Proximus SA — Annual Report 2011

Apr 5, 2012

Highlights 2011

concludes an important partnership with Fon, the largest Wi-Fi community in the world, with more than 500,000 Wi-Fi hotspots accessible in Belgium.

Over 81% of the Belgian population can now enjoy High Definition television and fast download speeds thanks to the Broadway project. convergence. Our company

Content

Thanks to an exclusive agreement with Deezer, Belgacom has become the first operator in Belgium to offer online music with unlimited access to more than 13 million music tracks.

Customer orientation

Belgacom improves its service everyday to make life easier for its customers, and promotes its SERVICING on radio and TV.

mobile gratuit

We focus on putting more SME customers on packs by including mobile in the mix, a truly all-in-one business solution, which also promotes

Packs for SMEs

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Web Experts

As part of its initiatives to reduce the digital devide, Belgacom launches «Web Experts», an educational project encouraging youngsters to share their Internet knowledge with the elderly. www.webexperts.be With Happy Time XL, our customers can now call all fixed-line and mobile numbers for free in Belgium with their fixed line after 5 p.m. and during the weekend!

Telindus International continues its solid growth path

Telindus France acquires storage specialist Eudasys.

Telindus UK takes over management of the Virgin Media network in a major outsourcing deal.

Our Group has launched a new application, "TV Everywhere", which allows customers to watch TV anywhere and on different devices. Customers can watch video on demand, TV channels and football matches sponsored by Belgacom on their PC, TV or tablet, at home or on the move.

Innovation

Mobile data

To support its mobile data offensive, the Enterprise Business Unit launched the CRM Mobile application, answering the needs of professionals that are interested in an end-to-end solution

The new Microsoft Office 365 and Mozy PC Backup: both cloud solutions took off like a rocket in less than 3 months.

Belgacom acquires Wireless Technologies, which owns the retail outlets of The Phone House chain in Belgium.This acquisition enables us to get even closer to our customers and respond even better to the expectations of a constantly changing telecom market.

Acquisition

The Huawei swap, the fastest upgrade performed in Europe, was finished ahead of schedule. Almost 4000 antenna sites were upgraded in 14 months.

Belgacom has concluded a DEAL with Samsung to give everybody the possibility to get online everywhere: Belgacom offers access to the Internet at home and on the move, together with a Samsung Galaxy tablet.

Scarlet adds data to its mobile offers. Scarlet also launches "Me & Surf" with mobile internet, offering 1GB to surf on the Proximus 3G network for EUR 15 per month.

BICS has transported up to 100 million SMSs per month: from Europe over Africa and the Middle East, to such exotic destinations as Fiji and Papua New Guinea.

Content

02Interview with Theo Dilissen Ready to take advantage

of future opportunities

04Interview with Didier Bellens

Tuning Belgacom's fixed and mobile network into an unrivaled customer experience

06Our profile 08Operating context 18Our strenghts

62The Belgacom share

68Corporate governance

84Management report

106Glossary FLAP Key financials

30Our customers

46Our people

52Responsible business - CSR

Ready to take advantage of future opportunities

After a tough economic year, Belgacom is in good shape and fit for the future. We have the strengths we need to get through a new year.

Interview with Theo Dilissen Chairman of the Board of Directors

How did Belgacom come out of a tough economic year?

In a year dominated by the economic crisis, Belgacom had a quite satisfactory 2011. As ever, our principal focus was on our customers. We have taken further strides in making things simple and accessible for our customers, and the stronger retail presence from our acquisition reinforces our in-market consolidation: maximising our leading position, and making it easier for everyone - customers and potential customers – to obtain precisely what they need.

Of course, we need to go further in being close to our customers, also at the most basic level such as reducing response times in call centres. Even minor innovations – like giving a check call just before a technician arrives for a home appointment – are of interest to the customer. One of the highlights was that we came even closer to them through our successful bid to acquire the Phone House chain of retail outlets in Belgium. This move was yet another demonstration of how we are putting into effect our strategy of customer focus that we introduced two years ago. We have invested in techniques that sensitively measure our progress towards the targets we have set, and at board level we ensure that progress is maintained.

We face erosion of our traditional market in the order of 2-3% every year, and our response takes the form of ever more effective use of resources, and ever more attractive innovations in our expanding offer of services and products.

We closely followed up our cost base and maintained social peace. We invest in a good working relation with our unions. We also respect and appreciate the responsible social role they have been playing.

Are you still confident that our strategy is the right one?

I am. We took some daring decisions that have proved right.

For example, we engaged in a fruitful partnership with Samsung and we chose to create a real return for shareholders. As the year has demonstrated, the partnership with Samsung has delivered spectacular results for Belgacom. The same conviction underlies our approach to pricing: despite exceptional offers from competitors, our average price levels are in line with other market offers, and our packs and bundles and high-quality services retain customer loyalty while ensuring financial equilibrium for the group.

Similarly, despite the tough times, we courageously kept up our investments to the tune of EUR 777 million. Our consistent investment in fibre and the latest transmission technology has allowed us to launch innovations like IPtv, and to materialise convergence. We are right on track and right on time, bringing fibre closer to the home. Yet again, we have been ranked among the world's leading fiber optic. We are committed to keep delivering investment at the necessary level to keep up our momentum, as we know that taking shortcuts in investment would imperil our ability to take advantage of future opportunities – as some of our competitors have been discovering for themselves.

Do customers really care about the networks?

The quality of our networks may not be a concern in itself to our customers, but they certainly see the results of it in the quality and reliability of the products and services it delivers to them – whether they are part of the 1.2 million Belgacom TV subscribers, or the customers switching seamlessly from Wi-Fi to 3G on their mobile devices, while continuing to upload their files from Internet. Our reputation among business partners and investors is continually boosted by the cachet of respectability and credibility conferred by our world ranking.

How were you affected by the changing regulatory context?

We continued to face regulatory pressure, which absorbs a significant portion of our profit and cash flow year after year. The abolition of the asymmetry of mobile termination rates (see p. 14) was a positive development that we had been arguing for years, yet

We have chosen a policy of judicious investment and smart cost-control, linked with selective partnerships.

the level playing field that we seek with cable operators is still a long way off. Regulatory authorities are still not completely synchronised with the market realities. We will go on insisting that the same conditions be applied to all players.

What about the broader competitive context?

Although we naturally focus on the market in Belgium, where most of our business is, we remain alert to opportunities or challenges abroad. With BICS, we have an international perspective, and much of our Telindus business comes from beyond Belgium. There is little evidence at present of the long predicted move towards international consolidation among operators, and indeed some of the most renowned predators are experiencing limits to their scope for action. We, by contrast, have chosen a policy of judicious investment and smart cost-control, linked with selective partnerships. We are aware, of course, of the big moves being made by some players, particularly in Asia, and these we closely watch. So, for instance, we are monitoring the intentions of a Chinese operator which has now acquired a 4G licence for Belgium.

As Chairman, are you satisfied with the year?

Our performance on the BEL-20 proves we are doing things properly. In a year when the market index fell by 20%, Belgacom's shares closed the year with just a minor slippage of 3% and we were able to produce a stable dividend of EUR 2.18. Last year also saw the introduction of a number of new legal requirements on corporate governance – enhancing the rights of shareholders, bringing additional independence to remuneration mechanisms, promoting greater gender balance on boards, and greater transparency in company management and supervision. Our adherence to such requirements adds to our credibility in the outside world, and allows us to improve our performance internally.

The buy-out of The Phone House chain will enable us to get closer to our customers but also to strengthen our presence on the retail market.

Interview with Didier Bellens, President & Chief Executive Officer

The trend to one supplier for all services is reinforced. Fixed broadband increasingly becomes a standard in most homes. Strategic partnerships are broadening Belgacom's performance. Didier Bellens has every reason to take an ambitious view on the future.

Tuning Belgacom's fixed and mobile network into an unrivaled customer experience

What was the dominant theme of 2011?

Last year was a difficult year, yet Belgacom performed relatively well. Our number of customers, in both the residential and corporate market, rose considerably. It means we anticipated their expectations correctly and timely. The driver of this development has been the ever increasing data traffic, the success of digital TV and of packs. Here lies the exact strength of Belgacom: as a single provider we used our world-leading fixed and mobile network to create a customer experience that enables the integrated use of platforms, content and devices. It is what we call our strategy of convergence. From the point of view of the customer, this strategy means he can enjoy our services anytime, anywhere, on any device he finds appropriate in order to access his content and his applications.

Just how does Belgacom make this integration of services happen?

As fixed broadband becomes increasingly a standard in most homes, along with the related services, multiple screens, etc, the trend to one supplier for all services is reinforced. The digital home is becoming a reality.

We are therefore offering new possibilities that are reinforced by strategic partnerships. Residential customers outside their homes can benefit from mobile internet through 3G, and from a wider Wi-Fi coverage, thanks to our collaboration with Fon, the world's first global, crowd sourced Wi-Fi network. Our partnership with Samsung helped to achieve excellent sales. In 2011 Samsung tablets sales have been exceptional in Belgium, largely thanks to the successful pack offers which make this partnership an exemplary win win. There is Deezer offering a huge base of music our customers can pick from the cloud. Not any storage capacity is needed, the choice of music can be personalised and the music is accessible any which time one wants. We are on track with the Y-generation trend that cherishes the ability to share emotions at their convenience. Those emotions can take the form of music, the proximity of friends, the exchange of experiences, feeling, ideas, hopes, Movie Me grants access to a catalogue of around 500 feature films. You can watch them anytime, anywhere, on any screen you wish. The same goes for TV-programmes on TV Everywhere.

The next step in digital connectivity - to alarms, energy meters, domotics, the digital home, etc. -, which takes convergence several steps further, is now on the brink of readiness.

Is it mainly a question of new offers to customers?

It is not. All through our strategy, our focus is on the customer. So for instance, we have radically improved our customer service establishing longer opening hours, shorter response times, simpler and more customer-friendly communication. All this resulted in a noticeably greater customer satisfaction.

We also look at benefits in terms of customer experience. To Belgacom, it is all about functionality, easy use and how it makes people's lives more creative, enriching, invigorating, inspiring, in how our convergent offers answers their aspirations. Better products, great connectivity and more ubiquitous service are tools to achieve this more meta goal. Our regular investment of about 12% of revenues has enabled us to concretize the ambition of a full service 'anywhere, anytime, any device'.

What about Belgacom's responsibilities to the world it operates in?

We aim to grow our business in a responsible and sustainable way, as we believe it has to benefit both the society and our long-term development. It goes beyond managing our own social impact and environmental footprint. We focus on enabling a more inclusive, safer and greener (e)- society. We have successfully embedded green and people-oriented policies into our business, from reducing our own CO2 emissions by 62% since 2007, to initiatives helping more people get online and enjoy the benefits of the digital society, or enabling our employees to train children on a safe use of the Internet and mobile devices. Through our community investment initiatives, we stimulate social links between people and communities for more social cohesion.

Our efforts to become a more responsible company were recognized and Belgacom's social responsibility rating improved in 2011 as we were selected in the Ethibel Sustainability Index Europe. We will pursue our efforts in 2012, in line with our ambition to become a leading responsible business. And by 'we', I mean: the company and our staff, taking into account the expectations of our stakeholders.

How is Belgacom coping with the crisis?

In 2011 we had to make some strategic choices, for which we maintained our discipline and opted not to take the easy road but to hold on to our end goal, value creation. As such we were vigilant not to overpay for Belgian football broadcasting rights. This now proves to have been the right choice since football-related churn is back to previous levels, when we had all the rights.

Yes, we look also to areas where we can also further increase our efficiency by improving our way of working and our speed of implementation.

We even have the possibility of emerging stronger from the turmoil, and it is important that our own staff, customers and shareholders are aware of this. Our TV offer continues its strong growth, we further progress in mobile data and there has been a very successful take up of our packs. We invested in a higher speed and reach of VDSL and mobile networks. By the end of 2011 we reached over 81% Fiber-to-The-Curb (VDSL) service coverage and 97% 3G population coverage. This is clearly a leading world-wide position.

How do you see the future?

Given our continued investments and convergence strategy we are well prepared. Our customers can expect to see Belgacom moving further ahead and developing new businesses. The way ahead will remain, as always, a blend of vision and pragmatism - all the more important in a year that will be unpredictable. We are not planning to throw vast sums into promotion and marketing, but will assess the competitive situation as it evolves, and react accordingly. We will maintain capital expenditure, but we will adjust it in light of the behaviour of major customers, who are also under the pressure to make savings. We prefer tie-ups with partners in sourcing and adjacent new service offerings which support our strategy.

20% of our residential customers buying a pack in 2011, included mobile in it

How Belgacom gives back to society

• 15,788 employees and 6,000 suppliers (17,000 people) working for us
• 900 people hired
• more than EUR 900 million in the form of dividends, taxes, social security etc.
• EUR 3 million social donations to support the communities in which we operate

The Belgacom Group in a snapshot

business

The Belgacom Group is Belgium's main single provider of integrated telecom services

Belgacom offers quadruple-play services combining fixed-line and mobile, internet and television.

Belgacom ICT-services also offer a comprehensive portfolio of solutions around

networks, data centers, security aspects, unified communications services, telephony mobile applications.

strategy

Belgacom wishes to offer

the best of telecom, media and IT convergence through an unrivalled customer experience

mission

Belgacom wants to be the

preferred provider

of intuitive end-to-end solutions combining fixed and mobile telecom, IT and media, enabling its customers to master and enrich their professional and private lives in a sustainable way.

identity

Belgacom maintains a consistent identity every day, in everything it does.

Innovative

Belgacom strengthens its leadership in innovation, so that it can capture growth from new fields, bringing additional value to our customers.

Responsible

Belgacom wants to grow sustainably and focus on enabling a more inclusive, safer and greener digital society.

Customer centric

In every act and every decision, Belgacom puts customers' interests first and offers them simple, efficient and accessible solutions.

organization

Our organization reflects the company's focus on our customers and our convergence strategy.

OPERATING CONTEXT /// page 8

8:45 a.m., OOSTENDE Leo and Lenart

My son Lenart spends most weekends with me at the Belgian coast. I have an apartment in Ostend. Lenart has no friends here so far, so I bought him a smart phone. He is maybe a little young for that device, I know, but under the circumstances I think it's okay. At least he is connected with his friends all the time. Lenart is now what people call a digital native. He conjures with all them apps, helps me out when I get stuck, it's amazing. Luckily he still fancies a brisk walk in the dunes…

A permanent revolution in an increasingly connected world

Tablets penetration

4% in residential market 15% in professional market Source: Belgacom research

Smartphones penetration

20% in residential market 34% in professional market Source: Belgacom research

About 10 billion mobile phones -

or the equivalent of the world's population – will have access to the Internet by 2016. Source: Cisco study

Belgacom is operating in a fast-changing and complex environment: we are driven forward continually by shifts in consumer behavior, the evolution of technology, and our competitors. But we are constantly reinventing ourselves to stay ahead of changes. We possess all the assets to give us confidence in facing every challenge.

Demanding and "always-on" consumers

Consumers are increasingly demanding. As they search out the best price/quality ratio and the best answer to their specific needs, they expect more transparency and are prepared to make comparisons. They are ready to pay – but only for what they really choose and use. Beyond price and quality, a growing proportion of customers take account of environmental impact and social responsibility when they select their supplier. In the "always on" world that technology now allows, consumers want to be able to stay in touch with their friends and family. They also want to access their entertainment, their content or their valued applications in real time, anywhere, any time and on any device they choose. Frontiers between private and professional life are blurring and employees expect to access their work environment remotely and seamlessly.

Because everything is accelerating around them, consumers can feel under pressure in their daily lives. They long for more free time and less complexity. They expect their suppliers to make their lives easier with simple products and services, tailored advice and recommendations.

The 'always-on' world applies to the work environment too. The same needs, the same services, and the same pressures, are changing professional life. Consequently, Belgacom is responding with offers in the professional market that provide greater mobility, easy switching between devices and platforms, and packaged solutions that give customers the benefits without any of the worries about configuration and computability.

A direct impact on the telecommunications sector

Matching technologies and services

Today we see ever faster penetration of tablets, smartphones, and laptops that can be used on different types of network. These devices allow access and sharing for all types of multimedia content and applications that become more widely available at any time and on any network. Convergence is materializing, driven by smart devices and content. The wrap-around range of networks (fixed, mobile 3G or soon 4G, wi-fi) make these seamless links possible on channels that were previously separate. Additionally, devices originally designed for private use become powerful enough to run business software. More and more employees want their hardware to function in both their professional and private usage leading to a blurring frontier between those two worlds.

New growth areas

While the revenues from traditional telecom business - such as voice traffic - are decreasing, there is growth in the increasing use of entertainment and professional tools via the Internet, and in the accelerating availability of smartphones and tablets at affordable prices. To match the new opportunities, content is undergoing a change too. There is a move away from purchasing and installing content locally (film on DVD, music on a dedicated player, and downloaded applications). There is a corresponding move towards a concept of rental and on-line use (film or video-on-demand, streaming music, applications in the cloud). We are experiencing a boom in cloud computing and cloud entertainment. These intuitive and friendly-to-use services are accompanied by easy access on a pay-for-what-you-use basis, while the underlying technology is managed by the partner. Boost-

OPERATING CONTEXT/// page 12

ing these growth areas demands education for clients, a clear perception of the advantages, and a new degree of trust in technology.

Multi-play environment

Customers are moving away from individual suppliers for individual services (phone, internet, television), and are tending instead to choose a single provider for all telecom, TV and ICT. This is not only for reasons of administrative convenience; it is also because the multiscreen availability of the same content requires a strong complementarity in the devices and networks that provide connectivity. Guaranteeing a continuous stream of information and communications will be more important. Investments in the networks are key for that, since broadband and digital TV will soon penetrate almost every home.

New customer-approach

To be relevant to their customers, suppliers need to segment and personalise their offer more than ever. The "average consumer" no longer exists, and individuals in the same family require individualized treatment. Personalization and recommendation become then very important. Content and applications are consequently driven to expand from the mainstream to embrace niche content & apps as well as mainstream. Tools to support households and individuals in taking advantage of these opportunities therefore acquire new importance, such as the smart recommendation engine for selecting movies.

The competitive environment1

The competitive landscape in which Belgacom operates is characterised by the presence of strong regional cable operators, mainly focussed on offering TV and fixed line products. Belgium counts about 11 million inhabitants, and about 4.7 million households. The Belgian business market exists of over 900,000 companies, including independents, small -and medium enterprises up to large multi-nationals. The professional market evolves quickly and competition is very diversified and fragmented. Belgacom faces not only competition from local Fixed and Mobile players, but also from system integrators, IT providers and international telecom operators.

Three nation-wide mobile network players are active on the Belgian market, with the Belgacom mobile brand Proximus competing with BASE and Mobistar, subsidiaries from respectively KPN and France Telecom. In addition, many virtual mobile operators compete on the

1. Source of markets shares and penetration rates: ISPA, BIPT, ECTA, com- petitor press releases and internal data or estimates

mobile market. Belgacom, as the sole nation-wide Fixed -and Mobile network player, deployed a convergence strategy early on and offered multi-play packs since 2007, a strategy we saw followed recently by our competitors.

On fixed voice and internet market

Belgium saw the volume market penetration of Fixed, Mobile and TV services at least stable or increasing versus the prior year. Fixed Voice market penetration remained stable at 73% for the Consumer market, with Mobile-only's at 27%. Like other European incumbents, we saw our market share in Fixed Voice further declining in 2011 to the benefit of cable, a trend we aim to slow through the revival of our Fixed Voice connection via attractive offerings. The Fixed Internet penetration rate increased to 68% of Belgian consumers, while for the Enterprise market this is 86%. In this increasingly competitive market, Belgacom's total market share by end 2011 was 44.6% or 1.6pp lower than one year ago.

On mobile market

Under our mobile brands e.g. Proximus, Scarlet and Mobisud we also operated in a highly penetrated mobile market. By end 2011, our total Mobile market share ended just above 40%, 0.9pp down to last year, though declining at lower pace versus 2010. This while we kept a strong position in the overall Postpaid market, in spite of a market-move to contract customers and subsidised offers by the cable competitor. Especially in the Business segment, we remain the preferred supplier for Mobile services.

On the digital TV market

The move from analogue to digital continued, with end 2011 69% of Belgian TV viewers being digital. Belgacom is a challenger on the TV market, and has acquired a strong position since its Belgacom TV launch in 2005, this in spite of strong competition. In 2011 too, we continued to take share from our cable competitors, ending 2011 with an overall TV market share of 22%, and 32% of the digital TV market.

On mobile data market

Mobile data is another area in which we performed very well, as customers enjoy with Proximus the best 3Gnetwork in Belgium, in combination with Belgacom's high-quality WiFi network. End 2011 226,000 mobile cards were connected via laptop of tablet, leaving our competitors behind.

Our competitive position

New competitors

In competition with rivals from beyond - the "Over-The-Top" competitors, largely international players that use our networks to provide a service to our customers - we have resisted the threat on voice and SMS by pro-active offers (such as for unlimited SMS or calls); OTT players pose a serious challenge, especially for entertainment services. At the same time, entering their playground is an opportunity for us to reach new customers.

A 4th player acquired the 4G license and might arrive in the mobile market soon. Its intentions are still unknown, but we remain alert to this.

The regulatory factors

Efficient and balanced regulation in the telecom sector is in the long term interest of Belgian consumers and companies. As the leading telecommunications operator in Belgium, Belgacom continues to experience intense regulation, but 2011 confirms the move initiated last year towards a level playing field. This context and its evolution is fully explained in detail on next pages.

50% of the Belgian households have a telecom pack (fixed products only or with mobile included)

15% of tablet owners use their tablet on the move via the 3G network) Source: Belgacom research

52% of youth aged 18 to 25 years have a laptop Source: Belgacom research

The rights assets to anticipate market expectations

In this context, we are confident that we will be able to face the upcoming challenges.We have the right strategy, and we have the right assets to carry it out. We know the marketplace is full of challenges, but we also know it is full of opportunities. We will not only meet the expectations of the market; we will anticipate them.

OPERATING CONTEXT/// page 14

Regulation

A fair regulation between the different actors in the telecom sector is essential to maintain, in the long term, a sound competition to the benefit of Belgian consumers and industry. To evolve towards a level playing field, Belgacom has concentrated its efforts in three key domains: (i) equal regulation of Belgacom and the cable operators (ii) the abolition of asymmetrical mobile termination rates (MTR) and (iii) a more balanced regulation concerning universal service.

