REPORT BY THE BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS ON 17 APRIL 2013 ON THE ANNUAL ACCOUNTS OF BELGACOM S.A. UNDER PUBLIC LAW AS AT 31 DECEMBER 2012

Dear Shareholders,

We have the pleasure of reporting on the operations in the 2012 financial year and of submitting, for your approval, the annual accounts closed as of 31 December 2012.

1. THE DEVELOPMENT, THE RESULTS AND THE RISKS OF BELGACOM IN 2012

1.1. Comments on the annual accounts

Balance sheet

The intangible assets were mainly influenced by the amortization of the goodwill which resulted from the 2010 merger by absorption. Given the long term nature of the profitability of the totality of the merged companies, this goodwill is amortized over 15 years.

The financial fixed assets were mainly influenced by, on the one hand, the capital increase in Tango S.A. by contribution in kind of shares of Belgacom Group International Services S.A., the take-over of Wireless Technologies S.P.R.L. (the owner of a chain of The Phone House stores in Belgium) and the merger by absorption of Telindus Group S.A. and on the other hand by the write off on some affiliated enterprises and on shares.

The update of the actualisation rates, which are used for the determination of the long term provisions, to the actual economic reality increases the provisions for other liabilities and charges in 2012. The amounts paid out in 2012 for the BeST program and the social agreement 2005 in respect of the work organization (tutorship) decreased the provisions.

The total financial debts increase since the cash flow from operations (net interest expenses included) are not sufficient to cover cash paid for acquisitions of non-current assets and dividends.

Income statement

The increased competition from fixed-line and mobile operators in traditional telephony and the new mobile termination rates and roaming tariffs negatively impacted the operating income. The turnover for data services and digital television further increased. These elements made the turnover to decrease by 1.7 % compared to 2011.

The operating charges were mainly influenced by a strict cost control policy and the decrease of the mobile termination rates and roaming tariffs. Furthermore, there is the cost for the increase of the long term provision, other than restructuring plans, as a consequence of the downward adjustment of the actualisation rates used for the calculation. The total operating charges increased by 3.0 % compared to 2011. This percentage takes into account the positive impact of the one off reversal of provisions in 2011.

The operating profit decreased by 15.4 % from € 855.0 million in 2011 to € 723.1 million in 2012.

In 2012, the financial results have been influenced by a dividend of € 42.7 million distributed by Belgacom International Carrier Services S.A. to Belgacom. Furthermore, a supplementary writeoff on own shares of 31.7 million has been taken.

The extraordinary results (extraordinary income decreased with extraordinary charges) primarily originate from the actualisations of the provisions for personnel restructuring plans. Moreover, the extraordinary result was influenced by the plus value on the contribution in kind of shares of Belgacom Group International Services S.A. in Tango S.A., a write-back of amounts previously written down on Belgacom Skynet S.A. and the write-off on Telindus-ISIT S.A., Telindus Luxemburg S.A., Dacentec S.A., OnLive Inc. and Scarlet S.A.. The amounts under loss on disposal of fixed assets relate to the merger with Telindus Group S.A.

The profit for the 2012 financial year amounts to € 745.7 million, compared to € 628.4 million in 2011.

Appropriation account

After the processing of untaxed reserves, the profit available for distribution amounts to € 746,264 thousand. We propose the following appropriation (in € thousands):

Profit of the period available for appropriation	746,264
Net transfers from the reserves	96,852
Profit to be distributed	843,116
Return on capital (dividends) Other allocations (personnel)	798,324 44,792

On 13 December 2012 an interim dividend of € 257,835 thousand has been paid.

Right and commitments not accrued in the balance sheet

Belgacom has the right to issue Commercial Paper for a total of € 1,000 million and Euro Medium Term Notes for a total of € 2,500 million, of which € 1,575 million has been issued end 2012.

1.2. Most important risks and uncertainties

Below the most important risks and uncertainties are clarified. Furthermore, the notes to the annual accounts contain additional information regarding the most important on-going claims and judicial procedures (C. 5.13).

Belgacom believes that risk management is fundamental to corporate governance and the development of a sustainable business. The Group has adopted a risk philosophy that is aimed at maximising business success and shareholder value by effectively balancing risk and reward. The objective of risk management is not only to safeguard the Group's assets and financial strength but also to protect Belgacom's reputation. Financial risk management objectives and policies are reported in note 32 of the consolidated financial statements, available on the Belgacom website. Risks related to important on-going claims and judicial procedures are reported in note 34 of these statements. As the mother company of the Belgacom Group, Belgacom is also subject to risks inherent to holding companies, i.e. potential durable less value on some financial participations for which the book value is near the fair value. Other major risks are enterprise and financial reporting risks that are detailed below, as are the related mitigating factors and control measures.

1.2.1. Enterprise risks

The Group's Enterprise Risk Management (ERM) covers the full spectrum of risks ("potential adverse events") and uncertainties that Belgacom could encounter. Belgacom ERM is a structured and consistent framework for assessing, responding to and reporting on risks that could affect the achievement of Belgacom's strategic development objectives. It seeks to maximize value for shareholders by aligning risk management with the corporate strategy, assessing the emerging risk from regulation, new technologies or the market and developing risk tolerance and mitigating strategies. Belgacom ERM has been reviewed and updated every year since 2006. This risk assessment and evaluation takes place as an integral part of Belgacom annual strategic planning cycle. The resulting report on major risks and uncertainties is then reviewed by the management committee, the CEO and the Audit and Compliance Committee (A&CC). Among the risks identified in the ERM exercise of 2012, the following risk categories were prioritized: 1- competitive market dynamics, 2- business model evolution, 3- rightfully skilled and motivated personnel, 4- dependency on equipment and technology.

Principal risks	Description	Mitigation factors and control
		measures
Competitive market dynamics	New market entrant or disruptive competitor behaviour might reduce market value, pressure Belgacom's market share and negatively impact revenue and profit.	Rational pricing strategy Simplified and improved post-paid offering Focus on convergence strategy Keep leadership in mobile network quality Innovative products and services
Business model evolution	Alternative communications driven by new technology and customer demand requires rapid internal innovation while coming at lower margin, potentially impacting revenue and profit.	Belgacom pioneers new technologies and offers customers the emerging advantage of convergence. In the enterprise business segment too, new business models have been developed.
Rightfully skilled and motivated personnel	Constant shifts in demand for skills could leave Belgacom with an inadequate pool of talent. Introducing a cap by law on executive remuneration would place Belgacom at a disadvantage against its competitors.	Belgacom has a good reputation as employer, applies customized programs such as Strategic Workforce planning and continuously invests in professional education via internal training. Young employees are attracted through the 'Young Potential Program'.
Dependency on equipment and technology	Network systems could be impacted by damage, computer viruses, natural disasters and unauthorized access which could lead to loss of business and liability claims.	Technology spread across different locations. Ageing legacy copper cables have been gradually replaced by fiber technology since 2003. Legacy systems are being phased out and replaced by integrated systems. Strict monitoring of contractual SLA'S and liabilities terms & conditions with suppliers and vendors. Adequate insurances for damage caused by network failures, computer viruses, security breaches and the like.

