5			2/2	52,000€
Pierre-Alain DE SMEDT	5/5	5/5			77,000€
Carine DOUTRELEPONT	5/5				52,000€
Martine DUREZ	5/5		8/8		74,500 €
Philip HAMPTON (*)	0/1	0/1			11,375€
Georges JACOBS	5/5		8/8		72,000€
Mimi LAMOTE	5/5				52,000€
Michel MOLL	5/5	5/5			64,500 €
Oren G. SHAFFER	5/5	5/5		2/2	69,500€
Michèle SIOEN	4/5				47,000 €
Lutgart VAN den BERGHE	5/5		8/8		72,000€
Paul VAN de PERRE	5/5	5/5			64,500€

Given the attendance at Board and Committee meetings this results in the following remuneration for the members of the Board of Directors:

(*) End of mandate 14/04/2010

In its meeting of February 24, 2011, the Board adopted a "related party transactions policy" which governs all transactions or other contractual relationships between the company and its board members. Belgacom is a vendor for telephony, internet and/or ICT services for many of the companies in which Board members have an executive or non-executive mandate. On the other hand Belgacom is a Partner of Guberna, the Belgian Institute for Directors (affiliated with Lutgart Van den Berghe who is Executive Director of Guberna), for which it has paid a fee of 30.250 € in 2010. The law firm Doutrelepont & Associates-Afschrift GEIE (affiliated with Carine Doutrelepont, who is partner in this law firm) has performed in 2010 for Belgacom SA attorneys' services, for which it has paid a fee of $44.137,82 \text{ } \in +8\%$ costs in 2010.

Evaluation of the Board

The Board of Directors has performed in 2010 a self-evaluation in order to assess its size, composition, performance as well as the interaction with management. A special focus was given to the assessment of the committees. This exercise was done with the help of SpencerStuart as external expert. Members were invited to answer to an extensive questionnaire, followed by an interview between the external expert and every individual member. Starting from the conclusions of and the action plan that was agreed upon after the previous evaluation, members were asked their opinion on corporate governance at Belgacom, the functioning of the Board, the Board relationships and the functioning of the committees.

As an outcome the Board decided in its meeting of 29 July 2010 to implement the following short term actions:

• Adding one Board meeting per year: $\frac{1}{2}$
• Introducing a concept for requiar reporting by the President & CEO in between meetings;
• Organizing of a strategic off-site;
• Organizing a discussion on a yearly agenda for the committees;
• Making "risk analysis" a priority for the Audit and Compliance Committee:
• Making "succession planning of management" a priority for the Nomination and Remuneration Committee:
• Making the "long term implementation of the strategy" a focus of the Strategic and Business Development Committee.

The Board also decided to have a partial renewal of the Committees and to investigate a longer term plan of recruiting new competences at the Board.

Management

The members of the Belgacom Management Committee, other than the President & CEO, are Mrs. A. De Lathauwer and Mrs. R. Stewart, S. Alcott, M. Georgis and G. Dallemagne.

M. De Coster left the company on 31 August 2010. Mr. B. Van Den Meersche became member as of 1 January 2011.

Belgacom has, on its own initiative, appointed members of the BMC and of its staff to mandates in companies, groups and organisms in which it has holdings and is involved. Such mandates are unpaid. A list of the persons concerned is given in annex 2.

Report on internal control and risk-management systems

See annex 3.

Remuneration report

In annex 4, the remuneration report can be found.

Position of conflicting interest

Mr. Didier Bellens declared, during the Board of Directors of 25 February 2010 to have a conflict of interest in connection with the employee incentive plans, item of the agenda of this Board meeting. In accordance with article 523 of the Belgian Companies Code, the minutes of this meeting are included in annex 5.

Members of the Joint Auditors

The mandate of Deloitte Statutory Auditors SC sfd SCRL, Berkenlaan 8b, 1831 Diegem, represented by Mr. Geert Verstraeten and of Luc Callaert SC sfd SPRLU, Zwaluwstraat 132, 1840 Londerzeel, represented by Luc Callaert, for the statutory audit mandate of Belgacom S.A. will expire at the Annual General Meeting of 2016.

The mandate of Mr. Rion will expire on the date of the 2016 annual general meeting.

The mandate of Mr. Lesage will expire on June 30, 2014.

Auditor responsible for certification of the consolidated accounts of Belgacom Group

The mandate of Deloitte Statutory Auditors SC sfd SCRL represented by Mr. G. Verstraeten and Mr. L. Van Coppenolle for the consolidated audit mandate of Belgacom S.A. will expire at the annual general meeting of 2013.

In conclusion

We would like to propose that you approve the annual accounts as they are presented herein and respectfully request that you grant discharges to the directors and auditors of the annual accounts for the execution of their mandate during the past financial year.

We would request that you grant a special discharge to Mr. Philip Hampton whose mandate ended on 14 April 2010.

On recommendation of the Nomination & Remuneration Committee we would suggest to nominate in accordance with article 18 of the bylaws, Mr. Pierre De Muelenaere as candidate for member of the Board of Directors for a period which will expire on the date the Annual General Meeting is held in 2017.

Yours truly,

On behalf of the Board of Directors, Brussels, 24 February 2010.

Didier BELLENS President &

Theo DILISSEN Chairman of the Board of Directors

Annex 1: Activity report of the Nomination and Remuneration Committee for 2010 Annex 2: List of members of the Belgacom Management Committee and members of the company's staff that hold offices in companies, groups and bodies in which Belgacom has holdings and is involved.

Annex 3: Report on internal control and risk-management systems

Annex 4: Remuneration report of 2010

Annex 5: Position of conflicting interest in connection with the employee incentive plans (minutes of the meeting of the Board of Directors of 25 February 2010)