Open networks

So far, only the Belgacom network has been regulated, whereas cable operators have been exempt from any obligation to share their network with other actors. On 1 July 2011, the Belgian media regulators (BIPT, CSA, Medienrat and VRM) decided to regulate the dominant cable operators in their respective coverage areas and to require them to resell analogue TV, to open up their digital TV platform, and to resell broadband. Belgacom can only obtain access to analog TV. The wholesale prices of the cable operators will have to be approved by the regulators and the effective implementation of the obligations should occur in the second half of 2012.

Belgacom considers this a step forward towards a level playing field with cable but there is still an important imbalance in the proposed regulatory controls. Symmetric regulation of all infrastructures is the best approach for Belgian consumers and businesses and will ensure fair competition between all operators.

Mobile termination rates (MTR)

The mobile termination rates (MTR) are the fees that fixed and mobile operators must pay to other mobile operators to terminate a call on their network. Belgium was suffering since many years from an asymmetrical regulatory regime and Belgacom had to pay, to Mobistar and Base, much higher termination rates than what it received itself. But on 29 June 2010, the BIPT finally decided to reduce gradually the tariff asymmetry and to abolish it completely by 1 January 2013.

Those tariff reductions have allowed to bring Belgium back in line with the European Commission recommendation and the European practices in other Member States. On 14 July 2010, Mobistar and KPN Group Belgium each filed an appeal before the Brussels Appeal Court against the BIPT decision of 29 June 2010, both asking the Court to suspend and annul the decision (especially regarding their own MTR tariffs). On 15 February 2011, the Court took its decision in

* Rates with inflation

the suspension procedure, rejecting all the claims of Mobistar and KPN Group. The annulment procedure is still ongoing.

The decrease in MTR is totally reflected by Belgacom in its fixed-to-mobile retail tariffs. Accordingly, Belgacom lowered its fixed-to-mobile tariffs on 1 August 2010, 1 January 2011 and 1 January 2012.

Final decision on MTR

eurocents	Before*	01-Aug-10*	01-Jan-11*	01-Jan-12*	01-Jan-13
Proximus	7.20	4.62	3.94	2.62	1.08
Mobistar	9.02	5.05	4.29	2.79	1.08
Base	11.43	5.81	4.90	3.11	1.08
% change
Proximus		-36%	-15%	-34%	-55%
Mobistar		-44%	-15%	-35%	-58%
Base		-49%	-16%	-36%	-62%
Asymmetry
Mobistar-Prox	25%	9%	9%	7%	0%
Base-Prox	59%	26%	24%	19%	0%

* Rates with inflation

Lower Roaming rates

The EU authorities introduced caps on voice roaming prices in 2007. In July 2009, they adopted revised rules (Roaming II Regulation) that cut roaming charges further so that by July 2011 the maximum roaming charge would be 35 eurocents per minute for outgoing calls and 11 eurocents for incoming calls. A retail cap of 11 eurocents (excl. VAT) combined with a wholesale cap of 4 eurocents has also been imposed for SMS roaming as from 1 July 2009 for outgoing SMS. Data roaming services are regulated at wholesale level based on a price cap, calculated on a kilobyte basis. On 1 July 2011, the data roaming prices went down from 80 eurocents to 50 eurocents per Mb.

In addition, measures aimed at preventing "bill shocks" for Mobile data roaming were also implemented. As of 1 July 2010, all customers are by default on a maximum financial limit of EUR 49.85 (excl. VAT) per month for Data roaming, unless they opted-out.

The Roaming II regulation expires on 30 June 2012 and in July 2011, the European Commission whose ultimate objective is that the difference between roaming and national tariffs should approach zero by 2015 has proposed "structural solutions" to make the roaming market more competitive. European mobile operators would be required to unbundle the sale of roaming services from domestic mobile services (carrier preselection for roaming services) from July 2014 and to propose wholesale roaming access from July 2012. The Roaming III would also extend the current retail and wholesale price cap regime with downward glide paths for a transitory period to give the new structural changes to the roaming market time to be developed and implemented. The extended price cap regime would also include new price caps on retail charges for data roaming. The Regulation would cover a tenyear period from 1 July 2012 to 30 June 2022.

Wholesale services

In 2010, the BIPT defined a cost-oriented monthly rental fee of EUR 7.78 for a full unbundled copper line. On 18 November 2011 the BIPT published a repair decision setting the monthly rental price at EUR 8.03 with retroactive effect on 15 August 2010 based on a ruling of the Brussels Appeal Court. Since the BRUO tariffs are a building block for the BROBA tariffs, these tariffs were adapted accordingly. Belgian fixed access prices are currently at lower end of EU benchmark.

The market analysis decision of BIPT on wholesale broadband of 1 July 2011 obliges Belgacom to provide a "multicast" functionality in the bitstream offer (to be used for broadcast). On 19 September, Belgacom submitted to the BIPT an alternative multicast solution based on shared channels (wholesale customers can use the multicast channels that are already on the Belgacom network if they acquire the corresponding

SMS Roaming (EUR ct per sms)

1 July'09 1 July'10 1 July'11

OPERATING CONTEXT/// page 16

content rights). On 4 January 2012, the BIPT has approved this solution and Belgacom has to submit a detailed reference offer.

The same market analysis imposes also an obligation of "Operational Excellence" to Belgacom and announces that BIPT will assess the status of wholesale operations at the end of 2012.

Financial collecting model for Premium Rate Services

Since 1 April 2010, Belgacom adopted, where appropriate, a financial collecting model for part of its Premium Rate Services in which Belgacom collects from customers on behalf of a third-party content provider. This is a consequence of the circulars issued end 2009 by the Ministry of Finance concerning the application of VAT on Premium Rate Services and Tax on Chance Games. As a result, these revenues can no longer be considered as Belgacom revenues. This affects the reported revenues but not EBITDA.

Mobile licenses

2G licence

On 18 August 2010, Belgacom filed an annulment procedure before the Constitutional Court against the Law of 25 March 2010 requiring the mobile operators to pay for the tacit extension of their 2G licenses. This law aimed to counter the ruling of the Appeal Court of 20 July 2009 that considered that the license was extended automatically until 2015 for free. The Constitutional Court, in an intermediary judgment, decided on 16 June 2011 to introduce 4 prejudicial questions to the European Court of Justice in order to ascertain whether the Belgian law complies with the interpretation of the Authorization and Framework directives. Beside this annulment procedure, Belgacom initiated on 7 October 2010 an action against the Belgian State and the BIPT before the Civil Court to ensure the possibility to recover the undue license fees. In the meantime, Belgacom will comply with the payment obligations with all due reserves. The amount of EUR 74 million for Belgacom for the first period of extension of its license (until 2015) corresponds to the original 2G license fees proportionate to the spectrum quantity and duration. Belgacom has opted for annual payments. The first one, for the amount of about EUR 12 million, was made in April 2010, the second one of about EUR 16.7million was made in December 2010 for the year 2011 and the third one of about EUR 16.3 million was made in December 2011 for the year 2012. An additional payment for further extension for the second period (2015- 2021) will also be due except if the Constitutional Court decides otherwise.

3G licence

On 2 August 2011, the BIPT awarded the fourth 3G (2.1 GHz) license to Tecteo Telenet Bidco (TTB) for a total amount of 71.5 million EUR and for the same quantity of spectrum as the existing operators (2x15 MHz). The license will expire at the same date for all operators (existing and new operators) i.e. on 15 March 2021. TTB will be allowed to exercise a call option for 2G spectrum in both the 900MHz (2x4.8Mhz) and 1800MHz (2x10Mhz) bands, with frequencies expected to become available on 27 November 2015. In this case, they will have to pay an additional license fee of EUR 31.5 million. A reshuffling of this spectrum is foreseen and existing operators will have to surrender a part of their spectrum with a guarantee to keep 2x10 MHz in the 900 MHz band and 2x20 MHz in the 1800 MHz band. The 900 MHz and 1800 MHz licenses have been extended until 15 March 2021 in order to be aligned with the 2.1 GHz end date.

LTE licence

On 16 November 2011, the BIPT adopted two decisions. The first one allows the four mobile operators to deploy UMTS/ LTE in the 900 MHz, 1800 MHz and 2.1 GHz bands. The second one reviews the current allocation of the 1800 MHz spectrum so as to allow Belgacom and Mobistar to have a continuous block of 2x20 MHz (now 2x15 MHz) as from 1 July 2012 at the latest. This will allow us to optimize the use of the LTE technology in this band.

The 2.6 GHz spectrum auction held on 28 November 2011 by the BIPT was concluded after 4 rounds with total bids reaching EUR 77.79 mio. Belgacom acquired 2x20 MHz contiguous in the lowest part of the 2.6 GHz frequencies for an amount of EUR 20.22 million. The other licensees are Mobistar (2x20 MHz for EUR 20.02 million), KPN Belgium (2x15 MHz for EUR 15.04 million), BUCD bvba (45 MHz for EUR 22.51 million). Belgacom, Mobistar and KPN Group Belgium opted for the FDD technology and BUCD for the TDD technology. One block of 2x15 MHz remained unsold. The licenses are valid for 15 years, effective as of 1 July 2012. Payment will also

Since 1998, Belgacom has been subject to a broad universal service obligation (USO) which is the most extensive regime in Europe.

occur in July 2012. Belgacom has decided to pay the fee in one-shot. No coverage obligations are imposed but there is an obligation to inform the customers on the effective coverage. This band is technology neutral and tradable.

Consumer protection

The draft law transposing the revised EU telecom framework strengthens the current consumer protection rules and introduces new measures related to contract regulation imposing (i) contract duration of 24 months maximum for consumers and obligation to propose a 12 month contract to all customers, (ii) possibility of early termination of fixed term contracts after 6 months (without any penalty except potential reimbursement of residual value of a free device) for consumers and small enterprises and (iii) specific conditions applicable to the replacement of an existing contract by a new fixed term contract (in particular after distant selling). The final adoption of the law is expected in the course of 2012.

Universal Service

Since 1998, Belgacom has been subject to a broad universal service obligation (USO) which is the most extensive regime in Europe. Belgacom has never been compensated for providing these services.

On 6 October 2010, the EU Court of Justice considered that the way the Belgian Law appreciates the unfair burden of the universal service is not in full accordance with the European law. Based on this, the Belgian Constitutional Court annulled the articles in the Belgian law regarding the funding of the social tariffs on 27 January 2011. The current system will be reviewed at the light of these decisions in the context of the new telecom law that will transpose the revised EU directives in the course of 2012.

The draft law foresees that Belgacom designation as "default" provider will end 13 months after publication of the law. The new regime will also move from a priori designation of a provider to a designation if needed after a monitoring of the market for payphones, directory enquiry services and paper directories. The scope of universal service will also be extended to broadband internet.

Regulation impacting financial results of Belgacom

The regulated price cuts in Mobile Termination Rates, Roaming Rates, LLU and Bitstream prices, and the move to a Financial collecting model for Premium Rate Services, had a direct impact on the revenue and EBITDA of Belgacom Group. Over the year 2011 these regulatory measures reduced the Belgacom Group revenue by EUR 112 million, while the EBITDA was reduced by EUR 29 million. This compares to a revenue impact of EUR 121 million and an EBITDA decrease of EUR 26 million in 2010.

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5:25 p.m., CHAUDFONTAINE JULIE

Home alone. A moment of reflection. It's so cozy snuggling up with my big cat Jules. I went to business school and work as a manager. But the one thing I am really passionate about is interior decoration. I finally enrolled in a course, combining it with my full-time job. It was tough, but I did it. I have my own company website now. And it's going well. I love to work at home. I sometimes invite people to evening sales events, and on my website I keep track of the orders I receive. I have travelled to Paris and Milan to find out about new trends. And of course, one day, I want to complement my webshop with a real decoration shop…

Developing a strategy of convergence

anywhere, anytime, on any device

219,000 new Packs sold in 2011

A rich portfolio of contents, applications, partners & devices for innovative and differentiating offers

Movie Me First move to win audiences from unmanaged networks

Improved brand preference and customer loyalty

Belgacom goes on investing in its world-leading fixed and mobile networks. To that, it adds valuable partnerships, such as those with Samsung, Fon and Deezer. Our customers now also use our networks – Fiber, copper, Wi-Fi, 3G – for internet browsing and for digital television. This is how Belgacom creates an unrivalled, rich customer experience that enables the integrated use of platforms, high quality contents, applications and devices. It is what we call our strategy of convergence.

From the point of view of the customer, our strategy of convergence means he can enjoy our services anytime, anywhere, on any device he finds appropriate in order to access his contents and applications. Furthermore, we strategically use value management to maximize customer profitability, we reduce the 'time to market', and improve our customer friendliness. Belgacom continuously reinvents itself and changes its way of working, in order to match its services with the evolving aspirations of the market.

Convergence: it's all about the customer experience

The boundaries are blurring between telecom and IT, fixed and mobile, communications and entertainment, households and individual customers, bilateral links and online community links, and to some extent, business and leisure. People increasingly use the same devices across applications and contents, for work and at home. What used to be merely connectivity is now connectivity and content. What used to be proprietary telecom services are now applications.

Alongside this evolution, customer aspirations are a continuous source of inspiration for Belgacom. Customers expect maximum mobility, and their private and professional lives are merging into a single stream of interactions which they wish to experience in an increasingly personalized way. There is no more one-size-fitsall, and there is no average customer. Belgacom finds distinct ways of evolving for distinct customers, even within the same household. Combining individual and household needs into a single experience to enable an integrated business experience is another facet of fixed-mobile convergence. Belgacom's strategy is not about technology as such, nor is it about devices or

"For customers, true convergence is materialized through the access to their preferred contents and applications on multiple screens, wherever they are."

Bruno Chauvat – Executive Vice President Strategy & Content

OUR STRENGTHS/// page 22

We have something no one else has

Revolution in smart devices requires integrated networks like Belgacom's.

By combining the best Mobile, Wi-Fi, and Fixed networks together, we offer every member of the household or enterprise unique benefits and experiences: we bring access anywhere and anytime for all communications needs, at predictable and controllable pricing.

mere connectivity; it is about anticipating, inspiring and facilitating ways of experiencing and enriching life in an increasingly complex world.

Belgian households and enterprises choose more and more one single provider for their telecom, entertainment and/or IT services needs. It is easier not only from an administrative point of view, but also because of the convergence of platforms and contents. New crossscreen services are possible. Belgacom makes this seamless, tailor-made experience a reality for customers wherever they are and whenever they want, whether they are conducting business or communicating with their friends, easily switching from one screen to another, one network to another. Due to the ease of this integration, the digital divide is quickly disappearing. By combining the full mobility of 3G mobile Internet with the ease of nomadic Fon, the world's first global crowd-sourced

Wi-Fi network, Belgacom customers get a concrete/ tangible experience of what "everywhere" really means. After the "commercial" convergence (packs), Belgacom now offers a suite of services fully linked across platforms, contents and apps. It's a new experience.

And Belgacom is the best placed to offer it. It has a world-leading fixed and mobile network and new valuable partnerships, such as those with Samsung, Fon and Deezer, which enhance the Belgacom experience. Belgacom therefore has every reason to be ambitious. In the residential market, it aims to expand its market share of digital homes (i.e. households connected with digital TV and/or Internet) while in the professional market, Belgacom aims to maintain a leading position by expanding its portfolio of end-to-end solutions.

Value management

Some customers want an enriched experience and premium services, and are prepared to pay for it. Others want less because they know exactly which cherry to pick. Belgacom offers both customers exactly what they want through differentiated marketing propositions. To do so, Belgacom needs to maximize the profitability of all actions (perfect equation between revenues and costs).

Belgacom also makes sure it extracts value out of its investments and management decisions and resisted subsidizing smartphones, since it considered the financial commitment disproportionate. Overall, Belgacom avoided subsidizing handsets, which has proved to be quite expensive for operators, and consistently built up a rich, high-quality entertainment offer. The spending on football coverage has been reduced because the renewal of the exclusivity contract, which served its purpose well by increasing the impact of the Belgacom TV launch, would not have brought adequate returns. Belgacom is now focusing on the best combination of international, national and local football coverage.

Reinventing ourselves

Belgacom does face threats, however. Its customers use its managed networks –fixed lines for telephony or TV, and Wi-Fi and 3G networks for internet browsing. Yet, on the web, customers encounter many other communication experiences that are not dependent on Belgacom's managed networks or its traditional business models.

Belgacom's first move in the so-called Over-the-Top approach was the launch of Movie Me, providing customers and non-customers with access to part of the Belgacom TV catalogue through the first Belgacom TV application on Samsung Connected TVs. Non Belgacom customers can then have a first taste of the Belgacom TV experience on the competition's internet network.

Furthermore, the aforementioned deal with Fon brought Belgacom into the world of Internet communities, offering wide Wi-Fi access to customers on a reciprocal basis and, at the same time, giving new value to the fixed infrastructure. Belgacom has also shifted its approach to win audiences from unmanaged networks, turning threats into opportunities, and changing its way of working.

Belgacom did this with Fon, but also with programs such as Simple and Friendly, resulting in improved brand preference and customer loyalty, and a shift in the mindset of its employees and their treatment of customers. Furthermore, Belgacom is reinventing itself through a solutioncentric approach for the enterprise market and by enriching its offer of contents and applications on all screens.

The customer is looking for personalized experiences through interactive applications. Belgacom aims to offer him access to a wide choice of entertainment options - games, music, films, or classic television.

Our contents offering is in full deployment. In the following pages, we mention some beautiful launches with sport, music, cinema and professional offers.

More entertainment and applications to become the preferred telecom operator

Here is an overview of the offers launched by Belgacom in 2011 in entertainment and business solutions. These offerings are innovative thanks to their availability on multiple screens and networks but also because they combine universal content for households and enterprises with highly specific content for niche needs and tastes: a customizable offer which, when expanded, will make it possible to integrate all contents and applications, for both private and professional use, on the same screen.

A stunning match performance!

Belgacom claimed a new victory with its football coverage in 2011, fielding a completely new offer. And just like in any successful match, the key was teamwork: Belgacom selected complementary types of contents – international football and national, local matches. Belgacom offered the Primeira Liga (Portuguese league), the 5 Jupiler Pro League Saturday night matches, and the Belgian Division 2 with the home matches of four clubs (Antwerp, Waasland-Beveren, Charleroi and Eupen). Belgacom also broadcast the quarter-finals and semi-finals of the Copa del Rey, including the double "Clasico" between Real Madrid and FC Barcelona.

More to come! The best of Belgian basketball has been made available exclusively on Belgacom TV. And from August, the Spanish league, one the best in Europe, will be broadcasted for three consecutive seasons. Watch it anywhere! This sport offer is available on TV and all other screens (mobile, tablet, laptop or smartphone) via the Belgacom's TV Everywhere application.

Music everywhere!

Thanks to Belgacom's exclusive partnership with the Deezer music service, Belgacom customers have unlimited access to a music catalog of more than 13 million tracks, which they can listen to wherever they are, on a PC/Mac, smartphone or tablet.

Music you choose! The Deezer music service allows customers to search by track, album and artist. Via editorial recommendations and radio stations, they discover new national and international artists. Customers can make their own playlists and select their favorite albums. They can also share music with friends via social media such as Facebook. Moreover, customers can access Belgacom's exclusive music content (music videos, concert broadcasts, contests to win tickets to music events, etc.).

With Movie Me, customers can create their own movie profile and receive personal recommendations of movies from Belgacom TV catalog. Movie Me also offers a very intuitive experience with its image-based navigation and its search tool to browse the catalog. From their PC/Mac, customers can select the films they like and find them easily on their TV (in a new category called "my favorites") thanks to the converged bookmark functionality. Movie Me is available on PC/Mac (via www.movieme.be) and on smartphone (by downloading the application from Android Market or App Store).

Wider availability! A daring new venture was launched in October with "Movie Me for Smart TV", the first TV application of Belgacom which provides an immediate access to a part of the Belgacom TV catalog to all users of a Samsung Connected TV, whether they are Belgacom customers or not. Users can also create an account on the Movie Me website and benefit from all its recommendations and other features, at home or on the go.

Floating in the Cloud!

For companies, Belgacom offered a complete suite of professional software applications hosted in the cloud (i.e. on remote servers), which the user can access wherever he is located and on whatever device he is using.

The success of the offers Belgacom launched in 2011 confirmed that there is massive potential in this new growth area, and convinced major business customers that Belgacom was no longer just a telecom supplier but also a key partner of fully integrated IT solutions: CRM Mobile gave companies the chance to mobilize their sales teams and increase their efficiency on the go; Microsoft Office 365 gave end users access from the cloud to key business applications anytime, anywhere and on any device; and Mozy PC Backup guaranteed automatic backups of critical files in Belgacom's secure data centers.

Belgacom also introduced a series of applications for specific activity sectors. Publinergie helped local authorities optimize their energy Tools for professionals use, and Corilus made the daily work of health professionals easier.

Music

2011 was only the beginning of a new content and applications era. In 2012, we will continue with new contents and applications that fit in with our strategy. We will then improve our TV offer with more diverse and exclusive contents, while enriching the customer experience on all screens through innovative functionalities.

OUR STRENGTHS/// page 26

Stable and intelligent networks for voice and data

97% 3G coverage

Top Ten in the world for our optical fiber network

-50% network outages in 2011

More than 91% TV coverage

Belgacom has made significant investments in its network over the past years. Our networks are therefore ready to absorb the increasing bandwidth demand for Internet and TV services. Our fixed copper access network offers a promising outlook in terms of throughput and speed. Our optical fiber network (fiber to the curb FTTC) is ranked in the top ten in the world and our high-performance mobile network provides the best 3G coverage in Belgium (97% of the country).

Thanks to our converged networks, we are able to offer services, content and applications on computers and TV sets as well as mobile devices such as smart phones and tablets – a first in Belgium. In 2011, we launched a number of new services such as TV Everywhere and Deezer.

In 2011, we achieved a 50% decrease in network outages as a result of our three-year investment in fiber, copper, servers, software, hardware and manpower.

Fixed network achievements

In 2011, Belgacom continued to invest heavily in its fixed network in order to improve VDSL2 coverage. By further deploying fiber to the street cabinet and installing remote optical platforms for VDSL2, the Broadway project enabled over 81% of the Belgian population to benefit from Internet bandwidths of up to 30 Mbps at end 2011. In the meantime, video compression was further enhanced, allowing VDSL2 customers to receive up to four simultaneous TV streams.