1.2.1.1. Competitive market dynamics

Belgium is a small country with only a few large telecom players, among which Belgacom is the incumbent. In such circumstances, market value is vulnerable to disruptive behaviour among competitors. Moreover, Belgacom's main competitors Mobistar, BASE and Telenet, are subsidiaries of large international operators, respectively France Telecom, KPN and Liberty Global.

A new market entrant or radical price competition could cost Belgacom market share and negatively impact revenue and profit. For instance, the new Belgian telecom law applicable since 1 October 2012 might result in a greater and longer than expected increase in customer churn. Continued aggressive competitor mobile pricing might cause additional customer churn and could lead to a further decrease of Belgacom's mobile market share. Furthermore, competition in the mobile market may become more intense in the South of Belgium if the respective cable competitor were to launch an aggressive mobile offer. In case of greatly reduced competitor prices, Belgacom could be forced to revise its mobile pricing plans accordingly, which might result in lower mobile revenue. Belgacom, however, has always adopted a rational pricing strategy and will continue to be as disciplined as possible in its customer offerings, vigilant as not to trigger further destruction of market value. Belgacom has reviewed and simplified its mobile post-paid offer, increasing value for its customers. Furthermore, Belgacom's convergence strategy gives the company a solid foundation to compete, providing attractive multi-play offers to its customers while reducing churn. Belgacom also continues to invest in its networks, to maintain its leadership in network quality and be recognized as innovative operator. As such, Belgacom was the first Belgian operator to provide LTE-services to its customers.

As for other telecom providers, the value of Belgacom's mobile voice services might become increasingly challenged by OTT (Over-The-Top) players such as Skype on mobile. Belgacom is deliberately differentiating itself from the OTT competition, by leveraging its virtualized entertainment offers in the private market and its cloud computing services for professionals. At the same time, Belgacom is continuing to develop its broadband coverage to give its customers the best internet experience. Belgacom has also drawn inspiration from OTT players, launching a content offer adapted to 'Connected TV's', which is available to non-Belgacom customers as well.

1.2.1.2. Changing business model

As a telecom company, Belgacom operates in a dynamic, rapidly changing environment driven by new technological developments and ever-changing customer demand. In response, Belgacom's business model is changing too. It is moving further away from its traditional business, dominated by voice services with high margins. Instead, it is increasingly embracing alternative communications such as Wi-Fi, Mobile Internet and VoIP. This development could potentially impact Belgacom's future revenue and profit from voice minutes or SMS.

The rapid pace of the technological change requires internal innovation to be fast as well, which may be hampered by long internal development times hence stalling the launch of new services. To mitigate any negative effect on the Belgacom Group revenue and its business segments, Belgacom has chosen to pioneer new technologies and to offer customers the emerging advantage of convergence - for example by deploying a country-wide hotspot network in partnership with FON. Belgacom has introduced new pricing plans that match its customers demand for these new ways of communicating – for example with packages including unlimited SMS together with voice and mobile data capacity. In the enterprise business segment too, where voice business is contracting, new business models have been developed to compensate for this, such as cloud computing.

1.2.1.3. Dependency on rightfully skilled and motivated personnel

Belgacom depends heavily on the people who work for it: key management, technical employees with the right skills and well-trained sales people with a detailed knowledge of the Belgacom's products and services.

The introduction of a cap by law on executive remuneration applicable on new contracts, as set out in a draft proposal of the minister for Public Enterprises, would restrict Belgacom in attracting and retaining highly qualified top management. Reduced flexibility in executive remuneration would place Belgacom at a disadvantage compared to its main competitors in the Belgian market and could eventually lead to reduced business performance and by extension reduced income.

Rapid changes in technology and the unceasing evolution in products and services imply constant shifts in demand for skills and without effective provisions being made, could leave Belgacom with an inadequate pool of talent. Within the Enterprise segment, for instance, the focus on delivering full end-to-end services and the increasing complexity of customer deals requires staff with specific skills and expertise. Lack of IT-skilled employees could hamper the Enterprise Business Unit (EBU) in winning complex customer deals and slow EBU's growth strategy in solution centricity.

Belgacom's future success will be influenced by its overall ability to attract and retain highly qualified employees. Consequently, to tackle new needs in skills, the Human Resources department has developed customized programs, such as Strategic Workforce planning and the program for young potentials. Furthermore, Belgacom continuously invests in the professional education of its employees via internal training. Overall, Belgacom enjoys a good reputation as an employer.

About one in three of Belgacom's employees are statutory employees, benefitting from substantially higher protection against dismissal than private sector employees. This may restrict Belgacom's ability to improve efficiency and increase flexibility to levels comparable to those of its competitors.

1.2.1.4. Dependence on equipment and technology

Belgacom's business is highly dependent on technical infrastructure such as telecommunication equipment and IT-platforms. Belgacom is only able to deliver services insofar as it can protect its network systems against damage from telecommunication failures, computer viruses, natural disasters and unauthorized access. Any system failure, incident, or security breach that causes interruptions in Belgacom's operations, or parts thereof, could impair Belgacom's ability to provide services to all or some of its customers and could potentially have financial consequences and a reputation impact. To mitigate the risks related to incidents affecting technical buildings (e.g. fire), Belgacom has spread its technology across different locations and buildings (e.g. 3 datacenters, splitting corporate ICT services and customer ICT services), 10 network services nodes and hundreds of local exchanges.

Belgacom's service portfolio is becoming increasingly dependent on numerous IT platforms. To preserve the quality of service delivered to its customers, Belgacom needs to guarantee stability, processing time and agility. Any disruption or security breach resulting in loss or damage to customers' data or applications, or leading to inappropriate disclosure of confidential information, may result in Belgacom incurring liability. In addition, the Group may incur additional costs to remedy the damages caused by such disruptions or security breaches. Belgacom possesses errors and omissions insurance, business interruption insurance and insurance guarding specifically against certain losses resulting from, for instance, computer viruses and security breaches.

Nonetheless, in the event of network or IT interruptions Belgacom has multiple measures in place to remedy problems within the shortest time possible. Firstly Belgacom has an extensive monitoring center in place allowing very fast detection and identification of any possible problem

that could jeopardizes the proper functioning of its operations. Secondly, Belgacom has elaborate and well-prepared procedures in place to deal with and remediate high impact incidents as quickly as possible through Emergency Response Teams. These operate 24/7 and include the best experts in their domains.

Belgacom has a nation-wide access network, of which part has been in place for a long time – the so-called legacy copper network. Ageing copper cables could increase fault rates and decrease performance. The Mobile network might be subject to technical failures, affecting the quality of service or causing temporary service interruptions, leading to customer dissatisfaction. Another priority is the network transformation program, which could be subject to delayed implementation and consequently delayed savings from the out phasing of technical buildings.

Belgacom heavily invests to further improve its network. Rolling-out a fiber-to-the-curb network has been one of Belgacom's key priorities over the past few years, while old copper cables are being replaced and new technologies are showing a promising evolutionary path for the last mile in copper. Belgacom continues to invest in stability improvements for both its fixed and mobile core network by putting new architectures in place that enable higher redundancy. In addition, elaborate network and IT resilience programs have been set up to further boost the ability to keep the network in operation in the event of failures. A similar resilience plan will be put in plan as from 1 January 2013 for some critical IT-applications. Furthermore, to prevent problems in the supply chain, Belgacom strictly monitors contractual SLA's and liabilities terms and conditions with its suppliers and vendors.