In the framework of the Broadway project, over 17,000 km of fiber have been deployed, which positions Belgacom as the most advanced operator in Belgium in terms of its optical fiber network, and puts us in the top ten worldwide.

Belgacom is also looking at additional tools to further improve the performance of its fixed network. In October 2011, an ambitious jointdevelopment program agreed with Alcatel-Lucent was announced at the Broadband World Forum in Paris. This program enables Belgacom, thanks to vectoring technology, to boost the performance of its national tripleplay network and provide guaranteed speeds of 50 Mbps and beyond, setting a new quality standard for Belgian citizens as of 2014.

Mobile network achievements

Last year, we began to replace the radio technology of Nokia-Siemens Network (NSN) with Huawei technology. We completed this migration in October 2011. We broke all European migration records by upgrading 3,835 antennas in 14 months. Thanks to this migration, we can offer better voice quality, a shorter call setup time, improved transmission speeds for mobile data, flexibility and adaptability to new technologies, improved operational costs, and lower energy consumption.

In addition, we won a 4G license (LTE) in a competitive bid against four competitors. This new technology will give online customers vastly improved speeds and a better experience for mobile data services. As a further demonstration of Belgacom's mobile network leadership, LTE was technically launched in June 2011 and a limited group of Belgacom business customers now benefit from the service.

"Intelligent networks are also networks that work without any incidents: it may be like working in shadows, but it is vitally important."

Geert Standaert – Executive Vice President Service Delivery Engine & Wholesale

OUR STRENGTHS/// page 28

project over 81% of the belgian population can now enjoy High Definition Television and high download speeds.

In 2012, Belgacom will continue to counter the indoor coverage impact due to the law in the Brussels-Capital Region that limits the power emission of GSM antennas to 3 volts per meter. Compliance with this norm is a gradual process that must be completed by 2014.

Move to all IP program

Our long-term business transformation project "Move to all IP" has three main objectives:

• A network transformation in which end-of-life legacy technologies will be gradually replaced by IPbased alternatives.
• An IT transformation that will increase efficiency through further automation and the reduction of manual handling time.

• The customer interaction model will shift towards customer self-management, giving the customer more control during interactions such as sales, installations and repairs. We will invest in product simplification and intuitive e-tools.

In 2011, we continued the roll out of our new sales support tool and enhanced our monitoring and diagnostic services, including modem and set-top box problems.

Other achievements in 2011 were the completion of a full Ethernet backbone and the development of tools and equipment to prepare the migration towards a full IP network. We started the first switching outphasing and have already migrated more than 2,000 lines. This will allow us to empty the first building by end 2012. So far, EUR 154.2 million have been invested in the MaIP project, of which EUR 55 million were invested in 2011.

Customer satisfaction and simplification

In our network and technical support department, we focused on improving customer satisfaction. In 2011, we continued actions to make the customer's life easier.

We became more accessible, by extending the opening hours of our technical call centers. We now offer technical support from 7 a.m. to 10 p.m. on weekdays to residential customers, as well as during the weekend, and our professional customers can reach us 24/7. We simplified the home voice menu (maximum 3 options before speaking to an operator) and introduced a single phone number for all the services. Our technical call centers made strenuous efforts to answer every call within two minutes and to offer the possibility of a call-back. Customers who chose to install their modem themselves were offered personalized technical support by phone. For on-site interventions, we extended our field support services until 8 p.m. and on Saturdays. And to make life easier for our customers, we implemented a simpler and more user-friendly Belgacom TV menu and a single login for the Belgacom and Proximus e-Services.

Over 17,000 km of fiber have been deployed, which positions Belgacom as the most advanced operator in Belgium in terms of its optical fiber network, and puts us in the top ten worldwide.

All our employees were mobilized to bring the customer satisfaction program to life, with technical teams working together with Marketing and Sales to reach common objectives from a customer-centric perspective. An internal charter was developed to engage all our employees, backed up by powerful internal campaigns such as road shows with our external installers, golden rules and coaching, and training programs for all front-line technicians.

Wholesale activities

Belgacom's Service Delivery Engine & Wholesale department provides regulated and commercial telecommunications services to other operators and service providers on the Belgian market. The products and solutions offered to our wholesale customers have evolved in line with the latest technologies on the market. In the regulated environment, delivery times of our wholesale solutions, as well as our customer support, exceeded all formal obligations. We also made significant improvements in the commercial environment. We expanded our solution portfolio for carriers active in the professional market and increased VDSL2 speed and coverage for all active operators. Along with this infrastructure upgrade, we launched different services to support existing and upcoming ICT standards on our Explore solutions: improved Quality of Services for VoIP and critical business applications, reporting tools, and an enhanced Service Level Agreement. These solutions will allow our wholesale customers to provide their B2B customers with the solutions they require. To give carriers more autonomy and a quicker service, we also further developed the e-tools at their disposal.

During operational working groups with the BIPT (the institute that regulates Belgian telecommunication services) and Other Licensed Operators, we demonstrated our capacity for professional collaboration and an open and constructive dialog. All our efforts, combined with the close relationship model we have developed over the years, were clearly appreciated by our wholesale customers, resulting in a 85% customer satisfaction score.

20% energy savings thanks to the upgrade of our mobile network equipment

We optimized our install and repair field support, by extending our services slots until 20h and on Saturday.

Reducing our energy consumption

Reducing our CO2 emissions is also one of our network management priorities. In this context, we managed to increase the energy efficiency of our data centers by 10% compared with 2007, and we will build a green data center next year. In 2011, we finalized the replacement of our mobile network equipment with state-ofthe-art technology delivering up to 20% energy savings. The combination of our numerous energy improvement actions have resulted in EUR 8.3 million savings (cumulative since 2009). Our long-term objective is to improve the energy efficiency of our entire network infrastructure and data centers by 25% before 2020.

An increasingly digital world

With the proliferation of smartphones, tablets, connected TVs, and new content and applications, we are facing growing demands for bandwidth. Traffic and speeds on Internet networks continue to increase with the growth of customized online services and content. In the alwayson and increasingly mobile world that digital technology allows, Belgacom aims to become the exclusive supplier of telecom products, TV and multi-play services, not just for each household or business but also for each individual within that household or business. To achieve this, our key advantage over our competitors is that we have as well a fixed as a mobile network (broadband, 3G, Wi-Fi). Also, we have convergent customer databases (fixed and mobile customers) which will allow us to offer entertainment or useful services tailored to the individual preferences of customers.

We will therefore continue to invest heavily in our networks, and to maintain them in order to offer a top-quality service to our customers. We want them to become the smartest networks for sharing information and emotions everywhere.

OUR CUSTOMERS/// page 30

1:30 p.m., BRUSSELS Tania

I work in a bank. I find it a quite challenging job. Of course, the image of banks and bankers has been damaged. Although I can understand why, it is not entirely justified, and when I discuss my job with my friends, I spend a lot of energy trying to modify the image they have of what I do. My boyfriend finally understands me. I can occasionally have lunch with him in the center of Brussels. But it's actually my chat sessions with him on my way back home on the train to Namur that finally convinced him.

OUR CUSTOMERS/// page 32

Belgacom offered even more to its customers in 2011, and we are empowering our residential customers so as to enrich their lives, giving them access to their communications, entertainment and applications anytime, anywhere and on any device.

Empowering our customers to enrich their lives

30% less complaints versus 2010 for fix network customers

More than 1,200,000 customers watch Belgacom TV

The largest wi-fi network in Belgium with 500,000 hotspots

Belgacom TV now also available on tablets, laptops and smartphones

Building on new flexible links across our fixed and mobile networks, and on new products and partnerships, Belgacom launched successful, innovative offers throughout the year.

The innovations that keep us ahead of our competitors and drive our strong performance in the marketplace

The Samsung Tablet combined with fixed and mobile Internet

As a perfect example of our successful tie-up with Samsung, this offer allows our customers to have a tablet + fixed Internet + mobile Internet, all for a single monthly fee. Launched in June 2011, the offer was an immediate success. This combination revealed the advantage of being a fully converged player, since our competitors found it difficult to copy our offer. Furthermore, we accompany the pack with a program of support so that the customer benefits from an offer that is simple and easy to use (see "Simplification and Customer Satisfaction").

Free Wi-Fi

In partnership with Fon, the largest Internet community in the world (with four million users), the community-based Wi-Fi network of Belgacom's customers offers free Internet outside the home. This is the perfect match between fixed and mobile Internet through the wireless network. In less than four months since its launch in November 2011, over 500,000 Belgacom wifi-hotspots were activated. With this number rising, Belgacom currently offers the largest wireless Internet coverage in Belgium in collaboration with Fon.

Music content (Deezer)

With Deezer, Belgacom offers a unique and unlimited musical experience to its Internet and mobile customers, with access to more than 13 million music titles, available anywhere, anytime, and on any

Belgacom Fon free Wi-Fi access to more than 500,000 hotspots www.belgacom.be/fon

"The Samsung tablet combined with Internet was so successful that, at the end of 2011, we became the largest seller of Samsung tablets in Europe."

Scott Alcott – Executive Vice President Consumer Business Unit

device – PC, tablet or smartphone. No other operator on the Belgian market today is offering music streaming services bundled with telecom products.

TV Everywhere

Thanks to this application, TV follows you everywhere: Belgacom customers can watch almost 20 of the most popular TV channels, live football, and films on demand – even without a TV: it works on a PC, tablet or smartphone, wherever and whenever they want, on the fixed network and the mobile 3G network. At the end of 2011, nearly 20% of our Belgacom TV customers had downloaded the TV Everywhere application. This offer combining Wi-Fi and 3G is exclusive on the Belgian market, with similar offers being limited to Wi-Fi usage only.

Free calls to mobile networks

With Happy Time XL, our customers can call more for free. They could already call for free from their fixed line to other fixed lines in Belgium. In 2011, we extended free phone calls to mobile numbers, on weekdays from 5 p.m. till 8 a.m. and around the clock on weekends and public holidays. Hundreds of thousands customers had activated this option within three months of its commercial launch. This offer positively impacted customer satisfaction and the attractiveness of the fixed line, resulting in an improved churn. A good move, as confirmed by our competitor launching a similar offer in reaction to ours.

A useful application for mobile phones

"Hello" allows customers to check their mobile, SMS and Internet usage, providing them with a userfriendly and transparent way to control their costs.

OUR CUSTOMERS/// page 34

About 9 games per weekend to watch live and exclusive. www.belgacom.be

13 million songs to listen to at home and elsewhere. www.belgacom.be

Our new application to control your mobile consumption.

Simplification and customer satisfaction

In an increasingly complex telecom world and an ever more demanding market, we want to do more than deliver innovative products and services. To this end, we launched the "Simple and Friendly" project, designed to provide our customers with products and services that are not just excellent, but also intuitive, transparent and user-friendly. We want to make sure our customers have proactive, accessible and personalized support to get the best out of their choice of Belgacom as a supplier.

We enhanced the appeal of our combined Tablet + Internet offer through imaginative customer care: demonstrating and configuring the tablet in our shops, installing the Wi-Fi settings at the customer's home, and proactively contacting our customers to make sure that everything was alright and that they received a first-class service. This won us new loyalty: more than 80% of our customers would recommend this product to their family and friends.

In 2011, we implemented actions to simplify the lives of our customers and launched easy-to-choose products through clear promotions and transparent communication. We reduced the number of call-center number options in our automatic home phone menu, did our utmost to answer within 2 min. and introduced the "call back" option at an appointed time. We simplified our website navigation and login, and developed intuitive applications and services allowing customers to personalize and manage their services and usage. Belgacom TV was given a simpler menu, faster navigation, and a decoder reboot time of just three minutes.

We became a more accessible company by extending our toll-free technical support to every day, from 7 a.m. till 10 p.m., and we provided our install and repair field services until 8 p.m. on weekdays, with repairs on Saturdays as well.

We also rewarded the loyalty of our customers through a range of attractive advantages and programs, and we continued to roll out the Premium Club loyalty program launched at the end of 2010. Premium Club is a points and advantages program for Belgacom and Proximus customers. Points can be exchanged for a selection of rewards, free calling minutes, mobile devices, vouchers and other items. We also organized a range of events in which customers could enjoy a day out with their family or friends at an attraction park (Pairi Daiza and Bobbejaanland in 2011) or at the movies, for a reasonable price.

We saw customer satisfaction scores rise, with a clear improvement in loyalty and brand image and 30% fewer complaints from our fix network customers.

We want to make sure our customers have proactive, accessible and personalized support to get the best out of their choice of Belgacom as a supplier.

A personalized customer approach

The better we know our customers, the more efficient we can be in supplying what they want, and the better return we can make on our investment. We have therefore developed tools for identifying targets and gaps with a new level of precision, based on socio-demographic criteria, brand preference, product penetration, market share, intent to switch, etc.

We are proud of the progress made in 2011:

• we increased our digital TV market share among seniors by 50% in one year, thanks to the launch of a Pack including a fixed telephone line and TV at an attractive price;
• we had great success in the youth market (12-24 years), thanks to the revamp of our Generation rate plans with unlimited calls and SMS offers, increasing our market share in that segment.

Reducing the digital divide

Offering simple and accessible products is important, but we also want to make sure that customers have the skills they need to embark on the digital journey. In 2011, we launched "Webexperts", an initiative stimulating youngsters to share their Internet knowledge with the elderly. Schools or individuals can submit projects using the tutorials on www.webexperts.be, and we reward the best projects each month. After three months, more than 50 projects had already been submitted, with a majority coming from schools. Thanks to those projects, 700 seniors received training and have discovered the world of the Internet and its potential.

Strengthening our sales channels

Belgacom has four sales channels: controlled distribution shops (Belgacom Centers and Generation Stores), contact centers, E-channel and uncontrolled shops.

In 2011, we focused on the reinforcement of all our channels thanks to numerous traffic activations, and on optimizing our customer relationships through a targeted tactical approach. In the channels traditionally dedicated to fixed products, we acquired new business in mobile products, and vice-versa, too: our Belgacom Centers increased their share of the mobile postpaid channel from 31% in 2009 to 51% in 2011.

We also improved customer experience. In our Belgacom Centers we provided on-the-spot configuration of tablets and smartphones, and launched a new tool for fixing a shop appointment online. In our contact centers, we extended opening hours and drastically cut waiting times. We also strengthened the collaboration between our sales channels, thereby improving the efficiency of sales transactions. We continued our efforts to facilitate information finding, support, self-service and sales on our websites. In 2011, Online Sales increased by more than 20%.

Confident for the future

A richer multimedia experience

The arrival of more and newer devices – such as TVs connected to the Internet – will strengthen the trend towards access across network platforms, everywhere and at any time. Following on from what we started in 2011, we will pursue our bid, together with privileged partnerships, to boost access to multimedia content and applications across networks, and to develop and enrich new entertainment platforms.

A commercial approach

Increased market share in Internet and TV is a top priority. And since multi-play customers are the most valuable and loyal, we want to go a step further by integrating mobile products and developing a new range of Packs.

A customer approach

In 2011, we surprised our customers with unexpected "Simple and Friendly" value proposals and by occupy-

The Tablet ready to use, combined with the fixed and mobile Internet of Belgacom: the perfect example of a privileged partnership with Samsung, but also of a successful convergence through our complementary networks. www.belgacom.be

OUR CUSTOMERS/// page 36

ing a service territory that our competitors had ignored. In 2012, we will intensify our efforts by raising some of the indicators that are still not at the level they should be, and by deploying specific servicing approaches for high-value customers.

At the same time, we will pursue initiatives aimed at our key customer segments, and add the new criteria for obtaining value in terms of revenues, margins, and costs, while we increase efficiency and profitability.

Our sales channels

On 15 April 2011, Belgacom announced the acquisition of Wireless Technology, which owns the chain of The Phone House stores in Belgium. The Phone House stores complement our current distribution network and will allow us to serve new customer segments that Belgacom did not reach before.

We will also capitalize on each other's sales channels. In particular, we intend to promote the web as a channel for simple transactions, such as topping up a prepaid card, adding subscriptions and options, or ordering a move.

Social media

Given that our customers increasingly use social media to express themselves, being present in this sector is vital for a company like Belgacom.

Since 2010, Eva, our virtual operator, has been listening to and helping customers on Twitter, Facebook, the Belgacom Community site, and other important forums.

In 2011, Eva posted 6,920 messages and answered 95% of support requests made via social media. In 2012, we will continue to listen to, help and engage with our customers, allowing them to become more involved in the development of our products and solutions.

Tango

With its Tango operation, Belgacom has a leading position in mobile prepaid in Luxemburg, and is the energetic challenger for mobile telephony, fixed telephony and Internet (3G, ADSL, VDSL and Fiber) in the residential and professional market. In 2011, we broke new ground:

• in the post-paid market, we offered bundles of voice, messaging and data and a strong portfolio with roaming. Combined with the new iPhone 4S, this allowed Tango to turn in a positive performance;

• in the triple-play market (fixed + mobile telephony + Internet), we launched Tango Blue, a completely new range of ultra high-speed broadband offers on optical fiber, increasing customer access to new entertainment services, such as football from the Portuguese Primeira Liga. Our 3-play customers can now enjoy one of the best European football championships on their smart phone, tablet or PC, everywhere in Luxembourg.
• Following the growing usage of mobile internet and the powerful uptake of Smart phones, we launched our mobile App allowing customers to keeps informed of our latest offers as well as managing their subscription. This Apps is well appreciated by our customers, which is proved by the over 40.000 downloads made in 3 months.
• To capture further market share within the International community residing in Luxembourg, Tango has successfully promoted a set of mobile international calls services that allow the consumer to seamlessly call to Luxembourg or Europe. This opt-in packages delivers up to 5 hours on International calls to Europe at competitive prices.

In line with our group strategy, the objective for 2012 is to develop fixed and broadband offerings as a springboard for value-added entertainment services.

Scarlet

Scarlet offers simple, functional products at the best price: Internet, fixed and mobile telephony, Belgacom TV and prepaid Mobile to Africa via its Mobisud affiliate. Scarlet's positioning is not geared to convergence products; instead, it develops innovative offers which, as they mature, can be introduced at Belgacom. In this way, Scarlet acts as a kind of incubator for Belgacom. The addition of Belgacom TV in 2009, together with Scarlet's focus on having multiple play customers has consolidated Scarlet's customer loyalty. In 2012, the focus will be on improving the mobile portfolio, reinforcing Scarlet's presence in distribution channels, capitalizing on the e-channel and the web for customer contact and servicing, and improving installation times.

Our virtual operator listens to, helps and engages with our customers on social media

In 2012, we will intensify our efforts by raising some of the indicators that are still not at the level they should be, and by deploying specific servicing approaches for high-value customers.

Appels gratuits de 17 à 8 h en semaine et 24h/24 les week-ends et jours fériés vers les lignes fixes en Belgique et les numéros mobiles nationaux. En semaine, de 8 à 17 h, vous payez € 0,35/appel vers les lignes fixes en Belgique et € 0,50/ Free calls to fixed lines and GSM after 17h and on weekends. www.belgacom.be

favorite movies of your children www.belgacom.be

Tango included VDSL/ Fibber connectivity in its 3-play product "Tango Complet".

• Surfez à un tarif ne dépassant pas 0,15 ¤ seulement par MB après épuisement du forfait • Tarifs attractifs pour votre roaming data

www.scarlet.be Me & Surf, launched in 2011 by Scarlet offers 1 GB to surf on smartphone or tablet for 15 € / month

OUR CUSTOMERS/// page 38

On the professional market, 2011 was a strong year for Belgacom. Excluding the impact of regulations, and allowing for divestitures (Telindus Spain) and investments (Eudasys in France), we showed growth, ensuring our leadership on this market. Nevertheless, despite our good operational performance, we need to meet the challenges of a rapid transformation, as technologies merge and new business models arise.

Helping our professional customers do better business

4.6% growth revenue in ICT in 2011

+21.7% growth revenue in mobile data

+105,000 mobile customers

20,000 mobile payments transactions per day

New boosts to our traditional business

We have a strong basis in fixed and mobile networks that complement each other and provide unsurpassed coverage and performance. This allowed us to develop package deals that kept us way out in front in the traditional telecoms market and delivered solid operating results in 2011.

On the small and medium enterprises market

• Our Packs for small and medium enterprises were very successful: they brought in additional revenue, reinforced customer loyalty, and confirmed Belgacom's position as a single provider for all communications needs.
• In 2011, we launched a comprehensive offer including a Samsung tablet, a complete Internet solution for a flat monthly fee, unlimited calls, and the service guarantees foreseen for our professional customers.
• By the end of 2011, the total number of Forum 500 telephone exchanges installed at our customers reached 40,000; this product, launched nearly 10 years ago, was the first to use both traditional and IP (Internet Protocol) telephony.
• We also wanted to strengthen our local presence and provide our SME customers the best IT and telecom advice. To this end, we took significant steps to advance our multi-channel approach for ICT: after cooperating with four partners to launch Bridging ICT in 2010, we formed an additional partnership in 2011 with eight "IT Experts". By combining our assets with those of our partners, who are strongly embedded in the local SME market, we strengthened our position in integrated telecom and IT solutions. The "IT Expert" contributes his strong relationship with the customer as an IT advisor, and Belgacom contributes its unique, convergent telecom offerings. In this way, our SME customers can take full advantage of the integration of our fixed, mobile and cloud solutions.

"Cloud becomes the backbone of our industry. Belgacom is uniquely positioned with its complementary networks and its Belgian-based state-of-the-art data centers."

Bart Van Den Meersche – Executive Vice President Enterprise Business Unit

Bizz Fusion Team allows to share a package of minutes and SMS.

On the large enterprises market

• We launched a new version of PubliLink, a connectivity solution designed to meet the needs of public authorities. This update offers permanent availability thanks to a mobile backup and service quality guarantees defined by contract. It also makes PubliLink a gateway to new content and applications. PubliLink is now used in every province in Belgium, as well as by almost all the municipalities and social service bodies and about half of the police force.
• Another highlight of 2011 were the contracts we won with major enterprises and public institutions, such as the Belgian Federal Government with the extension of the mobile voice deal, the VDAB (fixed WAN connectivity), Corelio (mobile data for tablets) and De Lijn (fixed and mobile data and voice, amongst others).

Transforming ourselves

Our operational performance helped us to maintain our lead in traditional markets. But we are seeing revenues slip, particularly for fixed and mobile voice traffic, as a result of strong regulatory and competitive pressure (see page 14). At the same time, the increasingly connected world offers a wealth of new opportunities. So while traditional telecom declines, we see new business models emerging, particularly in cloud computing and mobile data. We have already started to transform our company in order to reverse the decline and return to growth. Our transformation is occurring at multiple levels: by enhancing our market share of SME customers, taking the lead in the three principal areas of growth – cloud computing, mobile data and unified communications – and adopting an approach centered on providing end-to-end integrated solutions. Examples of concrete actions taken in these growth areas are the strategic investments and commercial partnerships with two Belgian cloud startups (Dacentec & Awingu).

Thanks to our complementary fixed and mobile networks and our data centers, we are ideally placed to seize these new market opportunities. The transformation has

OUR CUSTOMERS/// page 40

For a fixed monthly fee, the professional Pack combines all the tools necessary to call and stay connected at any time in the office and on the road: unlimited nationwide calling, fixed and mobile Internet with guaranteed service level and a Samsung Galaxy tablet.

begun, and the positive results already achieved confirm that we have chosen the right path.

Increasing our market share among SMEs

The small enterprises sector has strong growth potential. Our current aim is to develop a complete connected office for the coming years. We have already redefined our broadband Internet offer, adding guaranteed services – such as repairs within eight hours – and new facilities for mobility through the Fon, Wi-Fi and 3G Proximus networks. We also plan to include a back-up solution available in the cloud. With such creative initiatives, we are strengthening our ability to meet the specific needs of SME customers and increase our market share.

Becoming a leader in three growth areas

Cloud computing

Cloud computing is expanding rapidly and represents a new, alternative IT sourcing model for businesses. Through this model, all data and applications are hosted in Belgacom's secure, green data centers (or those of our suppliers) and connected to the customer's PCs or smartphones via the public Internet or a secure private connection. Currently, 80% of new business software is available through a cloud model, so the user no longer needs IT knowledge for the software installation and maintenance, and his IT budget is based only on usage.

In 2011, we launched several new cloud offerings that were an immediate success:

• In June, Microsoft launched Office 365, which offers the familiar office support tools in cloud version and makes it easy for multiple users to work on the same document, wherever they are, via e-mail, web conferencing, and calendars. In September, Belgacom became the first Microsoft syndication partner in the Belgium market, allowing us to offer customers a better service, and the success of this offer is growing.

• PC Mozy enables the automatic backup of user files (customer data, accounting, e-mails, etc.) in our secure data centers. Customers can view the restored data on any mobile device, smartphone or tablet. Since its launch, several key customers have entrusted the security of their critical data to us. The benefits of this service allow us to play a major role in the market for securing online data.

vContainer was launched during the summer. It meets the needs of customers who, for security reasons or to manage specific applications, want their own virtual environment. vContainer is highly flexible, and makes it possible to organize a virtual data center with minimal investment and maximum protection. Several ICT partners, public institutions and large enterprises have already opted for this service.

Mobile data and machine-to-machine

Other growth areas we are developing are mobile data, with the launch of a wide range of applications to support the activities of a company and its mobile employees, and machine-to-machine, allowing permanent contact with a fleet of machines (dispensers, payment terminals, vehicles, etc.).

• The Field Force Automation solution hosted by Belgacom, in partnership with Praxedo, enables customers with field staff (technicians, delivery drivers, convenience stores, etc.) to organize the planning, distribution of work orders and data collection for billing, in a simple and intuitive way. This solution was launched in a test phase at the end of 2011. The mobilised Microsoft Dynamics CRM application enables sales staff to complete transactions and conduct other related business while they are visiting a customer, whatever the time and location. It also provides them and their management with a detailed overview of their activities.

• In 2011, Belgacom's mobile payment system for parking places, pioneered in Antwerp in 2006, was extended to more than 20 other Belgian locations. De Panne, Genk, Anderlecht, Verviers, Liège, Sint-Truiden and Heusden-Zolder were among the authorities to adopt this innovative solution, which allows customers to pay for a parking place by simply sending an SMS message to a four-digit number. Android users can download an application to make the procedure even easier. This innovation is clearly popular, judging by the more than 3.3 million SMS parking payments made in 2011. Today, Belgacom manages more than 20,000 mobile payment transactions per day, mainly for parking, De Lijn transport tickets and proximity payments based on NFC (Near Field Communication) technology. We are committed to expanding our mobile payment offers with, over the longer term, the dematerialization of physical wallets and purses, and the simple payment of daily expenses with a mobile phone.

Unified communications

The Fixed Mobile Unification solution offered by Belgacom integrates fixed and mobile voice communications, fax, SMS, e-mail, social messaging and video conferencing into a common platform hosted in our data centers. Through just one number and one voicemail, the mobile user has access to all the company's communication functions, such as identifying a calling number even when the call is forwarded, and the possibility for colleagues to see whether the mobile user is free or busy.

Developing a customer approach based on solutions rather than just products

In the past, our approach was largely product driven. Today, our starting point is no longer the product, but the customer. We are focusing on the customer's concerns in managing everyday communications, and on what he needs to improve business efficiency. By working with selected external partners, we are now able to offer a combination of services and products in a single end-to-end solution – along with a service guar-

Bizz Online Back-up An outsourced backup solution for critical data and business documents.

Bizz Online Collaboration Via their Internet connection, our customers access anywhere to their mails and documents.

OUR CUSTOMERS/// page 42

In 2011, we gave our account managers training on green IT and sustainability to help them better integrate this in their customer interactions. To engage in a discussion on this topic with our customers, we published a white paper on "Smart and Green IT" and organized customer events on this theme.

http://ict.belgacom. be/greenict

antee. We are evolving from being merely a "provider" into a partner and business problem solver. To ensure the integration of new innovative solutions into a solution-oriented approach, we have adapted our own working methods. We have created a business development department and competence center and are developing a pool of talent skilled in thinking in terms of solutions through training and recruitment. We are also strengthening our relationships with external partners, ranging from major groups such as Samsung to local businesses that are flexible, innovative, and able to rapidly develop solutions that meet the specific needs of the Belgian market.

Some solutions can be deployed across business sectors, and are called "horizontal" solutions. Others are designed for specific sectors, and are called "vertical" solutions. But all of them respond to our customers' problems. In 2011, we started to deploy a number of "vertical" and "horizontal" solutions.

Horizontal solutions

Belgacom's Videoconferencing In The Cloud solutions allow people to interact in a natural, human way without being physically in the same location. The service is based on a pay-as-you-use model and avoids the costs and inconvenience of installing and updating infrastructure on site.

Other solutions described above, such as SMS parking and mobile CRM, are in essence horizontal, but can be integrated into sets of vertical solutions.

Vertical solutions

At the end of 2011, we proposed a platform to the holding company SEDIFIN, which makes it possible to detect anomalies in the consumption of gas and electricity within 27 public bodies in Wallonia. This service, called Publinergie, identifies any billing errors, notes differences in consumption from one year to another, and highlights possible malfunctioning of meters or energy wastage. Developed in partnership with Dapesco, a consulting firm specialized in energy optimization, this service opens up the possibilities for improved management of energy resources.

For the medical world, we launched a working platform that makes it easier for doctors to treat their patients and handle the related administration. This service is the result of a partnership between Belgacom and Corilus, which is specialized in complete IT solutions for the medical and paramedical sector.

On behalf of the Brussels Region tourist office, we launched VisitBrussels, in partnership with K-Company. This application is available on the App Store and gives tourists a complete overview of all there is to see and do in Belgium's capital.

The promise of better service

In 2011, we made every effort to improve the everyday quality of our services and promised to make life easier for our business customers. To achieve this, we focused on three areas:

• Improving the efficiency of our entire internal processing, from product and solution development over the sales cycle to supply, installation, and accurate billing.
• Making our end-to-end process more responsive to demand, so as to shorten the time for activation, installation and repair.
• In this perspective, further building end-to-end service level agreements.

The results were very positive. For example, in our Explore network, which ensures a secure connection between a company's sites and its employees, we were An active partnering and a sector-specific approach are needed to create market traction, build full end-to-end solutions for a specific business need, and drive innovation.

able to provide consistent service throughout the year thanks to better end-to-end organization and more efficient planning of resources during holiday periods.

We also improved our time-to-market on other products and services, such as telephone exchanges, connections, and broadband ICT solutions, including domain names and shared hosting.

For SMEs, we launched an information campaign on our improved quality of service: a single phone number for SMEs, 24h/24 telephone support for any questions or technical repairs, and a guaranteed repair time (within eight hours) in case of an Internet connection fault. Thanks to the improvements we made to the quality of our services, the results show that we surpassed our main competitors in terms of "business continuity" and "easy to do business with" and complaints decreased by 10% in the professional market.

Our priorities for 2012

On the SME market, our aim is to become the preferred end-to-end business partner, with a relaunch of our broadband portfolio and the integration of mobility. We will continue to improve our quality of service with guarantees and business continuity in case of outage. We also want to offer our customers the benefits of cloud solutions such as Office 365, CRM Mobile, Mozy PC Back-up, etc.

On the large enterprises market, we want to strengthen our leadership in converged telecom and ICT solutions and to position ourselves as the leader in cloud-based services. New innovative cloud solutions will contribute further to our revenue growth and will broaden the range of services we offer in the cloud to meet the requirements of SMEs as well as large enterprise customers. We will achieve a European first by deploying Smart Networking on our Explore service platform. Thanks to this solution, our customers will be able to give priority to critical applications over other data on their network, and thereby improve the efficiency of their operations. We will also develop more solutions and vertical applications, such as the "Emergency package" – a set of fully integrated solutions to support public authorities in case of a major crisis (natural disaster, etc.) or unexpected events during mass gatherings (at festivals, amusement parks, etc.).

Bizz Internet, guarantees business continuity... even if case of failure.

Digital version One Magazine > www.onemagazine.be/

Internationally

In our international approach to the market, we deploy our extensive range of products and services through Telindus International and its four affiliates, Telindus France, Telindus Luxembourg, Telindus United Kingdom and Telindus Netherlands.

Telindus International contributes to the development of the Belgacom Group on the corporate customer market, both in Belgium and abroad.

The Belgacom Group's solution-oriented approach is co-delivered by Telindus International through a closelylinked management system.

Cloud computing is a key area in ICT development worldwide. Cloud solutions are by definition borderless. Telindus International centers its growth strategy on cloud building, developing associated security services and focusing on unified communication.

The Telindus affiliates enhanced their product and service portfolios by developing new strategic capabilities and by acquiring major customers.

• Telindus France provided a new voice and data infrastructure to one of main French trade unions. It also completed the integration of Eudasys, a specialist in the storage and data-center market.
• Telindus Luxembourg expanded its portfolio to include cloud and telecom services based on its own infrastructure, and successfully launched the brand "Telindus Telecom". It won the "Best Cloud Computing Company of the Year" award, granted by a panel of 50 CIOs from all sectors of the Luxembourg market.
• Telindus Netherlands is transforming its organization, moving towards data-center services, virtualization and advanced managed services. It has acquired major reference customers in the public sector.
• Telindus United Kingdom continued to form service provider partnerships, which, complemented by direct sales engagement, allowed it to penetrate the public and private sector markets. It launched a Microsoft Lync offer, enriching its unified communications service and giving customers a wider choice of integrated Unified Communications solutions.

OUR CUSTOMERS/// page 44

BICS is one of the world leaders in providing the vital links between telecom operators in different countries. An international call, message or data transfer reaches its destination only after transiting through the networks of one or more intermediaries. These companies trade across frontiers in voice minutes, messaging, roaming, connectivity, and mobile financial transfer services around the world.

Providing vital links to telecom operators

27 billion minutes traded in 2011 (+8.5%)

1 billion SMS messages transfered

120 new mobile data contracts

BICS keeps building success and leadership in the international wholesale market, which is changing very fast and not without threats, but also with plenty of opportunities.

BICS currently serves operators for voice, messaging, GPRS roaming, and signaling (the service that exchanges information between operators in establishing a telephone call). BICS is a joint venture between Belgacom, Swisscom and the multinational MTN, the mobile telecommunications leader in Africa and active in 21 countries.

A strong BICS position in 2011

BICS traded 27 billion voice minutes in 2011, up 8,5% on 2010, confirming its position as the fourth largest international voice carrier in the world. It also consolidated its position as number one in the Middle East and Africa market, and kept a strong position among the top three in Europe and the Asia Pacific region. In mobile data, BICS retained its worldwide leading position, with performances that outstripped expectations.

The market is evolving

Voice traffic continues to grow in volume, but stiff competition and tight regulatory pressure on roaming rates are pulling down revenues on this important traditional market. New players, such as Skype, Google, Viber and Rebtel, are intensifying the competition with services that are not dependent on managed networks – the so-called Over The Top providers (OTT).

Technology drives new business models. In 2011, 25% of BICS voice traffic was carried through IP technology (VoIP).

New growth opportunities

To counter the erosion of voice revenues, BICS is exploring new territories, geographically and tech-

"Mobile data remains our growth engine. In 2011 we signed again 120 new contracts and made a breakthrough on the MVNO market. "

Daniel Kurgan – CEO of BICS

25% of BICS voice traffic was carried through IP technology (VoIP).

nologically. It is tapping into new segments, including OTT providers, broadband providers and Mobile Virtual Network Operators. These so-called MVNOs have little or no infrastructure or frequency, they buy minutes of telephony from traditional mobile operators and resell them to their own customers. In 2011, BICS developed a new services portfolio providing MVNOs as of day one with the same international coverage and services as any established mobile operator. And the success of this formula has been demonstrated by the contracts it has won, such as the contract with Virgin Mobile France.

At the same time, BICS is developing value added services for voice just like it has done for mobile data. The 2011 launch of its new VAS for roaming already resulted in 27 new contracts won.

BICS priorities

The main challenge will be to maintain the growth trend for BICS despite the voice market decline, by driving ever growing volumes at a marginal cost increase. We are confident that this can be achieved thanks to BICS's global portfolio for both voice and data, combined with its wide customer base, which is particularly attractive for a hub. Besides that, our other key strength is our focused wholesale company, with a successful M&A track record, which is always alert to opportunities arising from market consolidation.

In 2012, BICS's main objectives will be to further rationalize its voice business, capitalize on its market leadership in mobile data and develop adjacent value added products and services.

2:08 p.m., Wimereux France, Annette and Eléonore

Whenever we can, we escape to Wimereux: life is so pleasant there, we are close to the sea, our cottage is our home, and we are more of a family there than anywhere else. Here, you can see us when we arrived, having fun in our small garden. My husband sent this first snapshot immediately to my mom who, for the time being, can't travel so far because of my dad's illness. This way, they can share special moments with us, and that means a lot to my dad right now. So we keep them updated!

OUR PEOPLE/// page 48

As part of Belgacom's convergence strategy, we already brought all our employees from the different entities together in 2010, creating a single workforce geared to delivering real results right across our entire range of operations. We also worked hard to harmonize different remuneration systems and job family descriptions. In 2011, we were able to fully focus on further developing human potential and drawing up strategic plans to meet the company's future competence needs.

Developping our human potential

1,200 employees have changed jobs internally 900 vacancies have been filled externally

18 learning projects

to help our staff develop the necessary "simple and friendly" aptitudes

800 employees participated in the "Live my Life!" exchange program

24 hours of training followed by each Belgacom

employee (average per year)

To improve customer satisfaction and engage our employees, we developed staff training, provided new tools and introduced new working time arrangements.

Building the workforce for the future

Building the skills for the future is an important challenge for Belgacom and for its employees. It is crucial that our company identifies where there will be gaps or overlaps among functions in the future, and that it organizes its Human Capital Strategy and people development plans accordingly. In 2010, we launched a Strategic Workforce Plan to build the right skills for the future. In 2011, we mapped out our precise needs and started planning so as to ensure that the Group will have the human skills and resources to meet those needs. This planning will be finalized and implemented in 2012 and beyond.

A common system for performance management

Until 2011 the former entities of the Belgacom Group had different systems for measuring their employees' performance. This complicated an important process, and presented particular difficulties for managers of "mixed teams". Now we have a single tool for the entire Group. This covers not just personal objectives, but also those of the Group, so everyone can see how they contribute to the achievement of the Group goals. Rapid feedback from colleagues can be recorded in this tool, stimulating a culture of continuous feedback.

Particular attention to career management

Career management within Belgacom is just as important for the individual employee as for the company. The employee is responsible for his or her own career, but the manager helps in the reflection process. In 2011, we accelerated and innovated our career management approach, with extra support and tools for employees and managers:

• A career center accessible online, with tools and information to assist in assessment and reflection.
• A talent profile tool, allowing employees to enter their profile, CV, experience, projects and aspirations.
• Dedicated career consultants specialized in counseling, to provide guidance in discussing career options, identify preferences and review career objectives.
• New leadership development programs that focus on developing or improving the coaching skills of our team leaders.

The new career concept was promoted with the creative internal campaign "I love me". This campaign gave new impetus to developing a more active Group culture in which employees take their career into their own hands.

Customer satisfaction

To improve customer satisfaction and engage our employees in this program, we developed staff training, provided new tools and introduced new working time arrangements.

• In all customer-facing departments where employees are in direct contact with the customer, we further implemented no fewer than 18 learning projects to help our staff develop the necessary aptitudes: being friendly, accessible, proactive and able to explain things in a simple way.

In 2011, we reimbursed 1.1 million kms for business ride by bicycle and 13,500 employees now receive their payslip in electronic form.

"Our employees need to grow professionally and develop themselves on the job. Career management is about matching individual aspirations with company needs and tthat's why we will continue to stimulate internal mobility towards jobs of the future. "

Michel Georgis – Executive Vice President Human Resources

Developing the right skills, competences and knowledge, now and for the future, is an essential part of our Human Capital strategy.

• More than 800 employees participated in the "Live my Life!" exchange program. For one day, they shadowed a customer-facing colleague, such as a contact center operator, sales team member in a Belgacom Center, or a technician on the road. Live my Life! provided a rich experience that offered a behindthe-scenes look at customer contacts and showed participants how all the processes are linked together. This understanding will lead to better processes across the business units, resulting in better customer service.
• Externally, we reinforced our customer satisfaction focus, highlighting our Simple & Friendly attitude in the sourcing process, with attention to a customer friendly attitude that is innate rather than acquired.

The annual employee survey revealed that our people highly appreciate the efforts to improve customer satisfaction.

Elix

Every year, we conduct a wide-ranging employee survey known as Elix, which not only measures our employees' satisfaction but also their involvement in their job and with the organization. The results and feedback from Elix are used as a basis to take action.

The results in 2011 confirmed that we are moving in the right direction. This positive trend is largely the result of our efforts on career and performance management. Our focus on customer centricity - with the customer satisfaction program - increasingly inspires our staff to do their best for the customer (+9% vs 2010).

Engagement

At Belgacom, employee engagement is high on the strategic agenda. Whether it concerns the alignment of employees with a project or involving the whole workforce in the company's objectives, we believe that employee engagement is crucial for our current and future success. We define employee engagement as "people going the extra mile to meet company objectives and increase performance". While individual employees have a role to play, we see it as the role of management to provide the tools, technology, information, support, and other resources and to create a culture that fuels engagement.

Since the end of 2010, a dedicated team within HR has focused on coordinating and stimulating engagement efforts throughout the company. In 2011, we paid particular attention to career development, the role of our team leaders, and the creation of a coaching culture.

The employee engagement survey is an important instrument for measuring commitment and defining actions to increase engagement. By addressing our employees' concerns, we show that we listen to their needs and act accordingly.

Training

In a sector undergoing constant change and where intellectual capital is a prime source of innovation and growth, developing the right skills, competences and knowledge, now and for the future, is an essential part of our Human Capital strategy. Each Belgacom employee follows on average 24 hours of training per year. Belgacom has also created Training Academies in the most important customer contact fields, and in marketing and product management. This allows us to identify and measure the most important skills for each job, and to create adapted training paths for each employee. Developing leadership skills is also essential for Belgacom because of the important role leaders play in the engagement and coaching of their team members. Several tracks have been created to ensure that the leadership style of our management corresponds with the new business reality.

Diversity

We strongly believe that diversity in the workplace leads to creativity and thus innovation, to better knowledge and understanding of our customers, and in the end to better business results. We are therefore also firmly committed to treating everybody equally and with respect, irrespective of their gender, race, background, education, etc.

In 2011, we decided to give extra attention to gender and "mature workforce" management.

Gender

Women occupy about 30% of the functions at Belgacom and 21% of the senior management group's posts. Although we are among the best performing companies in this area, we want to achieve more gender balance in our company and thus also at the top level. In 2011, we signed the European Code of Best Practices for women in the ICT sector, confirming our ambition to promote increased participation of women in this sector. We also increased awareness of the opportunities for women in our management and leadership functions, with particular attention to top management. Beyond this quantitative male/female balance, we want all our leaders to develop a more balanced leadership style, applying masculine as well as feminine qualities and competencies in the workplace. Our leadership development program takes this into account.

Technogirls Focus

Belgacom encourages women to choose a career in ICT. It sponsors initiatives such as "She goes ICT" (Datanews), and promote technological studies among girls by collaborating with Agoria Technogirls.

Elix results of 2011 vs. 2010

10,583 employees completed the survey
Employee satisfaction:	90% (+2%)
Commitment to Belgacom:	+1%
Job engagement:	status quo
Level of participation:	63% (+1%)

In 2011, Belgacom was again awarded the "Quality for Equality and Diversity" label granted by the federal government. This distinction is an official recognition of the efforts made in the field of diversity.

"Mature workforce" management

Our long-term goal is to encourage our staff to stay vital, active and motivated longer, by developing an age-conscious HR management. In the short term, we focus on employees above the age of 50 who are assigned heavy tasks or work in sales. In 2011, we created an action plan with 42 best practices and 9 main themes, including ergonomics, health programs, career planning, and working time organization.

Top Employer in Belgium

In 2011, Belgacom again received the Top Employers Belgium award, which is based on independent research and demonstrates the quality of our HR policies and plans, particularly with respect to:

• Primary (salary) and secondary (fringe benefits) work conditions
• Training and development
• Opportunities for mobility
• Corporate culture

Our priorities for 2012

In 2012 and beyond, we will ensure that we develop the right skills for the future, thanks to our strategic work plan and will give continued support to our employees in managing their careers (with a special focus on age-conscious career planning and stimulating women to apply for management positions). We will also reinforce connections between our staff and our company strategy, strengthen our performance, and promote a culture of recognition in order to increase employee engagement.