1.2.2. Financial reporting risks

In the area of financial reporting, in addition to the general enterprise risks also impacting the financial reporting (e.g. personnel), the major risks identified include: new transactions and evolving accounting standards, changes in tax law and regulations and the financial statement closing process.

1.2.2.1. New transactions and evolving accounting standards

New transactions could have a significant impact on the financial statements, either directly in the income statement or in the notes. An inappropriate accounting treatment could result in financial statements which do not provide a true and fair view any more. Changes in legislation (e.g. pension age, customer protection) could also significantly impact the reported financials. New accounting standards can require the gathering of new information and the adaption of complex (billing) systems. If not timely and adequately foreseen, the timeliness and reliability of the financial reporting could be put at risk.

It is the responsibility of the Corporate Accounting department to follow the evolution in the area of evolving standards (both local GAAP and IFRS). Changes are identified and the impact on the Belgacom financial reporting is proactively analysed.

For every new type of transaction (e.g. new product, new employee benefit, business combination), an in depth analysis from a financial reporting, risk management, treasury and tax point of view is performed. In addition, the development requirements for the financial systems are timely defined and compliance with internal and external standards is systematically analysed. Emphasis is on the development of preventive controls and setting up reporting tools that enable posteriori controls.

On a regular base, the A&CC is informed about new upcoming financial reporting standards and their potential impact on the Belgacom Group financials.

1.2.2.2. Changes in tax law and regulations

Changes in tax laws and regulations (corporate income tax, VAT,...) or in their application by the tax authorities could significantly impact the financial statements. To ensure compliance, it is often required to set up, in a short timeframe, additional administrative processes to collect relevant information or to implement updates to existing IT systems (e.g. billing systems).

The tax department continuously follows potential changes in tax law and regulations as well as interpretations of existing tax laws by the tax authorities. Based on laws, doctrine, case law and political statements as well as draft laws available etc., an impact analysis is made from a financial perspective and as well as from an operational point of view.

1.2.2.3. Financial statement closing process

The delivery of timely and reliable financial statements remains dependent from an adequate financial statement closing process.

Clear roles and responsibilities in the Closing Process of the Group Financial Statements have been defined. During the monthly, quarterly, half-yearly and annual financial statement closing processes, there is a continuous monitoring on the different steps. In addition, different controls are performed to ensure quality and compliance with internal and external requirements and guidelines.

For Belgacom and its major affiliates, a very detailed closing calendar is established, which includes in detail cross-divisional preparatory meetings, deadlines for ending of specific processes, exact date and hours when IT sub-systems are locked, validation meetings and reporting deliverables.

For every process and sub-process, different controls are performed, including preventive controls, where information is tested before being processed, as well as detective controls, where the outcome of the processing is being analysed and confirmed. Specific attention is given to reasonableness tests, where financial information is being analysed by more underlying operational drivers and coherence tests, where financial information from different areas is brought together to confirm results or trends, etc.. Tests on individual accounting entries are performed for material or non-recurrent transactions and on a sample basis for others. The combination of all these tests provides sufficient assurance on the reliability of the financials.

2. IMPORTANT EVENTS THAT HAVE OCCURRED AFTER THE END OF THE PERIOD

In the scope of the work space optimization, the management of Belgacom has started the negotiation with the representative unions to leave the Haasrode site. When approved, the employees and technical installations in Haasrode will be relocated to other buildings of the Brussels Region by the end of 2014. This regrouping of activities and teams will allow them to collaborate in a new and more efficient way and supports the efforts towards convergence and the consolidation of the company culture.

3. CIRCUMSTANCES THAT CAN SIGNIFICANTLY INFLUENCE THE DEVELOPMENT OF BELGACOM

Most important risks and uncertainties are listed in 1.2..

4. 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.

In 2012, the research and development activities covered the following:

Study of the potential of new technologies:
o Further detailed studies on solutions to phase out traditional technologies and to migrate to a fully IP based network. More specifically the solutions for replacing PSTN and ISDN (Access Gateway, ISDN Access Devices and alternatives) were investigated on their technical, economical and operational feasibility and preparations continued for the future introduction of IPv6 in the data network.
o Fibre to the Home (FTTH): technical-economic studies have been further conducted and preparations have started to deploy FTTH in green-field zonings.
o Investigation on viable solutions to optimize the data traffic handling on fixed networks, in order to ensure the optimal Quality of Service.
o Belgacom has a continuous focus on the "Green" aspect. With "green ICT" and "ICT for green", Belgacom actively participates in reducing our own environmental impact, as well as the impact of others. Several areas are being investigated (e-prescription, smart grids...)
Introduction of new technologies:
o The mobile technology of the next generation LTE (Long Term Evolution) was further tested during 2012 and commercially launched in November, providing customers the highest mobile download and upload speeds.
o Belgacom and Alcatel-Lucent are developing in a partnership a next step in VDSL2 technology ('Vectoring'). This solution allows for cancelling out interference in a copper cable and will allow increasing substantially the data speed that can be offered.
Evolution of the technology in terms of improvement and existing services extension:
o Belgacom further improved and extended its portfolio on Cloud-based Services with IaaS (Infrastructure as a Service).
o Services from the Belgacom network are now exposed to external customers through API's (Application Programming Interfaces). This allows developers to integrate network services –such as SMS- in their applications.
o Belgacom TV services have been further enriched with personalisation features (personalised recommendations) and more advanced search functions.
o Belgacom further improved its VDSL2 technology with DLM (Dynamic Line Management') for its broadband offering. With this solution, which was developed inhouse, Belgacom can offer higher data speed to their customers.
The preparation of the introduction of new services:
o Belgacom is one of the main participants in the fiber-based pilot network in Kortrijk, in which test users are provided with high-speed access. This "Living Lab" enables application developers to test new applications and services in a real-life environment with a representative number of test users. Belgacom has also been testing some advanced services.

Belgacom collaborates with universities, industrial partners and several other bodies, such as iMinds (independent research institute founded by the Flemish government), 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.

5. 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.

6. THE 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. In one case, a collateral (margin call) of € 32.7 million was obtained from a bank to contain the counterparty risk within the Group policy limits.

7. INDEPENDENCE AND EXPERTISE IN THE ACCOUNTING AND AUDIT DOMAIN OF AT LEAST ONE MEMBER OF THE AUDIT AND COMPLIANCE COMMITTEE

In accordance with the bylaws, Belgacom has an A&CC which consists of five non-executive Directors, the majority of whom must be independent. In line with its charter, it is chaired by an independent Director.

The members of the A&CC have sufficient expertise in financial matters to discharge their functions. Its Chairman, Mr. Pierre-Alain De Smedt, is competent in accounting and auditing. He is a "licentiate" in commercial and financial sciences. He occupied during his career several functions as CFO, CEO and COO. Amongst his non-executive functions he is also member of the Audit Committee of Avis Europe.

8. 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.

8.1. Designation applicable Code on Corporate Governance

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

8.2. 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 and 4.7. 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.

8.3. Most important characteristics of the internal control and risk-management systems

The Belgacom Board of Directors is responsible for the assessment of the effectiveness of the internal control and of the risk-management systems.

Belgacom has set up an internal control system based on the COSO model, i.e. the integrated internal control and enterprise risk management framework published by the Committee of Sponsoring Organisation of the Treadway Commission ("COSO"). This COSO methodology is based on five areas: the control environment, risk analysis, control activities, information & communication and monitoring.

Belgacom's internal control system is characterized by an organization with a clear definition of responsibilities, next to sufficient resources and expertise and also appropriate information systems, procedures and practices. Obviously, Belgacom cannot guarantee that this internal control will be sufficient in all circumstances as risks of misuse of assets or misstatements can never be totally eliminated. However, Belgacom organizes a continuous review and follow-up of all the components of its internal controls and risk management systems to ensure they remain adequate.

Belgacom considers the timely delivery to all its internal and external stakeholders of complete, reliable and relevant financial information in conformity with International Financial Reporting Standards (IFRS) and with other additional Belgian disclosure requirements as an essential element of management and governance. Therefore, Belgacom has organized its internal control and risk management systems over its financial reporting in order to ensure this objective is met.

8.3.1. Control environment

8.3.1.1. Organization of internal control

The A&CC's role is to assist and advise the Board of Directors in its oversight on (i) the financial reporting process, (ii) the efficiency of the systems for internal control and risk management of Belgacom, (iii) the Belgacom's internal audit function and its efficiency, (iv) the quality, integrity and legal control of the statutory and the consolidated financial statements of Belgacom, including the follow up of questions and recommendations made by the auditors, (v) the relationship with the Group's auditors and the assessment and monitoring of the independence of the auditors, (vi) Belgacom's compliance with legal and regulatory requirements, (vii) the compliance within the organization with the Belgacom's Code of Conduct and the Dealing Code. The A&CC meets at least once every quarter.

8.3.1.2. Ethics

The Board of Directors has approved a Corporate Governance Charter and a Code of Conduct "The way we do responsible business". All employees must perform their daily activities and their business objectives according to the strictest ethical standards and principles, using the Group values (Respect, Can do and Passion) as guiding principle.

The Code "The way we do responsible business", which is available on www.belgacom.com, sets out the above-mentioned principles and aims to inspire each employee in his or her daily behaviour and attitudes. The ethical behaviour is not limited to the text of the Code. The Code is a summary of the main principles and is thus not exhaustive.

In addition, Belgacom in general and the Finance department in particular have a tradition of a high importance to compliance and a strict adherence to a timely and qualitatively reporting.

8.3.1.3. Policies and procedures

The principles and the rules in the Code "The way we do responsible business" are further elaborated in the different internal policies and procedures. These Group policies and procedures are available on the Belgacom intranet-sites. Every policy has an owner, who regularly reviews and updates if necessary. Periodically and at moment of an update, an appropriate communication is organized.

In the financial reporting domain, general and more detailed accounting principles, guidelines and instructions are summarized in the accounting manuals and other reference material available on the Belgacom intranet-sites. In addition, the Corporate Accounting department regularly organizes internal accounting seminars to update finance and non-finance staff on accounting policies and procedures.

8.3.1.4. Roles & responsibilities

Belgacom's internal control system benefits from the fact that throughout the whole organization, roles and responsibilities are clearly defined. Every business unit, division and department has its vision, mission and responsibilities, while on individual level, everybody has a clear job description and objectives.

The main role of the Finance Division is to support the divisions and affiliates by providing accurate, reliable and timely financial information for decision making, to monitor the business profitability and to manage effectively corporate financial services. The establishment of the external financial reporting falls under the responsibility of the Corporate Accounting department.

The team of the Corporate Accounting department assumes this accounting responsibility for the mother company Belgacom and the major Belgian companies. They also provide the support to the other affiliates. For this centralized support, the organization is structured according to the major (financial) processes. These major processes include capital expenditures and assets, inventories, contracts in progress & revenue recognition, financial accounting, operational expenditures, provisions & litigations, payroll, post-employment benefits and taxes. This centralized support organized around specific processes and IFRS standards allows for in depth accounting expertise and ensures compliance with group guidelines.

The consolidation of all different legal entities into the Consolidated Financial Statements of the Belgacom Group is realized centrally. The Consolidation department defines and distributes information relating to the implementation of accounting standards, procedures, principles and rules. It also monitors changes in regulations to ensure that the financial statements continue to be prepared in accordance with IFRS, as adopted by the European Union. The monthly instructions for consolidation set forth not only the schedules for preparing accounting information for reporting purposes, but also includes detailed deadlines and items requiring particular attention, such as complex issues or new internal guidelines.

8.3.1.5. Skills & expertise

Adequate staffing is a matter to which Belgacom pays careful attention. This requires not only sufficient headcount, but also the adequate skills and expertise. These requirements are taken into account in the hiring process and subsequently in the coaching and formation activities, facilitated and organized by the Belgacom Corporate University.

For financial reporting purposes, a specific formation cycle was put in place, whereby junior as well as senior staff have to participate mandatory. These internally and externally organized accounting seminars cover not only IFRS but local accounting rules & regulations, Tax and Company law & regulations as well. In addition, the knowledge and expertise is also kept up to date and extended for more specific domains for which staff is responsible (revenue assurance, pension administration, financial products, etc.) through attendance to seminars and self-study. Furthermore, employees also attend general formations session on Belgacom new business products & services.

8.3.2. Risk analysis

The risk analysis has been commented extensively in point 1.2..

8.3.3. Risk mitigating factors and control measures

The risk mitigating factors and control measures have been commented extensively in point 1.2..

8.3.4. Information and communication

8.3.4.1. Financial reporting IT systems:

The accounting records of Belgacom and most of its affiliates are kept on large integrated IT systems. Operational processes are often integrated in the same system (e.g. supply chain management, payroll). For the billing systems, which are not integrated, adequate interfaces and a monitoring system have been developed. For the consolidation purposes, a specific consolidation tool is used.

The organizational set-up and access management are designed to support an adequate segregation of duties, prevent unauthorized access to the sensitive information and prevent unauthorized changes. The set-up of the system is regularly subject to the review by the internal audit department or external auditors.

8.3.4.2. Effective Internal communication

Most of the accounting records today are kept under IFRS as well as local GAAP. In general, financial information delivered to management and used for budgeting, forecasting and

controlling activities is established under IFRS. A common financial language used throughout the organization positively contributes to an effective and efficient communication.

8.3.4.3. Reporting and validation of the financial results

The financial results are internally reported and validated on different levels. On the level of processes, there are validation meetings with the business process owners. On the level of the major affiliates, a validation meeting is organized with the accounting and controlling responsible. On Belgacom group level, the consolidated results are split per segments. For every segment, the analysis and validation usually includes comparison with historical figures, as well as budgetactual and forecast-actual analysis. Validation requires (absences of) variances to be analysed and satisfactorily explained.

Afterwards, the financial information is reported and explained to the Belgacom Management Committee (monthly) and presented to the A&CC (quarterly).