6:55 p.m., Antwerp Michel and Arthur

My grandson Arthur is fascinated by music. He plays the piano. A buffet piano. We don't have the space for a flugel, unfortunately. He's the second-best in his class. I am so proud of him. Hearing and seeing him play is very emotional for me. I made a video clip of him playing a Chopin waltz. I am not much of a musician, but I can do some filming and editing. And you know what? He put it on his Facebook page. That shows how much he appreciates my work…

Do you come for lunch on sunday ?

Responsible business

About our CSR report

This is Belgacom's sixth Corporate Social Responsibility (CSR) report. It aims to provide a balanced account of our performance on the socioeconomic, ethical and environmental issues which are the most relevant to Belgacom Group and its stakeholders.

More information on www.belgacom.com/ responsibility (CSR reports) +

• Key Figures (KPI) table • Details on scope and
• definitions of our KPI's
• GRI reference table • Ernst & Young assurance
• statement
• We welcome your feedback on our CSR strategy and report csr@belgacom.be +

Because CSR is increasingly embedded in our dayto-day activities, we no longer publish a separate CSR report and included several case studies throughout our activity report. More information is available on our website.

Unless otherwise stated, all data and activities are for the year 2011 and refer to the Belgacom Group as a whole.

We use the GRI G3.1 principles as a basis for determining relevant content and metrics. Against the GRI G3.1 principles, we self-declare compliance with level B requirements.

Ernst & Young gave a limited assurance on the qualitative information and on a selection of key indicators for 2011 (covering all our CSR commitments), identified by a √ in our Key Figures table available online.

Our CSR Strategy

"We aim to grow our business in a responsible and sustainable way, as we believe it has to benefit both the society and our long-term development."

Didier Bellens - CEO See message on p. 5.

Our CSR strategy

At Belgacom, we recognize the need for a responsible and transparent way of managing our business vis-à-vis our stakeholders. We believe our future business success will depend on the positive impact we, through our activities, have on economic, technological and social progress, and on winning the trust of our interest groups. Corporate Social Responsibility (CSR) is therefore considered a strategic management tool and a key component of our corporate mission and strategy.

Our CSR strategy enables a more inclusive, safer and greener (e)-society, while ensuring that we do business in an ethical and responsible way.

By doing this, we aim to increase our business growth and protect our reputation, while contributing to the broader economy and society as a whole. Our significant investment in Belgium's digital infrastructure will improve access to technology at the same time as our initiatives are helping more people get online and enjoy the benefits of the digital society. Our green IT solutions help customers reduce costs and their environmental impact. Our new Belgacom Foundation stimulates social links between people and communities for more social cohesion. We also contribute to Belgian society as one of its biggest employers and by paying over EUR 900 million in taxes, social security, and dividends.

Belgacom's social responsibility rating improved in 2011: we were selected for inclusion in the Ethibel Sustainability Index Europe and enhanced our score within the Carbon Disclosure Project. We believe we are on the right track to achieve our ambition of being recognized as a leading socially responsible company in Belgium, and will pursue our efforts in the coming years in order to create value both for our business and for society at large.

Managing CSR

Our governance model firmly embeds CSR in our group activities, and ensures that the world beyond Belgacom has a legitimate opportunity to influence our choices and priorities.

Understand our stakeholders' expectations

We engage with a wide range of stakeholders in order to understand their expectations, challenge our approach, improve our performance and build trust-based relationships. This is done in various ways, such as face-to-face meetings, satisfaction surveys from our employees and customers, and the Belgian public, and interactions with financial analysts. We also exchange best practices with peers through various CSR networks and partnerships.

Focus on relevant topics

We regularly challenge our CSR strategy to ensure we address the CSR issues that are the most relevant for our stakeholders and our business. This year, in internal workshops, we cross-checked our current CSR priorities against the new ISO26000 guidelines for social responsibility. We identified our most critical issues, based on the financial and reputational risks and opportunities for Belgacom on the one hand, and on our potential influence on these sustainability issues on the other. This exercise confirmed that we were addressing the right issues with our current CSR strategy. But we will ask external stakeholders to validate this in 2012. Our CSR report focuses on the most material CSR stakes for our stakeholders and for our business, identified in the top-right corner of our materiality matrix.

Embed CSR throughout the organization

Our mission, our corporate values (Respect, Can Do, Passion), our Corporate Governance Charter, our Code of Conduct and our compliance office and policies, underpin our approach to responsible business and to corporate social responsibility.

Our internal governance and reporting structure is centered around three entities: the Group CSR department, the CSR Steering Committee and representatives in each business unit implementing the action plans. The Vice-President in charge of CSR and the Steering Committee report directly to the CEO and the Belgacom Management Committee. Our key CSR priorities are managed as a 'corporate strategic program', with monthly progress reports to our Belgacom Management Committee. To stress the importance of our non-financial performance, employee satisfaction and customer centricity results directly influence the variable remuneration of our top management. Our CSR governance structure was not impacted by the organizational changes we experienced in 2011 and our CSR priorities remained unchanged.

Performance overview

Our objectives	Target date	Status	Our performance in 2011	Key Figures
CSR strategy and governance
Continue to share best practices with our international subsidiaries	Yearly		Best Practices workshops on energy/CO2 and human resources management.
Organize a multi-stakeholder panel on our CSR strategy	Dec-11		Performed an internal assessment of our material issues based on ISO26000 guidelines. Validation by external stakeholders postponed to 2012.
Ensure that we remain included in Ethibel Investment register	Yearly		Included in the Ethibel Sustainability Index Europe
ENHANCING ACCESS TO COMMUNICATIONS
Improve our customer satisfaction, via improved service and simplicity	Yearly		Customer satisfaction scores rised, with a clear improvement in loyalty and brand image.
Develop responsible marketing and communication guidelines	Dec-11		Responsible guidelines included in our marketing and communication approval processes.
Launch at least two new initiatives to bridge the digital divide	Dec-11		Launched 'Webexperts' and a new large-button mobile phone.
Improve the accessibility of our web sites for people with disabilities	Dec-11		Started to improve the accessibility of our corporate website and will pursue efforts in 2012.
Provide at least 170,000 hours of ICT training per year.	Yearly		Provided 191,474 hours of ICT training, enhancing the digital skills of 9,699 persons.	191,474 hours of ICT training
Take new initiatives to bridge the digital divide	Yearly	new
ENCOURAGING A RESPONSIBLE PRODUCT USE (child online safety and electromagnetic fields)
Take at least 2 new initiatives to encourage a responsible use of our products	Dec-11		Employees trained 3,600 kids on 'safe Internet and mobile phone use' in schools. Informed 50,000 parents on how to choose the 1st mobile phone of their child in a responsible way.	3,600 kids trained on safe
Launch the EMF e-learning tool and take at least another initiative to inform customers	Dec-11		Launched an e-learning on electromagnetic fields. Provided tips to reduce exposure to electromagnetic fields via our bill inserts.	Internet and mobile phone use
Retrofit of our mobile network in the Brussels and Flemish regions as legally required	Dec-15		Launched the retrofit of our mobile network to comply with strict new exposure norms.
Train at least 13,000 children on a safe use of Internet and mobile devices	Dec-12	new
Continue to inform our stakeholders on electromagnetic fields and health	Yearly	new

• Inclusion in Ethibel Sustainability Index Europe
• New initiatives to get more people online, such as Webexperts
• 3,600 kids trained on safe Internet and mobile phone use by Belgacom employees
• -62% of our CO² emissions in Belgium since 2007
• EUR 2.98 million invested to support our communities
• +2% employee satisfaction

criteria in the sourcing plans and in our request for proposals for at least

Perform on-site audits in collaboration

Include sustainable criteria in relevant

with other telecom operators Yearly new

request for proposals Yearly new

5 categories

ENABLING A LOW-CARBON SOCIETY
Lower our CO2 emissions by 70% and improve the energy efficiency of our networks and datacenters by 25% over the period 2007-2020	Dec-20		Lowered our CO2 emissions in Belgium by 62% vs 2007 (14% vs 2010). Energy efficiency targets for networks and datacenters are on track.	-62% CO2 vs 2007
Launch at least 2 new initiatives to help our customers become more energy efficient	Yearly		SME account managers received training on green IT and sustainability. We published a white paper on 'smart and green IT'.	75% of waste recycled
Increase collection and recycling of old mobile devices	Yearly		5% increase in phones collected for reuse/recycling vs 2010.	40,328 mobile phones
SUPPORTING OUR COMMUNITIES				collected
Launch the new Belgacom Foundation	Dec-11		The new Belgacom Foundation supported 36 innovative projects stimulating intergenerational dialogue.
Support at least 100 social projects	Dec-11		118 social projects supported.	EUR
Offer access to sport or cultural events to disadvantaged youngsters in collaboration with our sponsoring department	Yearly		We included paralympic athletes in the Belgacom Memorial Van Damme competition and offered free entrances to disdvantaged children.	2.98 mio to support our communities
Contribute to more social integration via our projects and partnerships	Yearly	new
PROMOTING A POSITIVE WORKING CULTURE
Ensure each business unit has its own skills plan	Dec-12		We mapped out our precise needs for the workforce of the future. All business units will have their skills plan by 2012.	29% women in total workforce
Stimulate career management also for mid and late career employees	Dec-14		New career management approach and tools have been launched.
Improve employee satisfaction each year and by 5 percent in 2015 vs. 2010	Dec-15		Employee satisfaction increased by 2% vs. previous year	90% employee satisfaction
DEVELOPING A RESPONSIBLE SUPPLY CHAIN				(+2%)
Extend CSR risk assessment for all suppliers with a spend above EUR 125,000	Dec-11		We assessed the CSR risk of 397 suppliers, representing 31% of our total spend.	397 suppliers assessed on CSR risk
Evaluate the CSR performance of detected medium and high-risk suppliers and follow up with 10 more high-risk suppliers	Dec-11		Pre-evaluation of 9 high risk suppliers identified in 2011. Follow up of 11 high risk suppliers identified in 2010 will be finalised in Q1 2012.
Continue to elaborate CSR topics in strategic review meetings with key suppliers Integrate additional sustainability	Dec-11		CSR included in scorecards presented to suppliers during Vendor Performance Meetings.

Dec-11 Sustainability criteria integrated in RFP and sourcing plans for 5 categories

• 397 suppliers assessed on CSR risk
• Delayed Completed On track new New

Enhancing access to communications

We want to enable as many people as possible to enjoy the benefits of a digital society, by improving our customer service and facilitating access to our technologies (particularly for people with special needs), while enhancing the digital skills of citizens. By developing our ICT infrastructure and the use of ICT, we increase our business growth and contribute to the broader economy and to society as a whole.

More information on www.belgacom.com/ responsibility www.webexperts.be +

9,699 disadvantaged people followed our ICT trainings

563 computers donated to schools and charities

Tom and Johan, teachers...

... of a school class that trained 18 elderly people using the Webexperts program

"It was very stimulating to see our pupils in action. They were patient when explaining to the adults in detail how to use the Internet. We saw a lot of radiant faces, both among the children and the adults they assisted. In general, everyone was very enthusiastic."

Our progress in 2011

Improving our customer satisfaction through better service and simplicity

We have seen customer satisfaction scores rising, with a clear improvement in loyalty and brand image. Complaints for our fixed-line business were down by 30%, and we did our utmost to answer calls to our contact centers within two minutes. More information on p. 34.

Our new guidelines for "responsible marketing and communication" are included in the approval processes prior to the launch of new products and advertisements. This checklist reminds employees of the importance of aspects such as the accessibility, environmental impact and transparency of our products and communications.

Facilitating access to technologies for all

The share of the Belgian population that has never used the Internet decreased to 14% in 2011 (26.5% in 2008), well ahead of the European target (15% by 2015). And 60% of disadvantaged people use the Internet at least once a week, which is better than the European average (48%) – source: EC Digital Agenda Scorecard 2011. These are positive results, but we aim to continue our efforts to bridge the digital divide in Belgium.

We further facilitated access to our technologies by expanding our network coverage (99.85% for 1Mbps broadband and the best 3G coverage in Belgium), by launching attractive offers for the elderly (with free installation and training), and by offering free wireless Internet via 500,000 Wi-Fi hotspots in Belgium. We promoted large-button phones for people with special needs. Over 350,000 customers benefit from our "social tariff", a discounted offer for disadvantaged people, and 563 refurbished computers were donated to specialized schools and non-profit associations. We also started to enhance the accessibility of our corporate and commercial websites and will pursue these efforts in 2012.

Enhancing digital skills

It is important to offer simple and accessible products, but we also want to make sure that customers have the skills they need to embark on the digital journey.

We continued to provide free Internet training and to support various ICT training centers, enabling 9,699 disadvantaged people to enhance their digital skills 191,474 hours).

In order to help elderly people get acquainted with our digital technologies, we launched "Webexperts", an initiative stimulating youngsters to share their Internet knowledge with the elderly. Schools or individuals can submit projects using the tutorials on www.webexperts.be, and each month we reward the best projects. After three months, more than 50 projects had already been submitted, with a majority coming from schools. Thanks to those projects, 700 seniors received training and have discovered the world of the Internet and its potential!

More information on www.belgacom.com/ responsibility • Review of scientific research on electromagnetic fields • E-learning on EMF +

Encouraging a responsible product use

We encourage a responsible use of our products, and focus in particular on providing transparent information on electromagnetic fields and health and on protecting children online. This helps us to mitigate potential financial and reputational risks, and to build trust with our stakeholders.

Our progress in 2011

Child online safety

In addition to the security mechanisms we provide on our products (parental control, anti-spam, anti-virus) and our information security management system (ISO 27001-certified), we support awareness raising and we fight online child abuse through our partnership with Child Focus, the Belgian Safe Internet Center. Belgacom employees teach online safety in schools, and we promote the use of hotlines to report offensive or harmful online content. Furthermore, we adhere to the Belgian e-safety charter and the code of conduct for safer mobile use by young teenagers and children.

Our employees gave training to 3,600 children on the safe use of the Internet and mobile phones in 64 schools across Belgium, in collaboration with Child Focus (the Belgian Safe Internet Center) and Microsoft. Given the very positive feedback of our employees, the children, and the schools, this initiative will be extended in 2012.

Electromagnetic fields and health

Some anxieties remain about the potential effect on health of electromagnetic fields (EMF). We have taken on board these concerns by closely following scientific research in this domain, applying a responsible network deployment, and informing our stakeholders in a transparent way.

We provide tips to reduce exposure to electromagnetic fields via our websites and bill inserts. We also indicate the exposure level to electromagnetic fields in all our wireless devices, and provide an earpiece by default with our mobile phones. We provide transparent information to our stakeholders. For this purpose, we established a new e-learning on electromagnetic fields. Also, we organize information sessions for municipalities and our employees.

Last year, we launched the retrofit of the mobile network in the Brussels and Flemish regions as required by the environmental legal framework. The new norm in Brussels is the strictest one in Europe.

3,600 kids trained on "safe Internet use" by Belgacom employees

100%

of our wireless products with a label indicating exposure to EM waves (in at least one communication channel)

Wouter, a Belgacom employee...

... who trained kids on safe Internet use

"I found this to be a very rewarding thing to do. I was impressed by the kids, about their internet savvy as well as their eloquence. Got great interaction and feedback afterwards. I will be more than happy to repeat this. Great initiative !"

Enabling a low carbon society

Climate change represents potential risks for our operations and at the same time enables new business opportunities. We are committed to playing an important role in preserving the environment and moving towards a low-carbon society. Our aim is to reduce our CO2 emissions by 70% by 2020 (2007 baseline), to help our customers lower their costs and environmental impact, and to involve our stakeholders.

More information on www.belgacom.com/ responsibility Our green solutions and white paper on http://ict.belgacom.be/ greenict + +

-62% CO2 -emissions vs 2007

40,328 mobile phones collected

Gauthier Andries, CTO Stepstone

"Belgacom can help us increase our efficiency further and support our objectives to become even more sustainable. The main green initiative taken by Stepstone was to migrate all the applications and servers to the Belgacom data center in Machelen. As a result, our servers lose less heat and show a better energy efficiency. Secondly, we virtualized all our applications in the Belgacom data center".

Our progress in 2011

Reduce our CO2 emissions in Belgium by 70% (2007-2020)

Energy efficiency is a key component of our environmental management system and environmental policies. This year, we achieved an extra electricity saving of EUR 1.9 million in total, partly thanks to the further virtualization of our server park, the continued rollout of free air cooling, the dismantling of old network cards, etc. The major project to replace our mobile network infrastructure was completed by the end of 2011, and will result in an annual electricity saving of about 17 GWh.

Thanks to our efforts related to efficient energy management in buildings, a greener vehicle fleet (e.g. the average emission of new ordered company cars dropped to 115g CO2 /km), and the continued promotion of public transport, our CO2 emissions in Belgium decreased by 14% compared to 2010 (-15% for our global operations), and by 62% compared to 2007.

The Environmental Investment Organization (EIO) ranked Belgacom first among European telcos in its carbon ranking, on the basis of our scope and CO2 reduction in relation to turnover. In 2011, we produced 4% less waste than the previous year, and 75% of our waste was recycled or reused.

Help our customers lower their environmental impact

In 2011, we developed a "green ICT" training course for our SME sales managers to enable them to give our customers better information on how our products can help to increase their efficiency in terms of costs and energy. A Belgacom white paper on "green ICT" was also drawn up, with a focus on 'a smaller ecological footprint and reduced costs, thanks to smart ICT solutions'.

Involve and raise awareness of stakeholders on climate change

In 2011, we became founding partner of GoodPlanet. be, a new organization which aims to raise environmental awareness in schools with material from French photographer and filmmaker Yann Arthus-Bertrand. We worked with several suppliers to drastically reduce the ecological impact of their products.

More information on www.belgacom.com • Corporate Governance and compliance www.belgacom.com/ responsibility www.belgacom.com/ foundation +

Ethical and responsible operations

EUR 2.98 million community investment

90% employee satisfaction (+ 2%)

397 suppliers assessed on CSR risk

Anne-Sophie Parent, Secretary General AGE Platform

"As President of the Jury of the Belgacom Foundation in 2011,

I was very enthusiastic to participate in the selection of 36 valuable initiatives stimulating intergenerational dialogue in Belgium, which fit in perfectly with the 2012 European Year for Active Aging and Intergenerational Solidarity."

We aim to conduct our business in a responsible and ethical way vis-à-vis our employees, our suppliers and the communities in which we operate. This helps us to build trust with our stakeholders, protect our reputation, enhance employee engagement, contribute to social integration, and forge stronger links with our suppliers and communities.

Our progress in 2011

Our Corporate Governance Charter, our Code of Conduct and our compliance office and policies underpin our approach to responsible business. See p. 83, 98-99.

Positive working culture

This year, we further increased employee satisfaction by 2%, launched a new career management program, initiated a plan for the future skills needed to cope with our business transformation, and started tackling our ageing workforce issue, in close collaboration with our unions. See p. 48-51.

Caring for the health and safety of our employees and suppliers is also a priority. Our policy covers all aspects related to stress, moral and sexual harassment and violence. These internal proceduresare published on our intranet with advice and contact persons, along with our whistle-blowing procedure. Our proactive campaigns aimed at preventing accidents helped us maintain a rather low occupational accident index (9.2).

Responsible supply chain

We have labor, ethical, safety and environmental standards for suppliers (based also on our Code of Ethical Procurement), and we monitor compliance through questionnaires and discussions with suppliers (during Vendor Account Meetings). Out of the 11 strategic suppliers identified at risk in 2010, 10 proved to have a lower risk rank as originally defined after an in-depth analysis. An improvement plan has been defined with the remaining supplier at risk. In 2011, we assessed the CSR-related risks of 397 suppliers with spending above EUR 125,000, and identified 9 suppliers with potential risks, which we will follow-up in 2012. An additional 100 suppliers with spend above EUR 125,000 will be assessed in 2012 with our new tool, along with our strategic suppliers. CSR is now included in our vendor performance scorecards.

Supporting our communities

We invested EUR 2.98 million this year to support our communities, through financial donations, in-kind support, and volunteering of our employees.

We launched the Belgacom Foundation, whose mission is to create, restore or strengthen social links between people and communities. In our first external project call, we supported 36 innovative projects aimed at stimulating intergenerational dialogue. 563 refurbished computers were donated to schools and social projects. Finally, we supported 49 social projects in which our employees are active as volunteers.

THE BELGACOM SHARE/// page 62

4:55 p.m., Liège Guillemins Fred

I am a newspaper journalist. I love to travel by train. For one thing, because in most cases, I don't lose any precious time stuck in traffic. And I like to have people around me. Even when I am not working, I take great pleasure in observing other people, overhearing their conversations, inventing stories about their lives, starting a novel starring the woman sitting in front of me. Sometimes I take photos with my cell phone so that later on I can recall what inspired me. I have a whole gallery of them by now: people, moods, stories. Life is fascinating when you look at it that way.

Rosario @pingpong 10 min Just watched 'your' JT. Poor weather in Brussels

THE BELGACOM SHARE/// page 64

The Belgacom share

Share listing

Stock market	First Market of Euronext Brussels
Ticker	BELG
ISIN:	BE0003810273
National SVM code	3810.27
Bloomberg code	BELG BB
Thomson code:	BELG-BT
Reuters code:	BCOM

Since March 2004, Belgacom's shares have been listed on Euronext Brussels under the ticker symbol BELG. The Belgacom share is included in the following leading indices: BEL20, EURO STOXX Telecommunications Index, STOXX Europe 600 Telecommunications index, FTSE Eurofirst 300 Telecom index and MSCI Euro.

Belgacom share performance in 2011

The Belgacom share stands for stability and reliability in insecure and volatile markets. The financial and sovereign crisis in 2011 left many companies and industries facing considerable volatility. Benefitting from its strong financial position and its attractive shareholder return policy, the Belgacom share enjoyed a defensive status and continued to be viewed as a safe haven. In comparison to other Belgian companies in the BEL20 and its peers in the Telecom Sector, the Belgacom share performed well over 2011.

Over the year 2011, the Belgacom share lost 3.5%, with the closing price of 30 December 2011 at EUR 24.24, while the average daily volume in 2011 rose by 8.6%. The share reached its year-high closing price of EUR 27.64 on 8 April 2011 and its lowest level on 1 November 2011 with a closing price of EUR 21.40 as nervousness about the Greek sovereign crisis peaked and was reflected on the European financial markets.

The BEL20 closed the year 2011 19.2% lower versus end 2010, with Belgacom performing fifth best. The Dow Jones STOXX Europe Telecommunications Index ended 6.2% lower versus one year ago

After a positive start in 2011, the markets went down in March, driven by the uncertainty following the earthquake in Japan and the political instability in Libya. The Belgacom share went ex-dividend on 26 April 2011, and after a short recovery dropped by 5.12% on 6 May as a reaction to Belgacom's profit warning announced with the first quarter 2011 results. Unfavourable macro news flows and general market concern on the Telecom sector put the Belgacom share on a further negative trend in the second quarter. During the third quarter, the financial markets were on a roller coaster of fear and short-term relief driven by the European debt crises and the stalling US recovery. The announced Greek euro referendum provoked a serious drop in the beginning of November followed by S&P downgrading Belgium near the end of November. However, Belgacom's reassuring third quarter results combined with the appreciated label of safer haven, and a new Belgian government caused the Belgacom share price to perform well in December.

"In 2011, the Belgacom share proved once more to stand for stability and reliability. It was a tough year for financial markets, yet the Belgacom share performed fairly well compared to most of the BEL20 companies and its main peers in the Telecom sector thanks to Belgacom's solid operational result, strong financial position and attractive shareholder return."

Ray Stewart– Executive Vice President Finance & CFO

	2007	2008	2009	2010	2011
Share information
Share price high	35.82	33.31	28.65	29.11	27.64
Share price low	27.82	24.58	21.67	24.31	21.40
Share price at 31 December	33.74	27.33	25.32	25.13	24.24
Annual trading volume (number of shares)	291,898,716	281,419,643	181,364,309	138,569,376	148,786,324
Average trading volume per day (number of shares)	1,144,701	1,099,295	708,454	532,959	578,935
Number of outstanding shares	332,071,776	320,334,261	320,614,683	321,482,641	317,648,821
Weighted average number of outstanding shares	334,017,553	326,179,820	320,475,553	321,138,048	319,963,423
Key data per share as reported
EBITDA1	6.08	5.84	6.14	7.56	5.93
Net Income (Group Share)1	2.87	2.45	2.82	3.94	2.36
Ordinary dividend (gross)	1.68	1.68	1.68	1.68	1.68
Interim-dividend (gross)	0.50	0.50	0.40	0.50	0.50
Gross dividend yield2	6.5%	8.0%	8.2%	8.7%	9.0%
Price/earnings at 31 December2	11.76	11.15	8.98	6.37	10.26
Key data per share before non-recurring
EBITDA1	6.22	6.10	6.10	6.18	5.97
Net Income (Group Share)1	2.96	2.71	2.79	2.57	2.41
Price/earnings at 31 December2	11.40	10.09	9.09	9.79	10.06
Market capitalization at 31 December (billion EUR)3	11.20	8.75	8.12	8.08	7.70

01.01 01.02 01.03 01.04 01.05 01.06 01.07 01.08 01.09 01.10 01.11 01.12

01.01 01.02 01.03 01.04 01.05 01.06 01.07 01.08 01.09 01.10 01.11 01.12

^1. Based on weighted average

number of outstanding shares

^2. Based on share price 31 December 2011

^3. Calculation based on number of outstanding shares & share price 31 December 2011

THE BELGACOM SHARE/// page 66

Ownership on 31 December 2011

Belgacom ownership	Shares	% Total shares	% Voting rights	% Dividend rights
Belgian State	180,887,569	53.5%	57.0%	56.1%
Belgacom own shares	20,376,314	6.0%	0.0%	1.5%
Free-Float	136,761,252	40.5%	43.1%	42.4%
TOTA L	338,025,135	100.0%	100.0%	100.0%

Treasury shares evolution

Status 31 December 2010	16,542,494
Options exercised during 2011	-189,681
Discount Purchase Plan employees	-277,474
Acquisition of treasury shares	4,300,975
Cancellation	0
Status 31 December 2011	20,376,314

Our shareholders

The Belgian government remains the main shareholder, owning 53.5% of the Belgacom shares. The free-float represents 40.5%, with the main institutional shareholders located in the United States, the United Kingdom, Benelux, France and Germany. End 2011, Belgacom held 20,376,314 treasury shares, representing 6.0% of the total number of shares. In the course of 2011, 277,474 treasury shares were used in a Discount Share Purchase Plan for Belgacom management and 189,681 options were exercised.

In February 2011, the Belgacom Board of Directors approved a share buyback program for a maximum amount of EUR 200 million to be carried out over the period 2011-2012. In this context, Belgacom acquired in the second and third quarter of 2011 a total of 4,300,975 treasury shares at an average price of EUR 23.25 via two tranches of each EUR 50 million.

The voting rights of the treasury shares are suspended by law. The dividend rights of the treasury shares acquired in 2004 are also suspended, whereas the dividend rights for shares acquired as from 2005 are cancelled. However, in order to cover the outstanding stock options granted in 2010 and 2011, the Board of Directors approved the conversion of 2,025,774 treasury shares without dividend rights into treasury shares entitled to dividend rights, on 27 October 2011.

Under Belgian law, companies are prohibited from owning more than 20% of their outstanding share capital.

Transparency declarations

According to Belgacom's bylaws, the thresholds as from which a shareholding needs to be disclosed, have been set at 3% and 7.5%, in addition to the legal thresholds of 5% and each multiple of 5%.

On 20 June 2011, Belgacom SA notified that its ownership of own shares crossed the threshold of 5% of outstanding shares on 17 June 2011. As of that day, Belgacom held in the aggregate 16,901,625 shares, representing 5% of the total number of outstanding shares.

On 16 September 2011, Capital Research and Management Company notified that its shareholding in Belgacom SA went below the 3% threshold on 12 September 2011 (previous notification of 3.27% shareholding on 1 April 2010). To Belgacom's knowledge, no other shareholder owned 3% or more of Belgacom's outstanding shares at 31 December 2011. Notifications of important shareholdings to be made according to the Law of 2 May 2007 or Belgacom's bylaws should be sent to FSMA (former CBFA) on trp.fin@fsma.be and to Belgacom on investor.relations@belgacom.be.

Investor Relations

Belgacom Investor Relations (IR) aims at providing the Belgian and international investment world with an open communication on a regular basis. Through a transparent and consistent dialog with investors and financial analysts, the Group strives for a fair share value based on high-quality financial information. In this context, Belgacom is proud to have received the overall Award for Best Financial Information in October 2011 from the Belgian Financial Analysts' Association.

To keep Belgacom's current and potential shareholders informed, Belgacom's management speaks to the financial community on a regular basis. Each quarterly results announcement is followed by a conference call during which maximum time is reserved for a "questions & answers" session. Twice a year, following the full-year and half-year results, Belgacom organizes a roadshow with top management covering the most important money centers of Europe and the United States. Furthermore, Belgacom participated in several major international investment conferences. In between these events, meetings and conference calls with senior management are organized. In all these activities, management is supported by the Investor Relations team (IR). Furthermore, on 29 June 2011, Belgacom organized an Investor & Analyst day in Brussels, during which the focus was on market shares and the involvement of all business units therein.

The Belgacom IR team offers daily support to the retail and institutional shareholders as well as to the analysts.

A strict quiet period is observed four weeks before the issuing of a quarterly report and six weeks before the communication of the annual results.

Shareholder remuneration

Shareholder return policy

Belgacom commits to an attractive shareholder remuneration policy by returning, in principle, most of its annual free cash flow1 to its shareholders.

The return of free cash flow either through dividends or share buybacks will be reviewed on an annual basis in order to keep strategic financial flexibility for future growth, organically or via selective M&A, with a clear focus on value creation. This also includes confirming appropriate levels of distributable reserves.

The shareholder remuneration policy is based on a number of assumptions regarding future business and market evolutions, and may be subject to change in case of unforeseen risks or events outside the company's control.

Shareholder return from the result of 2011

Following the above-mentioned commitment, the Board of Directors approved in October 2011 the payment of an interim dividend of EUR 0.50 gross per share (net amount of EUR 0.375 per share), corresponding to a total amount of EUR 161 million. The dividend was paid on 9 December 2011.

On 1 March 2012, the Board of Directors decided to propose an ordinary dividend of EUR 1.68 per share to the Annual Shareholder Meeting of 18 April 2012. After approval, the normal dividend will be paid on 27 April 2012, with record date on 26 April 2012 and ex-dividend date on 24 April 2012.

This brings the 2011 total dividend to EUR 692 million, including the interim dividend.

In addition to the approved share buyback (February 2011) for a maximum amount of EUR 200 million, Belgacom acquired in the second and third quarter of 2011, 4,300,975 treasury shares for an amount of EUR 100 million.

Financial calendar

18 April 2012

Annual General Shareholder Meeting

• 24 April 2012 Ex-dividend listing of
• shares 27 April 2012 Payment of ordinary dividend

04 May 2012 Announcement of first-quarter results

27 July 2012 Announcement of half-year results 2012

2012

2012

26 October 2012 Announcement of third-quarter results

Note that these dates may be subject to change.

CORPORATE GOVERNANCE/// page 68

8 a.m., Zwevezele Juliana

My son Julian, while recovering from a severe flue that kept him at home for nearly a week, told me he wanted to become a doctor, like his mum. I said: why? He said: people like doctors because they cure them. I said: but a doctor can't always cure people. He said: but you always cure people, don't you? Then he gave me a hug. And I thought: I am a doctor and probably a good mom. There's a lot a doctor can do at home without losing touch. I wouldn't mind Julian becoming a doctor one day.

CORPORATE GOVERNANCE/// page 70

Corporate governance statement

Corporate governance aims to define a set of rules and behaviours according to which companies are properly managed and controlled, with the objective of increasing transparency. It is a system of checks and balances between the shareholders, the Board of Directors and management. Belgacom is committed to comply with the legal, regulatory, and best practices.

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 otherwise 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;

Members of the Board of Directors appointed by the Belgian State

Name	Age	Position	Term
Theo Dilissen	58	Chairman	2004 - 2015 (*)
Didier Bellens	56	President & CEO	2003 - 2015
Martine Durez	61	Director	1994 - 2012
Mimi Lamote	47	Director	2006 - 2012
Michèle Sioen	46	Director	2006 - 2012
Michel Moll	64	Director	1994 - 2012
Paul Van de Perre	59	Director	1994 - 2012

* As Chairman until 2012

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

Name	Age	Position	Term
Jozef Cornu	67	Independent Director	2009 - 2015
Guido J.M. Demuynck	61	Independent Director	2007 - 2013
Pierre Demuelenaere	53	Independent Director	2011 - 2017
Pierre-Alain Desmedt	68	Independent Director	2004 - 2016
Carine Doutrelepont	51	Independent Director	2004 - 2013
Oren G. Shaffer	69	Independent Director	2004 - 2013
Lutgart Van den Berghe	59	Independent Director	2004 - 2016

• 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.

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 shareholding
• 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.

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 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.

Audit and Compliance Committee

The Audit and Compliance Committee (ACC) 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 Audit and Compliance Committee's role is to assist and advise the Board of Directors in its oversight of:

• The financial reporting process;

• Efficiency of the systems for internal control and risk management of the company;

• The Company's internal audit function and its efficiency;

• The quality, integrity and legal control of the statutory and the consolidated annual accounts and the financial statements of the Company, including the follow-up of questions and recommendations made by the auditors;
• The relationship with the Company's auditors and the assessment and monitoring of the independence of the auditors;
• The Company's compliance with legal and regulatory requirements;
• Compliance within the Company with the Company's Code of Conduct and the Dealing Code.

The Audit and Compliance Committee meets at least once every quarter. Messrs. Pierre-Alain De Smedt (Chairman), Guido J.M. Demuynck, Michel Moll, Oren G. Shaffer and Paul Van de Perre are the members of the Audit and Compliance Committee.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee (NRC) consists of five Directors, the majority of whom must be independent. In line with its charter, this committee is chaired by the Chairman of the Board of Directors, who is an exofficio member.

The Nomination and Remuneration Committee's role is to assist and advise the Board of Directors regarding:

• The nomination of candidates for appointment to the Board of Directors and the Board Committees;
• The appointment of the President & Chief Executive Officer and of the members of the Management Committee on proposal of the President & CEO;
• The appointment of the Secretary General;
• The remuneration of the members of the Board of Directors and the Board Committees;
• The remuneration of the President & Chief

Executive Officer and members of the Management Committee;

• The review on an annual basis of the remuneration philosophy and strategy for all personnel, and specifically the compensation packages of top senior management;
• The oversight of the decisions of the President & Chief Executive Officer with respect to the appointment, the dismissal and the compensation of management;
• The preparation of the remuneration report and the presentation of that report at the Annual General Shareholders meeting;
• Corporate governance issues.

The Nomination and Remuneration Committee meets at least four times a year.

The first meeting each year reviews the performance, budgets for payout of bonuses and merits, and long-term and short-term incentive plans. At that meeting an annual review of the philosophy and strategy of the remuneration is also discussed. At the second meeting the Nomination and Remuneration Committee fixes the performance measurement targets of the President & Chief Executive Officer and the members of the Management Committee through Key Performance Indicators. In addition to these meetings, the Committee organises a meeting on Human Resources and a meeting on Corporate Governance.

In 2011, Mr. Theo Dilissen (Chairman), Mr. Jozef Cornu, Ms. Martine Durez, Mr. Pierre-Alain De Smedt and Ms. Lutgart Van den Berghe were the members of the Nomination and Remuneration Committee.

Strategic and Business Development Committee

The Strategic and Business Development Committee (SBDC) consists of six Directors. In line with its charter, the President & Chief Executive Officer and the Chairman of the Board of Directors are ex-officio members, and the Committee is chaired by the Chairman of the Board of Directors. One additional mem-

CORPORATE GOVERNANCE/// page 72 Members of the Board of Directors

Didier Bellens

President & Chief Executive Officer and Director of Belgacom since March 2003.

more info see p. 77 Members of the Management Committee.

Theo Dilissen

Chairman of the Board of Directors of Belgacom since October 2004. Mr. Dilissen is since June 2010 CEO of Arcadis Belgium. Previously Mr. Dilissen was CEO, Managing Director and Vice-Chairman of Real Software and from 1989 to 2000 he was COO and member of the Board of ISS (a Danish publicly listed company). From September 2005 until the end of March 2009 he was CEO and afterwards Chairman of Aviapartner. Since January 2011 Mr. Dilissen is also member of the Board of Directors of Eurostar. He studied Sociology and holds a Master in Business Administration.

Paul Van de Perre

Mr. Van de Perre is the co-founder of GIMV (Venture Capital Firm) and was formerly a director of Sidmar (Arcelor). He is currently director of Grontmij NV, Greenbridge Incubator (University of Ghent) and member of the Investment Commitee of PMV. Mr. Van de Perre is CEO of Five Financial Solutions (corporate finance) and CEO of Caesar Real Estate Fund (real estate finance). Mr. Van de Perre holds an MBA in Economics and is a certified accountant (IAB).

Formerly, Mr. Shaffer was Vice Chairman and Chief Financial Officer of Qwest Communications from 2002 to 2007 and President and Chief Operating Officer of Sorrento Networks. He was a member of the Board of Directors at Belgacom from 1996 to 2000. He currently holds directorships on various boards . He received a Bachelor of Science in business administration from The University of California at Berkeley and a Master of Science in management from The Massachusetts Institute of Technology.

Ms. Michele Sioen is CEO of the Sioen Industries group since 2005. She held various positions in the group from 1990 until 2005. Sioen Industries produces and processes technical textiles, is stock quoted and world market leader. Michele Sioen was president of Fedustria until 2010. She is vice president of the VBO and is a member of the board of directors of several companies: amongst others ING Belgium and D'Ieteren. She is also member of the Corporate Governance Commission. Michele Sioen holds a degree in Economics and several postgraduate degrees.

Michèle Sioen

Ms. Durez was the Chief Financial and Accounting Officer at bpost until January 2006, when she became Chairman of the Board of bpost. Ms. Durez was also Professor of Financial Management and Analysis at the University of Mons-Hainaut until 2000. She has also served as a member of the High Council of Corporate Auditors and the Committee of Accounting Standards and as a special emissary at the Cabinet for Communication and State Companies. She served as a regent of the National Bank of Belgium. Ms. Durez graduated as a Commercial Engineer and holds a PhD in Applied Economics from the University of Brussels (ULB).

Martine Durez

Mr. Moll serves as a non executive director in industrial and financial companies such as Sonaca (Société Nationale de Construction Aérospatiale) and SBI (Belgian Corporation for International Investment). He is also a Censor of the National Bank of Belgium. Until April 2007 he was President & CEO of the limited company BATS (Belgian Advanced Technology Systems), specialized in Security Electronics, in Liège. Until December 2005, Mr. Moll was President of the venture company BRUFICOM and before that he was manager and director of the National Investment Corporation (SNI) in Brussels. Mr Moll graduated as Engineer in applied economics from the business school of the University of Louvain (UCL).

Michel Moll

Mr. De Smedt is since March 2011 the Chairman of the Fédération des Entreprises de Belgique (FEB/ VBO). Before and since June 2006, he was the Chairman of Febiac (Fédération belge de l'Automobile et du Cycle). From 1999 till end of 2004 he was Executive Vice President of Renault. He was chairman of Autolatina, VAG and Ford's joint venture subsidiary in Latin America. He served as Chairman of Volkswagen Brazil and Argentina before being appointed as Chairman of Seat. Mr. De Smedt is the Chairman of the Board of Deceuninck Plastics Group and a member of the Board of Alcopa (Group Moorkens). He is a graduate in engineering and economics of the University of Brussels (ULB).

Lutgart Van den Berghe

Ms. Lutgart Van den Berghe is doctor in Business Economics of the University of Ghent (B). She is Executive Director of GUBERNA (Belgian Governance Institute) and Extra-Ordinary Professor at the University of Ghent (B). She is a Partner of the Vlerick Leuven Gent Management School where she served for many years as Chairman of the Competence Center "Entrepreneurship, Governance and Strategy". She is a Member of the Belgian Commission for Corporate Governance and Non-Executive Director in several international companies, such as SHV (NL) and ELECTRABEL (B). At EcoDA (European Confederation of Directors' Association), she is a Member of the Board and chairwoman of its policy committee.

Pierre Demuelenaere

Mr. Pierre Demuelenaere is the co-founder, President & CEO of I.R.I.S. (Image Recognition Integrated Systems), a company created in 1987 to commercialize the results of his PhD. Mr. Demuelenaere has more than 30 years of experience in Imaging and Artificial Intelligence. He has accumulated a solid experience in technology company management, R&D management and setting up of international partnerships with US and Asian companies (HP, Kodak, Adobe, Fujitsu, Samsung, Canon…). He remains very involved in defining the R&D vision of I.R.I.S and has contributed to the development of new technologies, new products and the filing of a number of patents. Pierre Demuelenaere received the "2001 Manager of the Year" award and I.R.I.S. received the «2002 Company of the year» award. He is also member of the board of directors of Pairi Daiza, BSB and Guberna. Mr. Demuelenaere is a civil engineer in Microelectronics from the Université Catholique de Louvain (UCL) and received his PhD in applied sciences in 1987.

Ms. Lamote is Vice President at Grand-Vision B.V. (former Pearle Europe), Amsterdam. She started her career in retail in 1988: she held different positions in C&A Europe. From 2001 until 2005 Ms. Mimi Lamote was General Manager of C&A Belgium-Luxembourg. From 2001 until 2004 she was member of the Board of Directors of the Federation of Enterprises in Belgium (FEB). In the same period, Mrs. Lamote was also member of the Board of Directors of Fedis (Federation of Distribution). From 2005 until 2006 she was CEO of SCF (Belgium-Lithuania), listed on the Belgian stock market. From 2007 until October 2009, Ms. Lamote worked as COO in ZNA (hospital network Antwerp). She holds a master degree in Applied Economic Sciences of the University of Antwerp, a master in Retail Management of the Tias University of Tilburg and several other postgraduate degrees.

Ms. Doutrelepont is a lawyer at the Brussels' Bar and member of the Bar of Paris. She is the founding partner of the Belgian law firm Doutrelepont & Partners, which specialises in Information and Communication Technologies, Intellectual property, Media law, Competition matters and European law. She holds a PhD in law from the University of Brussels (ULB). She is a Professor of Media Law, Intellectual Property Law, and European Law at the ULB Faculty of law, at the Institute for European Studies, as well as in universities in other countries. She is also President of the Information and Communication Law Centre of the ULB. For years, she worked as an Expert for the European Commission (General Directorate Internal Market), at the Belgian Senate and at the Belgian Competition Council. Since 2008, she is a Member of the Royal Academy of Belgium (Technology and Society Section). She is the author of several books and publications.

Jozef Cornu

Mr. Jozef Cornu embarked on his career at the Brown Boveri Research center (now ABB) in Switzerland in 1970. From 1973 until 1982 he held various positions in Bell Telephone Mfg Co, the Belgian subsidiary of the ITT Group. From 1982 to 1984 he was CEO of Mietec, a start-up semiconductor company. From 1984 to 1987 he was General Manager of Bell Telephone Mfg Co. From 1988 to 1995 he was a member of the Management Board of Alcatel NV, before assuming the post of General Manager of Alcatel Telecom from 1995 to 1999. From 2000 to 2008 he was a member of the board of Alcatel (and later Alcatel-Lucent) and advisor to the chairman until 2004. From 2006 to 2007 he was chairman of ISTAG (Information Society Technologies Advisory Group) of the European Union. From 2007 to 2008 he was chairman of Medea+, the European Eureka programme for research in Microelectronics. Mr. Cornu was CEO of Agfa-Gevaert from December 2007 till end of April 2010 and remains a member of its board of directors. He is also a non-executive director at KBC. Mr. Cornu holds a degree of civil engineer in electrical and mechanical engineering from the Catholic University of Leuven, as well as a Ph.D. in electronics from Carleton University in Ottawa, Canada.