8.3.5. Supervision and assessment of internal control

The effectiveness and efficiency of the internal control are regularly assessed in different ways and by different parties:

Each owner is responsible for reviewing and improving its business activities on a regular basis: this includes a.o. the process documentation, reporting on indicators and monitoring of those.
In order to have an objective review and evaluation of the activities of each organization department, Belgacom's Internal Audit department conducts regular audits across the Group's operations. The independence of Internal Audit is ensured via its direct reporting line to the Chairman of the A&CC. Audit assignments performed may have a specific financial processes scope but will also assess the effectiveness and efficiency of the operations and the compliance towards the applicable laws or rules.
The A&CC reviews the quarterly interim reporting and the specific accounting methods. The main disputes and risks facing the Group are considered; the recommendations of internal audit are followed-up; the compliance within the Group with the Code of Conduct and Dealing Code is regularly discussed.
Except for some very small foreign affiliates, all legal entities of the Belgacom Group are subject to an external audit. In general, this audit includes an assessment of the internal control and leads to an opinion on the statutory financials and on the (half-yearly and annual) financials reported to Belgacom for consolidation. In case the external audit reveals a weakness or identifies opportunities to further improve the internal control, recommendations are made to management. These recommendations, the related action plan and implementation status are at least annually reported to the A&CC.

8.4. Composition and functioning of the governing bodies and their committees

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

On 29 February 2012 the mandate as Chairman of the Board of Directors of Mr. Theo Dilissen came to an end. Mr. Michel Moll, who is the member appointed by the Belgian State with the most seniority, is the Chairman a.i. of the Board of Directors since 1 March 2012.

Name	age	position	term
Theo Dilissen	59	Chairman	2004 - 2015*
Didier Bellens	57	President & CEO	2003 - 2015
Martine Durez	62	Director	1994 – 2012**
Mimi Lamote	48	Director	2006 – 2012**
Michèle Sioen	47	Director	2006 – 2012**
Michel Moll	65	Director	1994 – 2012/*
Paul Van de Perre	60	Director	1994 – 2012**

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

The mandate of Mr. Theo Dilissen as Chairman of the Board ended on 29 February 2012. According to the by-laws of the company, it is up to the Belgian State to appoint the new Chairman. In the meantime the function of Chairman is taken up by Mr. Michel Moll, being the board member appointed by the Belgian State with the most seniority.
** The mandates of Mrs. Martine Durez, Mrs. Mimi Lamote, Mrs. Michèle Sioen, Mr. Michel Moll and Mr. Paul Van de Perre ended on 23 December 2012. According to the by-laws of the company, it is up to the Belgian State to renew these mandates or to replace the members. In the meantime, based on the principle of continuity, the mandates are tacitly extended.

Name	age	Position	term
Jozef Cornu	68	Independent director	2009 - 2015
Pierre Demuelenaere	54	Independent director	2011 - 2017
Guido J.M. Demuynck	62	Independent director	2007 - 2013
Pierre-Alain De Smedt	69	Independent director	2004 - 2016
Carine Doutrelepont	52	Independent director	2004 - 2013
Oren G. Shaffer	70	Independent director	2004 - 2013
Lutgart Van den Berghe	61	Independent director	2004 - 2016

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

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 reviewed a last time in September 2012. The most important change is the adaptation of the Corporate Governance Charter to the prescriptions of the law of 20 December 2010 on the exercise of specific rights of shareholders in stock quoted companies.

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. Guido J.M. Demuynck, Michel Moll, Oren G. Shaffer and Paul Van de Perre are the members of the Audit and Compliance Committee.

Mr. Theo Dilissen (Chairman until 29 February 2012), Mr. Michel Moll (as Chairman a.i. as of 1 March 2012), Messrs. Jozef Cornu, Pierre-Alain de Smedt, Ms. Martine Durez and Ms. Lutgart Van den Berghe are the members of the Nomination and Remuneration Committee.

Mr. Theo Dilissen (Chairman until 29 February 2012), Mr. Michel Moll (as Chairman a.i. as of 1 March 2012), Messrs. Didier Bellens, Jozef Cornu, Guido J.M. Demuynck and Ms. Carine Doutrelepont are currently the members of the Strategic and Business Development Committee

Activity report

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 has contractual relationships and is also 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. Belgacom is also a Partner of Guberna, the Belgian Institute for Directors (affiliated with Mrs. Lutgart Van den Berghe who is Executive Director of Guberna), for which it has paid a fee of 30,250 € in 2012.

Evaluation of the Board

The Board performed a self-evaluation in December 2012 in order to assess its size, composition, performance as well as the interaction with management. This exercise was conducted with the help of Spencer Stuart as external expert. Members were invited to answer an extensive questionnaire, followed by an interview between the external expert and every individual member. Starting from the conclusions 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 with other stakeholders and the functioning of the committees.

As an outcome, the Board decided at its meeting of 28 February 2013 to implement the following short term actions:

Having each year a yearly draft agenda for the committee's;
Organize a tutorial on the role of the committees and on risk management;
Have a yearly presentation on succession planning to the Board;
Develop a reporting system, allowing the Board to follow the key business drivers of the company;
Add one meeting a year for the strategic committee.

Management

The members of the Belgacom Management Committee, other than the President & CEO, are Mr. Ray Stewart, Michel Georgis, Bart Van den Meersche, Bruno Chauvat, Dominique Leroy and Geert Standaert.

Mr. Scott Alcott left the company in June 2012.

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 point 10.1 of this report.

8.5. Remuneration report

Belgacom considers transparency on executive remuneration very important. Therefore, in conformity with the corporate governance law of April 6, 2010 and Principle 7 of the corporate governance Code 2009, the company provides the following information towards its shareholders and all other stakeholders: the description of the Director's remuneration as well as a high level explanation of the Group remuneration policy. Furthermore, it comprehends an analysis of our executive remuneration and provides an overview of the main provisions of the supporting contractual relationships.

8.5.1. Director's remuneration

Policy of Director's remuneration

The remuneration and compensation of the Directors was decided by the General Shareholders Meeting of 2004. The principles of this compensation did not change in 2012: it foresees an annual fixed compensation of € 50.000 for the Chairman of the Board of Directors and of € 25.000 for the other members of the Board of Directors, with the exception of the President & CEO. All members of the Board of Directors, with the exception of the President & CEO, have the right to an attendance fee of € 5.000 per attended meeting of the Board of Directors. This fee is doubled for the Chairman.

Attendance fees of € 2.500 are foreseen for each member of an advisory committee of the Board of Directors, with the exception of the President & CEO. For the Chairman of the respective advisory committee these attendance fees are doubled. The members also receive € 2.000 per year for communication costs. For the Chairman of the Board of Directors the communication costs are also doubled.

The Directors do not receive performance-based remuneration such as bonuses or long-term share-related incentive programs, nor do they receive benefits linked to pension plans.

Overview of Director's remuneration

The individual Director remuneration for the fiscal year 2012, based on their activities and attendance at Board and Committee meetings is presented in the table below.

Activities report and attendance at Board and Committee meetings
Name	Board	A&CC	NRC	SBDC	Total
	(total 8)	(total 5)	(total 7)	(total 2)	Remuneration
Theo DILISSEN *	7/8		1/7	1/2	74.000 €
Didier BELLENS	7/8			2/2	0 €
Jozef CORNU	8/8		7/7	2/2	89.500 €
Pierre DE MUELENAERE	8/8				67.000 €
Guido DEMUYNCK	8/8	5/5		2/2	84.500 €
Pierre-Alain DE SMEDT	7/8	5/5	6/7		102.000 €
Carine DOUTRELEPONT	8/8			2/2	72.000 €
Martine DUREZ	8/8		7/7		84.500 €
Mimi LAMOTE	8/8				67.000 €
Michel MOLL **	8/8	5/5	6/7	2/2	182.000 €
Oren G. SHAFFER	7/8	5/5			74.500 €
Michèle SIOEN	7/8				62.000 €
Lutgart VAN DEN	7/8		7/7		79.500 €
BERGHE
Paul VAN DE PERRE	8/8	5/5			79.500 €

* End of mandate as Chairman on March 1, 2012 Total Remuneration: telecom advantage included ** Start of mandate as Chariman a.i. on March 1, 2012

A&CC: Audit and Compliance Committee; NRC: Nomination and Remuneration Committee; SBDC: Strategic and Business Development Committee

Remuneration Policy

Belgacom has an innovative remuneration policy which is regularly assessed and updated through close cooperation with external Human Resources fora and universities. The remuneration policies of Belgacom employees are defined in a process of dialogue with the Board of Directors and the social partners.

The Belgacom remuneration policy aims at offering fair remuneration both to civil servants and to the group's contractual employees, taking into account the performance of the employee and of the company. The evolution of total remuneration is linked to the results of the company.

Because of Belgacom's history as a public-service company, there are some differences in its dynamics and structure, compared to the private sector. This has a considerable influence on how its remuneration policy has evolved. Belgacom Human Resources developed creative and adaptable programs to deal with its obligations related to the statutory employment status of some of its workforce and introduced new elements that harmonised policies between civil servants and contractual employees.

Some powerful private sector instruments were introduced, such as performance differentiation, job classification, employee engagement and variable pay. These were superimposed on the traditional payment rules linked to statutory employment.
Belgacom also maintains -and modernises- powerful public sector instruments, such as worklife benefits and social assistance. It is the responsibility of the Belgacom work-life department to combine the needs and responsibilities of employees and their families with those of the company and society as a whole. Over the years Belgacom has won several awards for the continuous efforts of the company to create a balanced working environment for its staff. The public-sector component is also an important tool for employer branding. The objective of Belgacom is to treat all employees equally and to create a working environment in which any differences are acceptable to employees.

8.5.2. Executive remuneration

Policy of Executive remuneration

Belgacom has a balanced executive remuneration policy which rewards executives competitively and at rates which are attractive in the market, aligning the interests of management and shareholders. The company wants to attract and retain high performing top executives for its Management Committee and for its senior management. It wants to reward clear role models, who have a commitment to high performance and the company values.

The top executives are covered by dedicated reward programmes which focus on the principles of Belgacom's strategy to consistently reward high performance by individuals and by the company. To distinguish itself from other employers, Belgacom seeks to excel in the total package it offers, by providing not only cash but also numerous other benefits. A fundamental principle of its remuneration policy is a degree of freedom for executives in choosing how they are to be rewarded.

The company wants to position top executive pay towards the median in the market for base salaries and for the achievement of targets at 100%. In case of sustained excellent performance the total remuneration is aligned on the upper quartile.

The policy aims to ensure that top performers can benefit from the growth of the company through long-term incentive plans.

The Nomination & Remuneration Committee sets the remuneration policy for top executives and decides the individual packages for the President & CEO and the members of the Management Committee. These are regularly verified by benchmarking executive pay against both the BEL 20 companies (Financial sector excluded) and a set of peer companies in the European Telecommunications and ICT sector.

The current remuneration policy does not provide for a specific contractual claw back stipulation in favour of the company for the variable remuneration of executive managers accorded on the basis of incorrect financial information, this without deterioration of the various legal provisions applicable between the concerned individuals and the company (e.g. Acts of July 7, 1978, April 12, 1965 and February 10, 2003 concerning the claw back possibilities from employees in case of fraud, serious fault and usual minor fault, civil liability, etc.).

To date, no fundamental changes to the policy are foreseen for the next two years. However a governmental initiative currently under discussion proposes a cap on the remuneration of the top executives (CEO) and members of the Management Committee of companies fully or partially owned by the Belgian state. If this initiative would lead to a law, Belgacom's executive remuneration policy would have to be modified as from the next mandate of the President & CEO or at the appointment of a new member in the Management Committee.

The relationship between the distinct remuneration components of the Belgacom Management Committee members and the President & CEO is illustrated in the figures below (figure 1).

Overview of executive remuneration

The executive Remuneration Policy is built upon fixed components, being the basic remuneration, the retirement and post-employment benefits and other benefits, and variable performance based components, being the short term variable remuneration and the long term share-based variable remuneration. As from performance year 2011, the Board of Directors has, in the framework of the application of the new corporate governance law, approved to rebalance the short term variable remuneration and the long term share-based variable remuneration in order to obtain an equal weight between short and long term target remuneration.

Annual variable pay is calculated in relation to performance against Key Performance Indicators set by the Board of Directors upon advice of the Nomination & Remuneration Committee. For 2012, these performance indicators included financial indicators as well as non-financial indicators, at both Group and Business Unit level. The achievement of these KPI's are followed-up and communicated regularly. The results are based on audited financial figures and non-financial indicators measured by internal and external agencies specialised in market and customer intelligence, of which the processes are audited on a regular basis.

The most important key financial indicator used is the operational cash flow.
Important non-financial indicators included are the "care and ease" indicator and the "employee loyalty index". The "care and ease" indicator supports the ambition of Belgacom to offer superior service to each customer (care) and to re-introduce a culture of superior process quality (ease). The "care indicator" measures the end-to-end satisfaction of our customers. The "ease indicator" measures operational excellence in our

customer interactions. Satisfaction and operational excellence of our interactions and channels are measured on a regular basis.

Figure: Information about the "Care and Ease indicator".

Another operational indicator is the "employee loyalty index", which each year measures employees' organisational commitment and job engagement through a survey. This is used as a starting point for further actions.

For 2013, new key performance indicators have been defined. These financial and non-financial indicators reflect strategic pillars and priorities of Belgacom's strategy.

At Group level, the Care & Ease indicator makes way for Simplicity & Customer Experience measuring the progress made in the simplification and optimization of processes and the customer's user experience. The engagement KPI will be based on the new personnel survey Speak Up, an indicator reflecting engagement, agility and strategic alignment amongst Belgacom employees.

At Business-Unit level, the key performance indicators will concern amongst others convergence, value management, solution centricity and the transformation of the fix and mobile network.

Basic remuneration

The basic remuneration of the Management Committee is annually reviewed by the Nomination & Remuneration Committee, based on an extensive review of performance and assessment of potential provided by the President & CEO, as well as on external benchmarking data.