Until December 2010, Mr. Demuynck was CEO of Liquavista. Before that he held various positions within Royal Philips Electronics NV from 1976 till 2002. Amongst others, he was Vice President Marketing Audio in the USA, CEO of Philips in South Korea, General Manager Line of Business Portable Audio in Hong Kong, CEO Group Audio in Hong Kong. In 2000, he became CEO Product Division Consumer Electronics in Amsterdam and member of the Group Management Committee of Philips. In 2003, Mr. Demuynck joined Royal KPN where he became member of the Board of Management and CEO of the Mobile Division (KPN Mobiel Netherlands; Base Belgium, E-Plus Germany). Until July 2008, he was the CEO of Kroymans Corporation BV in the Netherlands. Mr. Demuynck is also member of the Supervisory Board of Tom Tom since June 2005. As from January 2011 he joined the Supervisory Board of Apollo Vredestein BV and the Supervisory Board of Xsens BV. As from January 2012 he is also Board member of Divitel BV and Aito BV. He holds a degree in applied economics from the university of Antwerp (UFSIA) and a degree in marketing from the University of Ghent (R.U.G).

CORPORATE GOVERNANCE/// page 74

ber is chosen among the Directors appointed by the Belgian State. Three members must be appointed among the Directors appointed by the General Shareholders meeting.

The Strategic and Business Development Committee's role is to review envisaged acquisitions, mergers and divestments over EUR 100 million and to review large corporate restructuring programmes. If appropriate, the Board of Directors can decide on establishing a special ad hoc Committee, dealing with a specific subject, and composed of members with the appropriate experience.

In 2011, Messrs. Theo Dilissen (Chairman), Didier Bellens, Jozef Cornu, Guido J.M. Demuynck, Michel Moll and Mrs. Carine Doutrelepont were the members of the Strategic and Business Development Committee.

Changes in the composition of the Board of Directors

At the General Shareholders Meeting of 2011. Mr. Georges Jacobs resigned as member of the Board for having reached the age limit of 70 years and was replaced by Mr. Pierre Demuelenaere.

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.

Transactions between the company and its Board Members and executive managers

A general policy on conflicts of interest applies within the company. It prohibits the possession of financial interests that may affect personal judgment or professional tasks to the detriment of the Belgacom Group. In accordance with article 523 of the Belgian Companies Code, the President & CEO, Mr. Didier Bellens, declared to have a conflict of interest in connection with the Employee Incentive Plans of the agenda of the Board of Directors' meeting of 24 February 2011. He is in fact a beneficiary of the Senior Management Short- & Long-term Incentive Plan 2009. He informed Belgacom's auditor of this conflict of interest and decided not to participate in the deliberation or voting on this item.

On 24 February 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. These transactions take place in the ordinary course of business and at arms length. 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 EUR 30,250 in 2011.

Activities Report of the Board and Committee meetings

In 2011, 7 meetings took place for the Board of Directors, 7 meetings for the Audit and Compliance Committee, 6 for the Nomination and Remuneration Committee and 2 for the Strategic and Business Development Committee. A list with the attendance of the members is included in the Remuneration Report.

Application of the measures taken by the company in order to comply with legislation on insider trading and market manipulation (market abuse)

In order to comply with legislation on insider dealing and market manipulation, Belgacom adopted a dealing code prior to the Initial Public Offering. This code aims to create awareness about possible improper conduct by employees, officers and Directors and the possible sanctions. This dealing code has been widely communicated and is available to all employees. A list of key persons is kept, and all Directors and key employees were requested to sign an affidavit that they had read, understood and agreed to comply with the dealing code. Closed periods (including prohibited periods) are defined, and any deal must be communicated to and cleared by the Head of Compliance Services before transaction (see "Compliance" section on p. 83).

Evaluation of the Board

Given the fact that the Board of Directors performed an evaluation in 2010, no evaluation has been done in 2011. The action plan, as described in the Annual Report 2010, was further implemented in 2011.

Management

President & Chief Executive Officer

The President & Chief Executive Officer is appointed by the Belgian State by Royal Decree deliberated in the Council.

Appointments are for a renewable six-year term, and can be terminated only by Royal Decree deliberated after discussion in the Council of Ministers. In line with the 1991 Law and the Company's Articles of Association, the President & Chief Executive Officer is a member of the Board of Directors. The President & Chief Executive Officer and the Chairman of the Board of Directors must come from different language groups.

The President & Chief Executive Officer is entrusted with day-to- day management, and reports to the Board of Directors. In addition, in line with the 1991 Law and the company's Articles of Association, the Board of Directors may, deciding by a majority of two thirds of its members present or represented, delegate all or part of its powers to the President & Chief Executive Officer, with the exception of:

• The approval of the Management Contract with the Belgian State and changes to it;
• The establishment of the business plan and general policy of the company;
• The supervision of the President & Chief Executive Officer;
• And other powers explicitly reserved by law to the Board of Directors which include, for example, the establishment of the annual accounts for submission to the General Shareholders Meeting and the preparation of merger proposals.

The Board of Directors has delegated broad powers to the President & Chief Executive Officer.

The current President & Chief Executive Officer is Mr. Didier Bellens. Mr. Bellens' sixyear fixed-term contract started on 1 March 2003 and was renewed in December 2008 for a new six-year term that will end on 28 February 2015.

Management Committee

The members of the Management Committee are appointed and dismissed by the Board of Directors on proposal of the President & Chief Executive Officer, after consultation of the Nomination and Remuneration Committee. The powers of the Management Committee are determined by the President & Chief Executive Officer. The Management Committee's role is to assist the President & Chief Executive Officer in the exercise of his duties.

The Management Committee aims to decide by consensus, but in the event of disagreement, the view of the President & Chief Executive Officer will prevail.

The Management Committee generally meets on a weekly basis.

In 2011, the Belgacom Management Committee, in addition to the President & Chief Executive Officer, was composed of the following members (see table below):

Mr. Grégoire Dallemagne left the company on 6 April 2011.

Ms. Astrid De Lathauwer left the company on 15 September 2011.

Changes in the composition of the Management Committee since 2012

Since 1 January 2012, Mr. Michel Georgis is the Executive Vice President Human Resources and Mr. Scott Alcott is the Executive Vice President of the Consumer Business Unit of Belgacom.

On 1 March 2012, Mr. Geert Standaert was appointed as Executive Vice President Service Delivery Engine.

Members of the Management Committee

Name	Age	Position
Scott Alcott	46	Executive Vice President Service Delivery Engine
Bart Van Den Meersche	54	Executive Vice President Enterprise Business Unit & Chief Executive Officer of Telindus Group N.V.
Michel Georgis	59	Executive Vice President Consumer Business Unit
Ray Stewart	63	Executive Vice President Finance
Bruno Chauvat	49	Executive Vice President Strategy & Content

CORPORATE GOVERNANCE/// page 76

Members of the Belgacom Management Committee

Didier Bellens

Mr. Bellens started his career at Deloitte Haskin & Sells. He held the post of financial Director of the Brussels Lambert Group until 1985, before taking on the position of Deputy Manager of the Pargesa Holding, where he was responsible for the management of holdings, mergers and acquisitions. Between 1992 and 2000 he was back at the Brussels Lambert Group, as Managing Director, taking charge of the group's strategic participations in companies such as Royale Belge, the BBL and the CLT. He played an instrumental role in the merger between AXA and Royale Belge, the change in ownership of the BBL, and the merger between the CLT and the UFA. Between 2000 and 2003, he served as CEO of the RTL Group, where he focused on the group's international expansion. He concluded the merger with Pearson Television and launched the RTL Group on the stock market. Mr. Bellens was appointed Belgacom's President and Chief Executive Officer for the first time in March 2003. His mandate was then renewed in March 2009 for a six-year term. Mr. Bellens is a member of the Board of Directors of BICS, Scarlet and Tango. He is also a member of the Board of Directors of AXA Belgium, VOKA (the Flemish Chamber of Commerce and Industry) and is on the steering committee of the FEB (Federation of Enterprises in Belgium). In addition, Mr. Bellens serves as independent Chairman of the Nomination and Remuneration Committee, and as independent Director of the Board of Directors of the Compagnie Immobilière de Belgique. He is also advisor to CV Capital Partners and member of the International Advisory Council of the New York Stock Exchange. He is also a member of the Board of Directors of the Erasmus Foundation, of Business & Society and of the ULB Foundation, and serves as Vice Chairman of the Solvay Business School's Consultative Council. Mr. Bellens holds a degree in management engineering from the Solvay Business School (ULB).

Scott Alcott

Scott Alcott was in 2011 the Executive Vice President of Belgacom's Service Delivery Engine division. In that capacity, he oversaw all technical infrastructure and operations for the group as well as wholesale activities. Previously Mr. Alcott has served as Belgacom's Chief Operating Officer Fixed Line Services, Chief Strategy Officer, Chief Information and Technology Officer, General Manager of Marketing and Product Management, EVP (a.i.) Enterprise Business Unit and CEO (a.i.) of the Telindus Group. Prior to Belgacom, Mr. Alcott held various positions in marketing, product management and new business development for AT&T, AT&T Wireless, Ameritech and SBC. Mr. Alcott is a member of the Board of Directors of BICS, Scarlet, Calient Networks, AmCham Belgium, and the International School of Brussels. Mr. Alcott holds a B.S. in Economics from the Wharton School at the University of Pennsylvania. Since 1 January 2012 Mr. Alcott is the Executive Vice President of the Consumer Business Unit of Belgacom.

Michel Georgis

From June 2007 until December 2011, Michel Georgis was the Executive Vice President of the Consumer Business Unit Belgacom. Since 1 January 2012 he is the Executive Vice President Human Resources. He is also the Chairman of the Skynet and Tango Luxembourg Boards and member of the Committee for Development of Belgian Sports (Belgian Olympic Committee). As of May 2005 and until the integration in January 2010, Michel Georgis was the CEO of Proximus (Belgacom Mobile). Prior to this position he was as of January 2004 the Chief Operations Officer at Proximus. He joined Proximus in January 2000 as Executive Vice President Sales, Marketing & Customer Operations. Michel Georgis started his career in 1977 at Coca-Cola Belgium. In 1991 he joined Interbrew, where he filled different positions before becoming Sales & Marketing Director Central & Eastern Europe. Michel Georgis holds a Master's degree in Applied Economics from the University of Leuven.

Ray Stewart

Ray Stewart is Executive Vice President Finance & CFO. Prior to Belgacom, from 1994 until 1997 he was the Chief Financial Officer for Matav, the incumbent Telephone Company in Hungary. From 1991 to 1994 he was the Chief Financial Officer for Ameritech International which was the International Business Development unit for Ameritech headquartered in Chicago. He has a Business Undergraduate degree in Accounting and a Masters of Business Administration in Finance. He is also a Certified Public Accountant. Ray Stewart is also a member of the Board of Directors of Nyrstar since September 2007.

Bart Van Den Meersche

Bart Van Den Meersche is the Executive Vice President of Belgacom's Enterprise Business Unit. Mr. Van Den Meersche recently joined Belgacom, after 28 years of experience in the ICT Sector through a professional career with IBM, of which 16 years in different Management positions, including 8 years as Country General Manager of IBM Belgium/Luxembourg. In his last year at IBM, he was Vice President Industries & Business Development IBM South-West Europe and a member of the IBM South-West Europe Executive Management Team.

Bart Van Den Meersche holds a degree in Mathematics from the University of Leuven. Mr. Van Den Meersche was during 6 years President of Agoria ICT and also a member of the Board of Agoria, VOKA and VBO/FEB.

Bruno Chauvat

Bruno Chauvat joined the Belgacom Management Committee as Executive Vice President Strategy & Content in September 2011. Mr. Chauvat started his career in 1983 as Media Financial Analyst. Over the years he held executive positions in media & telecom industries, from small entrepreneur-driven ventures to large international listed companies : Co-head of European media research at UBS, CEO of Audiofina (subsidiary of Groupe Bruxelles Lambert), Managing Director & Chief Strategy Officer of RTL Group, Consultant/Advisor to the CEO leading Belgacom TV Project (Belgacom Group), Founder and CEO of MusicMakesFriends.com/ Playtime Luxembourg. As CEO of Broadcasting Communication & Media Consulting, he has also enabled Belgacom to settle in the past 2 years several innovating strategic partnerships (OnLive, Jinni, Softkinetic, Blinkx, Mubi, …). He is also a Board Member of Tango and Telindus Luxembourg. Mr. Chauvat holds a Master's degree in management engineering and a Financial Analyst professional certificate.

CORPORATE GOVERNANCE/// page 78

Remuneration report

Belgacom considers transparency about executive remuneration very important. Therefore, the company provides the following information towards its shareholders, and all other stakeholders, in conformity with the corporate governance law of April 6, 2010 and Principle 7 of the Corporate Governance Code 2009. This implies the description of the Director's remuneration and 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 contractual relationships.

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 2011: it foresees an annual fixed compensation of EUR 50,000 for the Chairman of the Board of Directors and of EUR 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 EUR 5,000 per attended meeting of the Board of Directors. Attendance fees of EUR 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 EUR 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 performancebased remuneration such as bonuses or longterm 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 2011, based on their activities and attendance at Board and Committee meetings is presented in the table below.

Remuneration Policy

Belgacom has an advanced and 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 determined in a process of full 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 publicservice company, there are some differences in its dynamics and structure, compared to the private sector. This has a major 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 employ-

Activities report and attendance at Board and Committee meetings

Name	Board	ACC	NRC	SBDC	Total
	(total 7)	(total 7)	(total 6)	(total 2)	Remuneration
Theo DILISSEN	7/7		6/6	2/2	EUR 164,000
Didier BELLENS	7/7			2/2	EUR 0
Jozef CORNU3	7/7		5/5	2/2	EUR 79,500
Pierre DEMUELENAERE1	4/6				EUR 39,708
Guido J.M. DEMUYNCK3	7/7	5/6		2/2	EUR 79,500
Pierre-Alain DE SMEDT3	7/7	6/7	5/5		EUR 104,500
Carine DOUTRELEPONT3	6/7			2/2	EUR 62,000
Martine DUREZ	7/7		6/6		EUR 77,000
Georges JACOBS2	1/1		1/1		EUR 16,792
Mimi LAMOTE	7/7				EUR 62,000
Michel MOLL3	7/7	7/7		2/2	EUR 84,500
Oren G. SHAFFER	7/7	7/7			EUR 82,000
Michèle SIOEN	6/7				EUR 57,000
Lutgart VAN den BERGHE	7/7		6/6		EUR 77,000
Paul VAN de PERRE	7/7	7/7			EUR 79,500

1. Appointed on 13 April 2011

2.End of mandate on 13 April 2011 3.Appointed as member of the ACC or NRC or SBDC on 1 March 2011 (see section on Committees of the Board of Directors). Total Remuneration: telecom advantage included

ment 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 modernisespowerful public sector instruments, such as work-life benefits and social assistance. It is the responsibility of the Belgacom worklife 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 publicsector 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.

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 towards the upper quartile for total remuneration when there has been sustained excellent performance.

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 and a set of peer companies in the ICT sector, both in Belgium and in Europe.

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.).

No fundamental changes to the policy are foreseen for the next two years.

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

Overview of executive remuneration

The executive Remuneration Policy is build 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.

In the frame of the application of the new corporate governance law the Board of Directors has approved to rebalance the short term variable remuneration and the Long Term sharebased variable remuneration in order to obtain

Care Web Distribution Install & Repair Usage Customer Service Ease Web Distribu- tion Install & Repair Usage Customer Service Figure 2: Information about the "Care and Ease indicator"

Figure 3: The Belgacom Management Committee policy takes into account Group, Business Unit and Individual performance

Short term variable remuneration (in kEUR)

an equal weight between payment after 1 year and deferred payment, as from performance year 2011.

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 2011, these performance indicators included financial indicators as well as nonfinancial 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 (see figure 2) 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. 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.

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 2011, neither the President & CEO nor the other members of the Management Committee received a merit increase. Changes in the figures are the result of legal indexation in June 2011 and changes within the Management Committee composition (see basic remuneration chart).

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 (see figure 3).

The short term variable remuneration includes the actual bonus paid in the reported year 2011, for performance year 2010, through one of the options of the "Short Term Incentive Plan". The CEO and the members of the Management Committee can choose to receive the bonus in cash, or under the "Share Purchase Plan" or complementary pension plan.

The Discounted Share Purchase Plan provides the right to buy allocated shares at a 16.67% discount. The shares are treasury shares and are blocked for a period of two years. The employee himself finances 83.33% of the full share purchase price. The discount is financed by the employer.

The President & CEO chose to receive his bonus through a "Share Purchase Plan". The other members of the Management Committee have chosen different options.

The Short term variable remuneration of the President & CEO and the members of the Management Committee decreased in comparison with last year, as a result of lower KPI results of the performance year 2010 and changes in the composition of the management team (see short term variable remuneration chart).

Long term Share-based variable remuneration

On an annual basis the members of the Management Committee may also receive a stockoption 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.

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

		Didier BELLENS	Scott ALCOTT	Bruno CHAUVAT	Grégoire DALL EMAGNE	Astrid DE LATHAUWER	Michel GEORGIS	Ray STEWART	Bart VAN DEN MEERSCHE
on January 1st, 2011, Stock options remaining from previous years:		425,266	146,001	-	111,623	139,405	136,321	242,452	-
Stock options	Number	111,319	39,897	-	0	42,244	56,325	77,447	55,000
granted during reported year	Exercise price (in EUR)	25.015	25.015	-	25.015	25.015	25.015	25.015	25.015
Stock options exercised during reported year	Number	-	15,000	-	9,625	23,316	-	26,787	-
	Year of grant of options exercised	-	2005	-	2009	2006	-	2005	-
Stock options	Number
lapsed during reported year	Year of grant of options lapsed
TOTAL		536,585	170,898	-	101,998	158,333	192,646	293,112	55,000

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 has been updated to a vesting of 50% after at least 2 years and 50% after at least 3 years following the grant.
• An explicit vesting condition has been installed: 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 has been installed.
• 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 "Overview of stock option plan".

The variation in the figures of long term sharebased variable remuneration is due to changes within the composition of the Management Committee (see long term share-based variable remuneration chart).

Retirement and post employment benefits

The President & CEO participates in a complementary pension scheme which foresees an annual indexed contribution of EUR 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 on the next page reflects the remuneration and other benefits granted directly or indirectly to the members of the Belgacom Management Committee in 2011 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 the consequence of mainly:

• The reduced performances against the Key Performance Indicators driving variable remuneration related to the performance year 2010 paid in 2011, compared to the amount of 2009 paid in 2010.

CORPORATE GOVERNANCE/// page 82

Overview basic and variable remuneration CEO and other members of the Management Committee

	President & CEO		Other members of the Management Committee
Remuneration	2010	2011	2010	2011
Basic remuneration	914,708	938,591	2,608,943	2,597,582
Short term variable remuneration	736,046	712,056	2,226,448	1,653,134
Long term Share-based variable remuneration	465,006	474,330	1,116,018	1,154,360
Retirement and post-employment benefits	108,301	109,440	510,295	514,310
Other benefits	9,732	9,663	185,555	203,409
TOTAL (excl. employer's social contribution)	2,233,793	2,244,080	6,647,259	6,122,795
TOTAL (incl. employer's social contribution)	2,561,455	2,580,147	7,718,257	7,438,289

• the changes in the composition of the management team
• the legal indexation of salaries

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 and Ray Stewart have a contractual termination clause with an indemnity of one year's remuneration.

Scott Alcott and Michel Georgis have 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.

Bart Van Den Meersche and Bruno Chauvat have a contractual termination clause with an indemnity of one year's remuneration, compliant with the new corporate governance law.

Grégoire Dallemagne, who left the company in April 2011 and Astrid De Lathauwer, who left the company in September 2011, are granted an indemnity in line with their contractual termination clause.

For Grégoire Dallemagne, the contractual termination clause contained 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. The contractual termination clause of Astrid De Lathauwer contained one year's remuneration plus one month pay per year of seniority acquired.

Board of Auditors

The Board of Auditors of the company is composed as follows:

• Deloitte Auditors SC sfd SCRL, represented by Mr. Geert VERSTRAETEN also Chairman of the Board of Auditors
• Romain LESAGE, Member of the Court of Auditors;
• Pierre RION, Member of the Court of Auditors;
• Luc Callaert SC sfd SPRLU, represented by Luc CALLAERT

Deloitte Auditors SC sfd SCRL, represented by Mr. G. Verstraeten and Mr. L. Van Coppenolle, are responsible for the audit of the consolidated financial statements of Belgacom and its subsidiaries.

The other members of the Board of Auditors are, together with Deloitte, entrusted with the audit of the non-consolidated financial statements of the parent company.

Mr. Lesage's mandate will expire on 30 June 2014, the mandates of Mr. Rion, Deloitte and Callaert will expire at the annual General Shareholders Meeting in 2016.

Additional fees paid to the auditors

In accordance with the provisions of Article 134 § 2 of the Belgian Companies Code, Belgacom declares the supplementary fees that it granted during the 2011 financial year to two auditors, members of the Joint Auditors: Deloitte Auditors SC sfd SCRL and Luc Callaert SC sfd SPRLU.

The Group spent during the year 2011 an amount of 350,863.76 EUR for non-mandate fees for Deloitte Auditors SC sfd SCRL, the Group's auditors. This amount is detailed as follows:

in EUR	Auditor	Network of auditor
Other mandatory audit missions	15,330.00	10,100
Tax advice	0.00	0.00
Other missions	28,794.00	296,639.76
Total	44,124.00	306,739.76

The Group also spent during the year 2011 an amount of EUR 1,500 for non-mandate fees paid to Luc Callaert SC sfd SPRLU.

This amount is detailed as follows:

in EUR	Auditor
Other mandatory audit missions	1,500
Tax advice	0
Other missions	0
Total	1,500

Government Commissioner

The State has appointed Mr. Paul Vanwambeke as Government Commissioner in order to supervise, in conformity with the 1991 Law, the management of Belgacom from an administrative point of view.

Compliance

Role of Compliance at Belgacom

In an increasingly complex legal and regulatory context and a changing business environment as well as a difficult economic situation, compliance plays an important role in the business world. The Belgacom Group Compliance Office is responsible for coordinating compliance activities within the Belgacom Group, explaining the applicable rules, providing with the required tools to encourage compliance, and ensuring a consistent approach to compliance within the Group.

Our compliance program is a key building block for our Corporate Social Responsibility strategy (more infos available in the CSR section).

All employees must perform their daily activities and their business objectives according to the strictest ethical standards and principles using the company values (Respect, Can do and Passion) as guiding principle.

The Code " The way we do responsible business" sets out the above-mentioned principles, and aims to inspire each employee in his daily behavior and attitude. The ethical behavior is not limited to the text of the Code. The Code is a summary of the main principles and is thus not exhaustive. The principles and the rules in the Code are more developed in the different internal policies and procedures. The Code is available on www.belgacom.com.