The basic remuneration comprises the base salary earned in the position of the President & CEO and the members of the Management Committee for the reported year. The President & CEO, Didier Bellens, is also a non-remunerated member of the Board of Directors. During 2012, neither the President & CEO nor the other members of the Management Committee received a merit increase. Changes in the figures are mainly the result of legal indexation in March 2012 and changes within the Management Committee composition.

Short term variable remuneration

The Belgacom Group variable pay system reflects the group values, emphasizes the strengths of the Business Units and creates incentives for individual performance.

Figure: The Belgacom Management Committee policy takes into account Group, Business Unit and Individual performance.

The short term variable remuneration includes the actual bonus paid in the reported year 2012, for performance year 2011. A linear pay out curve with an upper and lower limit is adopted for each component of the short term variable remuneration. The curve determines the short term variable remuneration that will be granted to the President & CEO and to the members of the Management Committee, based on the effective result of each KPI. The short term variable remuneration is paid through one of the options of the "Short Term Incentive Plan".

As from performance year 2013, although the parameters taken into consideration in the formula defining the short term variable remuneration granted to the President & CEO and to the members of the Management Committee remain unchanged, their weight has been reviewed so that the impact of the Group KPI prevails the individual and Business Unit KPI's.

The President & CEO and the members of the Management Committee can choose to receive their short term variable remuneration in cash bonus or under the "Discounted Share Purchase Plan".

The Discounted Share Purchase Plan provides the right to buy allocated shares at a 16.66% discount. The shares are treasury shares and are blocked for a period of two years. The employee himself finances 83.34% of the full share purchase price. The discount is financed by the employer.

The President & CEO chose to receive his short term variable remuneration through the Discounted Share Purchase Plan. The other members of the Management Committee have all opted for a cash bonus.

The Short term variable remuneration of the President & CEO and of the members of the Management Committee decreased in comparison with last year as a result of changes in the composition of the management team and of a rebalancing of the target percentages between short term and long term incentives in accordance to the new Belgian corporate governance rules.

Long term Share-based variable remuneration

On an annual basis the members of the Management Committee may also receive a stock-option grant. The options issued under this plan are subscription rights, each giving the right (for a limited period) to acquire Belgacom shares at a price equal to the value of the share at the time of grant of the options.

To comply with the new law on corporate governance, the Long Term Incentive plan has been changed as from the stock options granted in 2011:

The vesting schedule is 50% after at least 2 years and 50% after at least 3 years following the grant.
The closing price of the share must be higher than the exercise price minus the total amount of gross dividends attached to the shares which can be acquired through the exercising of the options.
A 3 year cliff exercising period.
In case of termination of the employment contract the stock options continue to vest in accordance with this vesting condition. Stock options which are vested must, under penalty of forfeiture, be exercised with respect for the 3 year cliff exercising period and prior to the earlier of the expiration of 5 years following the termination of the employment contract or the expiration of the exercise period.

On an individual basis, the Management Committee received the options mentioned in the table below.

		Didier BELLENS	Scott ALCOTT	Bruno CHAUVAT	Michel GEORGIS	Dominique LEROY	Geert STANDAERT	Ray STEWART	Bart VAN DEN MEERSCHE
remaining from previous years:	on January 1st, 2012, Stock options	536.585	170.898	0	192.646	0	31.590	293.112	55.000
Stock options	Number	135.414	0	0	65.857	12.665	6.000	75.988	15.000
accepted during reported year	Exercise price (in €)	22,275	22,275	-	22,275	22,275	22,275	22,275	22,275
Stock options exercised	Number	86.225	0	0	0	0	4.147	71.822	0
during reported year	Year of grant of options exercised	2005	-	-	-	-	2009	2006 & 2008	-
Stock options	Number
lapsed during reported year	Year of grant of options lapsed
Stock options	Number		32.406
forfeited during reported year	Year of grant of options forfeited		2010 & 2011
	TOTAL	585.774	138.492	0	258.503	12.665	33.443	297.278	70.000

Overview of stock option plan: President & CEO and other members of the Management Committee

For the President & CEO, the variation in the figures of long term share-based variable remuneration is mainly due to a rebalancing of the target percentages between short term and long term incentives in accordance to the new Belgian corporate governance rules.

For the Management Committee, the variation is mainly due to changes within the composition of the Management Committee and to the new Belgian legislation on the benefit in kind related to stock options, which impacted the acceptance rate.

Retirement and post-employment benefits

The President & CEO participates in a complementary pension scheme which foresees an annual indexed contribution of € 77.970,53. The current members of the Management Committee have a "Defined Benefit Plan".

Other benefits

Belgacom Group wants to stimulate its executives by offering a portfolio of benefits and advantages that are competitive in the market place. The President & CEO and the other members of the Management Committee receive benefits on top of their remuneration, including medical insurance, car and other benefits in kind.

Overview

The table below reflects the remuneration and other benefits granted directly or indirectly to the members of the Belgacom Management Committee in 2012 by Belgacom or any other undertaking belonging to the Belgacom Group (benefit based on gross or net remuneration, depending on the type of benefit).

The year-on-year evolution of the figures is mainly the consequence of:

the changes in the composition of the management team;
the legal indexation of salaries;
the new Belgian legislation on the benefit in kind related to stock options, which impacted the acceptance rate.

Remuneration	President & CEO		Other members of the Management Committee
	2011	2012	2011	2012
Basic remuneration	938.591	963.096	2.597.582	2.760.207
Short term variable remuneration	712.056	513.715	1.653.134	1.393.093
Long term Share-based variable remuneration	474.330	534.615	1.154.360	692.914
Retirement and post-employment benefits	109.440	113.032	514.310	538.377
Other benefits	9.663	14.773	203.409	154.819
TOTAL (excl. employer's social contribution)	2.244.080	2.139.231	6.122.795	5.539.410
TOTAL (incl. employer's social contribution)	2.580.147	2.484.136	7.438.289	6.889.211

Table 1: Overview basic and variable remuneration CEO and other members of the Management Committee.

8.5.3. Main provisions of the contractual relationships

Contractual arrangement of President & CEO

In March 2009 Didier Bellens started the first year of his new six-year mandate as President & CEO. He has a contract as a self-employed executive. Nevertheless he is subject to employee social security charges, in line with Article 11 § 1 of the Royal Decree of November 28, 1969. This article states that "the application of the law on the social security system for employees is expanded/extended to those institutions of public utility and autonomous public enterprises as well as such individuals who, in their capacity of agent and against remuneration, devote their principal activity to the day-to-day management or direction of these institutions and enterprises, to the extent no statutory pension regime is applicable to these individuals".

Clauses

The President & CEO is bound by a non-competition clause, prohibiting him for 12 months after leaving the group from working for a competitor of Belgacom Group in Belgium and in those

countries where Belgacom Group generates at least 5% of its consolidated revenues. He will receive an amount equal to one year's salary as compensation.

The members of the Management Committee, who are bound by a non-competition clause prohibiting them for 12 months after leaving the group from working for any other mobile or fixed licensed operator active on the Belgian market, will receive an amount equal to six months' salary as compensation.

Didier Bellens, Dominique Leroy, Bruno Chauvat, Geert Standaert, Ray Stewart and Bart Van Den Meersche have a contractual termination clause with an indemnity of one year's remuneration.

Michel Georgis has a contractual termination clause with an indemnity of one year's remuneration plus one month pay per year of seniority acquired, with a maximum of two years' remuneration after 12 years of service.

9. POSITION OF CONFLICTING INTEREST

Mr. Didier Bellens declared, during the Board of Directors of 1 March 2012, to have a conflict of interest in connection with the employee incentive plans, item of the agenda of this Board meeting.

Mrs. L. Van den Berghe declared, during the Board of Directors of 26 July 2012, to have a conflict of interest in connection with the Power Supply Agreement (Electrabel) item.

Mrs. M. Durez declared, during the Board of Directors of 13 December 2012, to have a conflict of interest in connection with the Bpost Fixed and Mobile Billing item.

In accordance with article 523 of the Belgian Companies Code, the minutes of these meetings are included below.

Minutes of the meeting of the Board of Directors of 1 March 2012

Chairman's debriefing on Board Committees

President & CEO

Mr. D. Bellens makes the following conflict of interest statement, which is recorded in the minutes, upon which he leaves the room for this item.

In accordance with article 523 of the Belgian Companies Code, the President & CEO, Mr. Didier Bellens, declares to have a conflict of interest in connection with the Employee Incentive Plans item of the agenda of the present Board meeting and more especially on the determination of the Short & Long Term Incentives granted to him under the Plan 2011.

Mr. D. Bellens requests the Board to take note of his statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2012.

Mr. D. Bellens shall also inform the auditor of Belgacom of this conflict of interest.

Mr. D. Bellens voluntarily decides not to participate in the deliberation and voting on such items on the agenda and leaves the meeting for the agenda items impacted by this conflict of interest statement and situation.

After discussion and upon recommendation of the Nomination & Remuneration Committee, the Board decides to grant an amount of 513,452 € on the short term incentives and an amount of 534,611 € for the long term incentives to the President & CEO.

This closes the item impacted by article 523 of the Belgian Companies Code.

Minutes of the meeting of the Board of Directors of 26 July 2012

Power Supply Agreement

In accordance with article 523 of the Belgian Companies Code, Mrs. L. Van Den Berghe declares to have a conflict of interest in connection with the Power Supply Agreement (Electrabel) item.

Mrs. L. Van Den Berghe requests the Board to take note of her statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2012.

Mrs. L. Van Den Berghe shall also inform the auditor of Belgacom of this conflict of interest. Mrs. L. Van Den Berghe voluntarily decides not to participate in the deliberation and voting on this item and leaves the meeting for the agenda item impacted by this conflict of interest statement and situation.

The Board unanimously decides to authorise the President & CEO, with the power to sub delegation, to sign an extension of the existing power supply contract with ELECTRABEL CS (Electrabel Customer Solutions).

Minutes of the meeting of the Board of Directors of 13 December 2012

Bpost Fixed and Mobile Billing

In accordance with article 523 of the Belgian Companies Code, Mrs. M. Durez declares to have a conflict of interest in connection with the Bpost Fixed and Mobile Billing item.

Mrs. M. Durez requests the Board to take note of her statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2012.

Mrs. M. Durez shall also inform the auditor of Belgacom of this conflict of interest. Mrs. M. Durez voluntarily decides not to participate in the deliberation and voting on this item and leaves the meeting for the agenda item impacted by this conflict of interest statement and situation.

The Board unanimously decides to approve the conclusion of a new frame agreement with Bpost, including the price increase.

10.OBLIGATION OF THE LAW OF 21 MARCH 1991 ON THE REFORM OF SOME AUTONOMOUS PUBLIC SECTOR ENTERPRISES

10.1. Mandates exercised in companies in which Belgacom participates

The mandates exercised by members of the management within companies, groups and organisations in which Belgacom participates or to which she contributes to the functioning are not remunerated.

PARTICIPATIONS	MEMBERS ON 31/12/2012
BELGACOM GROUP INTERNATIONAL SERVICES S.A.	R. Stewart G. Geerkens G. Kerremans P. Neyt
BELGACOM OPAL S.A.	J. Robeyns O. Moumal D. Lybaert

PARTICIPATIONS	MEMBERS ON 31/12/2012
BELGACOM INTERNATIONAL CARRIER SERVICES (BICS) S.A.	D. Bellens R. Stewart D. Lybaert M. Gatta M. Georgis
CONNECTIMMO S.A.	J. Joos O. Moumal S. Van Casteren P. Neyt
BELGACOM SKYNET S.A.	J-C. De Keyser M. Boddez E. Van Landeghem
SKYNET iMOTION ACTIVITIES S.A.	P. Verdingh E. Provoost
MOBILE-FOR S.A.	G. Geerkens F. Lhostte B. Dierickx
BELGACOM BRIDGING ICT S.A.	B. Van Den Meersche J-M. Courtoy W. Van Uytven P. Wauters R. Tilmans
BELGACOM ICT-EXPERT COMMUNITY (B.I.C.) CVBA	Belgacom represented by J-M. Courtoy Belgacom Bridging ICT represented by W. Van Uytven
BELDISCOM S.A.	D. Leroy M. Somers S. Franklin
TANGO S.A.	D. Bellens B. Chauvat M. Georgis L. Kervyn de Meerendré D. Leroy O. Moumal G. Hoffmann
BELGACOM RE S.A.	O. Moumal L. Kervyn de Meerendré G. Kerremans
BELGACOM FINANCE S.A.	L. Kervyn de Meerendré O. Moumal G. Kerremans M. Vikrant
WIRELESS TECHNOLGIES S.P.R.L.	L. Claus D. Bossuyt M. Georgis

PARTICIPATIONS	MEMBERS ON 31/12/2012
SCARLET S.A. (the Netherlands)	D. Bellens R. Stewart M. Georgis D. Rouma M. Gatta
SAHARA NET LLC	R. Stewart
SCARLET BELGIUM S.A.	P-E. Evrard C. Dujardin
SCARLET BUSINESS S.A.	P-E. Evrard C. Dujardin
MBS TELECOM S.A.	P-E. Evrard C. Dujardin
SOFTKINETICS SYSTEMS S.A.	L. Claus
DACENTEC S.A.	J. Manssens
AWINGU S.A.	W. Van Uytven

11.MISCELLANEOUS

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.

On recommendation of the Nomination & Remuneration Committee, we nominate in accordance with article 18 of the bylaws, Mr. Guido J.M. Demuynck (mandate till annual general meeting of 2019), Ms. Carine Doutrelepont (mandate till annual general meeting of 2016) and Mr. Oren G. Shaffer (mandate till annual general meeting of 2014) as candidates for members of the Board of Directors.

We would suggest to appoint Deloitte Statutory Auditors SARL sfd SCRL represented by Mr. G. Verstraeten and Mr. N. Houthaeve for the consolidated audit mandate of Belgacom S.A. for a period of 3 years, which expires at the annual general meeting of 2016. We also propose to fix the remuneration of the auditor at € 298,061 per year (to be indexed annually).

Yours truly,

On behalf of the Board of Directors,

Brussels, 28 February 2013.

Didier BELLENS President & CEO Michel MOLL Chairman a.i. of the Board of Directors