Organisation of compliance activities

The Compliance Office is managed by the Vice President Group Legal, who reports directly to the Chairman of the Audit and Compliance Committee (ACC). The ACC Charter determines the ACC's responsibility in helping and advising the Board of Directors with respect to monitoring Belgacom's compliance with the legal and regulatory requirements, as well as internal compliance with the Code' "The way we do responsible business"and the various policies.

The Compliance Programme

Ethical behavior and respect for the values are part of the compliance approach within the Belgacom Group. The revision of the compliance programme launched in 2009 was continued in 2011. A very particular effort was made on the visibility of the policies, as well as of the Code of conduct. A new intranet site, entitled "Ethics in practice", mentioning all the policies classified per theme, has been launched. The Belgacom corporate site (www. belgacom.com) now contains a page fully dedicated to compliance, that provides visitors with all explanations regarding our compliance program.

The compliance domains which were the prioritary focus areas for 2011 were :

• The Dealing Code
• Regulatory compliance
• Competition law
• Chinese walls
• Environment
• Privacy
• Accounting practices
• Business expenses

Report on internal control and risk-management systems

Belgacom defines risk as any uncertainties impacting the achievement of its performance objectives. Taking risk is inherent in doing business and an effective internal control & risk management of those risks delivers values to the Belgacom various stakeholders.

The identification and the assessment of the particular risks and uncertainties which could affect Belgacom business are updated, reviewed and reported each year through an extensive Enterprise Risk Management framework exercise.

The detailed report on the assessment of the effectiveness of the internal control and risk management systems can be found on pages 98 to 103.

MANAGEMENT REPORT/// page 84

8:35 p.m., NEW YORK PIERRE

It's part of my job: I spend a lot of time travelling from A to B. I am currently in New York. Busy, busy, busy, all day long. No time to be in touch with the home front. But between midnight and 1:00 a.m., nothing comes between me and my family. It's my quality time. And they know it. They are there for me. I always watch the Belgian news (RTBF) on my notebook and I try to catch that comedy program my eldest son is so crazy about. Somehow it brings us closer, being able to talk about the same things. And, okay, it does brighten up my sometimes lonely evenings abroad.

MANAGEMENT REPORT/// page 86

Management report1

Belgacom Group

• Group revenue2 of EUR 6,406 million, 3% lower than previous year; -1.3% excl. regulation impact
• Group EBITDA of EUR 1,912 million, i.e. 3.7% less than for 2010; -2.2% excl. regulation impact
• Full-year EBITDA margin of 29.8%
• Belgacom ended the year 2011 with EUR 788 million of Free Cash Flow

Revenues

The Belgacom Group ended the year 2011 with a total revenue before non-recurring items of EUR 6,406 million, which is 3% or EUR 197 million less than the previous year. This is partly caused by regulatory³ measures which reduced the 2011 Group revenue by EUR 112 million, or -1.7%. In addition, the European-wide reduction of Mobile Termination Rates also impacted the revenue from BICS. Furthermore BICS revenue was negatively influenced by fluctuations in the dollar exchange rate. For both the Consumer and the Professional segment the pressure on revenue mainly came from the traditional Fixed and Mobile Voice business.

2009 2010 2011

Operating expenses

The Belgacom Group's total operating expenses for 2011 amounted to EUR 4,494 million before non-recurring items, which is a 2.7% improvement over 2010 driven by lower Cost of Sales.

The Belgacom Group ended the year 2011 with a Cost of Sales of EUR 2,517 million, i.e. 4.7% lower than the previous year. An important part of the decline is due to the favorable effect of certain regulatory measures⁴ . The remaining year-over-year decline is largely because of lower Cost of Sales from International Carrier Services (BICS), because of the lower BICS revenue.

In the course of 2011, the Belgacom Group saw its headcount further reduced, including the employees leaving under the ongoing "Tutorship" restructuring program. In addition, the total headcount was lower as a result of some divestments. By end-2011, the Belgacom Group counted 15,788 full-time equivalents, or 520 fewer FTEs than one year ago.

The 2011 HR-expenses5 of EUR 1,117 million were 0.9% higher versus 2010, including a negative effect of inflation-driven wage indexations, offsetting the benefit from the lower headcount.

The 2011 non-HR expenses6 for the Belgacom Group decreased by 1.1% to a total of EUR 860 million, including the positive effect from one-off provision reversals.

Total expenses (in EUR million) before non-recurring
items	4,035	4,619	4,494
Non-HR costs	840	870	860
HR costs	1,108	1,107	1,117
Cost of Sales	2,087	2,642	2,517
	2009	2010	2011

Headcount evolution (in FTE)

1. Detailed financial results as from page 94.

2. 1. Revenue excluding non-recurring items, and is defined as the sum of net revenue and other operating income
3. 1. Lower Mobile Termination Rates, lower Roaming rates, and the implementation of a collecting model for Premium Rate Services 4. Less costs following the lower Mobile Termination Rates and the implementation of a collecting model for Premium Rate Services

4. HR expenses: i.e. personnel expenses and pensions

^6. Other operating expenses

EBITDA

For 2011, Belgacom reported a Group EBITDA, before non-recurring items, of EUR 1,912 million, i.e. 3.7% less than for 2010. Regulatory measures had a negative impact for a total amount of EUR 29 million, or -1.5%. Excluding the regulation impact, the full-year EBITDA was 2.2% lower than the previous year. This led to a full-year EBITDA margin of 29.8%.

Tax Expense

The 2011 full-year tax expense amounts to EUR 262 million, whereas this was EUR 233 million in 2010. The effective tax rate resulting from the application of the general principles of Belgian tax law for 2011 was 25.3%. This compares to 21.6% for 2010, which benefitted from the anticipated use of tax losses carried forward and other one-off items.

* Normalized effective tax rate, excluding the non-recurring non taxable gain of EUR 436 million.

CAPEX

The Belgacom Group invested a total of EUR 777 million in 2011, or 12.1% of its Group revenue. The investments are mainly related to increasing Belgacom's coverage and speed for both its fixed and its mobile network, fully supporting the Group's convergence strategy. In this regard, the Broadway project - bringing fiber-to-the-curb and installing VDSL2 - continued. Belgacom spent EUR 48 million on this project in 2011, increasing the service coverage to over 81% by year-end. Furthermore, Belgacom upgraded its Mobile Radio Access network and Mobile Backhaul. End November 2011, Belgacom acquired 20 MHz of LTEspectrum in the 2.6 GHz frequency band for an amount of EUR 20.22 million.

Free Cash Flow*

Belgacom ended the year 2011 with EUR 788 million of Free Cash Flow, i.e. EUR 193 million lower than for 2010, which included a EUR 51 million one-off cash increase resulting from the full consolidation of BICS and lower income tax payments following the legal entity merger and positive one-offs. Furthermore, the 2011 Free Cash Flow was pressured by the lower operating result and the higher cash paid for Capex investments.

* Cash Flow before financing activities

Net financial position

Belgacom's net financial position remained very sound, with its financial debt end of 2011 at EUR 1,479 million. This corresponds to 0.8 times EBITDA (before non-recurring items), remaining one of the lowest net debt positions in the European telecom sector. The Net Debt increased by EUR 28 million as the cash returned to shareholders in the form of dividends and share buybacks slightly exceeded the 2011 Free Cash Flow.

The outstanding gross financial debt amounted to EUR 1,972 million (re-measured at fair value), none of it maturing before December 2013.

Net financial position (in EUR million)

MANAGEMENT REPORT/// page 88

Consumer Business Unit - CBU

• 2011 revenues of EUR 2,288 million, including EUR 54 million negative regulation impact
• Growth in Mobile Data and TV did not fully offset Fixed and Mobile voice decline
• Growing customer base: Belgacom TV +236,000; Mobile +36,000; Internet +32,0008
• Full-year segment result of EUR 1,025 million, i.e. a 4.4% decline from 2010

CBU revenues

For the full-year 2011, CBU reported revenues of EUR 2,288 million or a decrease of 3.3% compared to 2010. The year-over-year decline in revenue is for a large part driven by the impact of regulatory measures, reducing the 2011 revenue by EUR 54 million (-2.2%). This resulted from the carry-over effect from the implemented financial collecting model for Premium Rate Services, the further decline of the roaming tariffs, the double cut in Mobile Termination Rates and consequently the decline in fixed-to-mobile tariffs. These regulatory measures impacted fixed voice, mobile voice and mobile data revenues.

When excluding these regulatory impacts, the underlying revenue from the consumer business unit was down 1.1% compared to the previous year as the growth from Mobile Data and TV did not fully offset the decline in traditional telecom products such as Fixed and Mobile voice.

2009 2010 2011

Belgacom's more traditional product lines such as Fixed voice and Mobile voice continued to be under pressure, largely due to regulation. The share of revenue from Voice in the total consumer revenue further decreased to 45% in 2011, whereas this was 49% in 2010.

The consumer segment generated EUR 454 million in revenue from Fixed voice, which is 10.2% lower compared to the previous year. The Fixed voice revenue was pressured by the ongoing erosion of voice access lines. However, as a result of targeted actions to revive the fixed voice line, the line erosion over 2011 improved to a loss of 115,000 lines versus 129,000 in 2010. End 2011, CBU counted a total Fixed Voice customer base of 1,818,0009 . Furthermore, the revenue from the Fixed line was pressured by the recurring discounts on multi-play Packs and some regulatory measures10 but received some support of the price indexations of 1 August 2010 and 1 January 2011.

The EUR 565 million of revenue from Mobile Voice11, was 11.9% lower than for 2010, including a significant impact from regulatory measures12. Over 2011, the mobile customer base grew soundly by 36,000 new customers to a total of 3,805,000, compared to a decline of 54,000 customers in 2010. CBU did especially well in postpaid, growing its customer base solidly by 85,000, partly driven by the growing success of Packs including mobile. This led to a further improvement in its postpaid ratio from 42.6% end of 2010 to 44.4% end of 2011. The prepaid customer base, including MVNO counted 49,000 fewer customers.

The revenue growth from Mobile data further accelerated in 2011, more than offsetting the revenue pressure on Fixed Internet, and driving the share of Data in the total CBU revenue to 31% versus 28% in 2010.

Fixed & mobile data revenue (in EUR million)

1. Excluding 11,000 Internet customers ('Internet for Employees') that were resegmented from EBU to CBU

2. Including Scarlet VoIP customers

3. Implementation of a financial collecting model and lower fixed-to-mobile tariffs following the cut in mobile termination rates 11. As of 2011 the allocation of Mobile Access revenue to Voice and Data was adjusted to better reflect the price plans. The 2010 revenue from Mobile Voice and Data was restated accordingly.

4. Lower roaming tariffs, a double cut in mobile termination rates and the implementation of a collecting model for Premium Rate Services

Full-year Mobile data13 revenues of EUR 369 million were 10.4% higher than for the prior year. Mobile data includes revenue from both SMS and non-SMS data, i.e. "Advanced Data".

Revenue from SMS continued its growth trend in 2011, increasing by 8.1% compared to the previous year. This trend is driven by the continued success of pricing plans including free SMS, boosting the total SMS volume by 13% to an average of 250 text messages/user/ month. Advanced Data revenue growth accelerated over 2011, up 28.5% year-over-year, driven by the strong growth in Mobile Internet and Mobile Data roaming.

The revenue from Fixed Internet saw a slight decrease of 1.4% from last year. While CBU continued to grow its Fixed Internet customer base in 2011, the revenue was impacted by the success of multi-play Packs at attractive discounts for the customer. This led to a 5% lower Broadband ARPU of EUR 26.8 for 2011. The Packs, however, provided good support to grow CBU's Internet customer base to a total of 1,156,00014, this in spite of tough competition.

Over 2011, Belgacom TV proved once more to be very successful, its customer base growing by 236,000 customers to a total of 1,211,000, including 190,000 multi-set-top box users. This results from a very sound gross customer gain, more than offsetting the temporary higher churn due to the loss of exclusivity on Belgian soccer broadcasting rights. The TV customer gain was mainly supported by Belgacom's attractive and well-targeted Packs including TV. As a result, Belgacom TV revenue grew to a total of EUR 208 million, up 14.3% compared to one year ago. In 2011, TV revenues represented 9% of total CBU revenues.

CBU operating expenses

CBU's total expenses were 2.4% down from last year. This is the result of lower Cost of Sales, which decreased year-over-year by 8% to EUR 624 million. Most of this decline was driven by a positive effect from regulatory measures15 and initiatives to improve product profitability.

Inflation-based wage indexations of October 2010 and June 2011 drove the 4.5% yearover-year increase in HR costs to EUR 340 million.

Non-HR costs for 2011 totalled EUR 299 million or 2.7% higher compared to 2010, including more outsourcing in the framework of the customer centricity project.

CBU segment result and contribution margin

The CBU full-year segment result amounted to EUR 1,025 million which is a 4.4% decline from 2010. This includes a negative regulation impact of EUR 17 million (-1.6%). The 2011 full-year contribution margin16 decreased to 44.8% from 45.3% for 2010.

Segment result (in EUR million) & margin

Tango

For the full-year 2011, Tango reported revenues of EUR 107 million or an increase of 8.4% compared to 2010. This growth is driven by strong sales in Luxembourg of smartphones and the iPhone, recently reinforced by the launch of the iPhone 4S. Along with the ongoing migration of prepaid towards postpaid offers and increased revenues from bundles, this resulted in a continued revenue increase. Furthermore, over the year 2011, Tango added 4,000 customers.

Revenue (in EUR million)

Tango Mobile customers (in '000)

1. As of 2011 the allocation of Mobile Access revenue to Voice and Data was adjusted to better reflect the price plans.

2. The 2010 revenue from Mobile Voice and Data was restated accordingly.

3. 1. Including 11,000 Internet customers ('Internet for Employees') that were resegmented from EBU to CBU
4. 1. Implementation of a collecting model and the cut in mobile termination rates 16. Belgacom does not apply a full cost allocation. Network and IT costs are therefore mainly centralized within SDE&W

Enterprise Business Unit - EBU

• Total underlying revenue remained nearly flat to 2010
• Organically, the revenue from ICT was up by 4.6% over the previous year
• Non-SMS mobile data revenue grew by 21.7% to EUR 118 million
• 2011 segment result totals EUR 1,185 million, which is 2.2% less than the previous year

EBU revenues

Over the year 2011 Belgacom's professional customer segment generated EUR 2,349 million in revenue, i.e. 3.0% lower than for 2010. This decline is partly explained by the divestment of Telindus Spain, partially compensated by the acquisition of Eudasys by Telindus France. Organically, i.e. excluding the M&A impact, the revenue erosion was limited to -2.0% and was mainly caused by regulatory measures, lowering EBU's 2011 revenue by EUR 45 million or -1.9%. Leaving aside the M&A and regulation impact, the underlying revenue from EBU remained nearly flat to 2010. The underlying revenue showed an improving trend over the quarters as the growth in Mobile Data and ICT increasingly offsets the pressure on Fixed and Mobile Voice.

The traditional voice products, both Fixed and Mobile, continued to feel pressure from regulatory measures, i.e. from the lowered Mobile Termination Rates, the resulting lower Fixedto-Mobile rates and the cut in Roaming rates. In 2011, Fixed and Mobile Voice represented 40% of the total EBU revenue, whereas this was 43% for the previous year.

In 2011, EBU generated EUR 496 million in revenue from Fixed Voice, which is 7.9% lower than for 2010. This is in part due to the lowered Fixed-to-Mobile rates, and in part due to the continued erosion of Fixed Voice lines. In 2011 EBU's Fixed Voice line base eroded by 55,000 lines to a total of 1,385,000. The price indexations of 1 August 2010 and 1 January 2011 gave some support. Nevertheless, the 2011 Fixed Voice ARPU17 fell by 4.2% to EUR 28.7.

Revenue from Mobile Voice for the year 2011 amounted to EUR 448 million, 10.4% lower compared to 2010. Regulatory price decreases in Mobile Termination and Roaming rates further impacted the Mobile Voice revenue, along with continued price erosion as a result of the successful uptake of Mobile pricing plans including free Voice minutes and the fierce competition in the Corporate Mobile Market. The price pressure was however partly compensated by a solid customer growth of 105,000 active Mobile customers18, ending 2011 with a total of 1,408,000 Mobile customers. Usage per customer was 0.9% lower from the previous year with an average usage of 319 minutes per month.

1. Average revenue per user on a monthly basis 18. Including Mobile Voice, Mobile Data and M2M cards In 2011 EBU reported EUR 697 million revenue from ICT, compared to EUR 692 million in 2010. The variance was however impacted by the divestiture of Telindus Spain and the acquisition of Eudasys by Telindus France. Organically, the revenue from ICT was up by 4.6% over the previous year, which is an improvement to the 3.3% growth seen in 2010, in spite of the unfavorable economic and financial climate of 2011.

Mobile Data revenue continued its growth trend in 2011, up by 15.4% to EUR 216 milion. The revenue from Mobile Data includes both revenue from SMS and revenue from non-SMS Data (Advanced Mobile Data).

Revenue from SMS grew by 8.7% year-overyear to EUR 98 million for 2011. The usage per customer increased by 14% to a total of 89 text messages per user per month.

Non-SMS Mobile Data revenue grew by 21.7% to EUR 118 million. The growth in Advanced Mobile Data revenue results from a strongly increasing customer base for Mobile Internet and a solid growth in Mobile Data Roaming.

For 2011, EBU reported Fixed data revenue of EUR 389 million, which is slighly down compared to last year. Revenue from Data connectivity did not fully offset the slightly eroding revenue from Fixed Internet. In a highly competitive and saturated professional Internet market, EBU kept its Fixed Internet customer base fairly flat, ending the year 2011 with 434,00019 Internet customers with an ARPU of EUR 39.2.

EBU operating expenses

EBU ended the year 2011 with EUR 639 million Cost of Sales, i.e. 6.7% less than for 2010. The lowered Mobile Termination rates for all Belgian Mobile operators positively impacted EBU's costs for terminating mobile calls on alternative mobile networks. In addition, EBU had less Cost of Sales due to the divestment of Telindus Spain.

Compared to 2010, EBU's HR-expenses went up 1.6% to EUR 381 million, with salaries impacted by inflation-based wage indexations20.

For 2011, EBU reported a total non-HR expense of EUR 144 million, i.e. 3.4% less than the previous year. The non-HR costs include some fluctuations in foreign currency effects.

EBU segment result and contribution margin

The EBU segment result for full-year 2011 totals EUR 1,185 million, which is 2.2% or EUR 27 million less than the previous year. This includes a EUR 7 million negative impact from Regulation, and a net negative impact from the divestment and acquisition within the ICT domain. The contribution margin21 increased slightly to 50.4% in 2011.

Segment result (in EUR million) & margin

1. Salaries were indexed by 2% on 1 October 2010 and 1 June 2011 for Belgacom SA employees, and on 1 January 2011 for all other employees 21. Belgacom does not apply a full cost allocation. Network and IT costs are therefore mainly centralized within SDE&W

^19. Including impact from resegmentation of 11,000 Broadband customers (Internet for Employees) to CBU

Service Delivery Engine & Wholesale – SDE&W

SDE&W revenues

Revenue within the SDE&W segment relates mainly to wholesale activities from Belgacom. Over the full-year 2011 the SDE&W revenues amounted to EUR 318 million, or 6.9% below those of 2010. This includes the negative effect from some regulatory22 measures, lowering the SDE&W revenue by EUR 13 million in 2011. The remaining decline is due to a lower volume of leased lines and decreases in Roaming prices.

SDE&W operating expenses

Total operating expenses for 2011 of EUR 410 million, were 9% lower versus 2010. Over 2011 the SDE&W cost of sales strongly declined by 21% to EUR 36 million, mainly as a result of the positive effect of some regulatory measures.

The positive effect from lower headcount on HR expenses fully offset the inflation-based salary indexations, leading to a 1.8% lower HR-expense for 2011.

The non-HR expenses of EUR 175 million for the full year 2011 were significantly lower compared to the previous year as 2010 included costs linked to the swap of the Mobile Radio Access network, whereas the 2011 expense benefitted from positive one-offs resulting from provision reversals due to litigation settlements.

Total expenses (in EUR million)

Staff & Support – S&S

S&S revenues

Staff and Support reported EUR 47 million of revenues for the year 2011. The increase over last year, however, is the result of the accounting of internal revenue, which was neutralized on a Group level.

S&S operating expenses

Total operating expenses were up by 5% to EUR 374 million, driven by non-HR expenses that included some internal costs, neutralized on a Group level, and one-offs. HR expenses were 3% down as the lower headcount offset the impact of wage indexations.

1. First quarter variance was still impacted by the introduction of a financial collecting model for Premium Rate Services as of April 2010; other regulatory impacts come from Mobile Termination Rates and lowered Local Loop Unbundling and Bitstream prices

International Carrier Services - BICS

• Solid volume growth: > 27 billion Voice minutes traded, non-Voice volume up 34%
• Volume-driven revenue growth only partly offset the negative MTR and currency effect
• 2011 gross margin slightly down from 2010

ICS revenues

ICS operated in an increasingly competitive market while its revenue was pressured by the European-wide decrease of Mobile Termination Rates and by a negative currency effect as the average dollar rate weakened yearover-year. Volumes, however, continued to grow solidly, with Voice volumes up 8.5% to more than 27 billion minutes traded, while non-Voice volume growth accelerated to 34%. The volume-driven revenue growth, however, only partly offset the negative MTR and currency effect. Over full-year 2011, ICS generated revenue of EUR 1,562 million, i.e. 3% below 2010.

ICS gross margin

ICS reported for full-year 2011 a gross margin of EUR 244 million. The growing non-Voice gross margin offset for a large part the decrease in Voice gross margin, resulting in an overall limited decline of ICS's gross margin by 1.1%. Voice unit margins were pressured by the intense competition in the International Carrier market, as well as by the high fluctuations in the EUR/USD exchange rate. Nonvoice margins, however, grew 10% year-overyear as a result of the increasing leadership of ICS in mobile data.

ICS EBITDA and margin

The reported EBITDA of ICS for 2011 of EUR 122 million was 6.1% down compared to last year due to the pressure on gross margins and higher non-HR costs, partly offset by lower HR-expenses.

The 2011 EBITDA margin of 7.8% remained nearly flat to last year as a result of the solid performance of the non-voice business.

ICS Volumes

Volumes continued to grow in 2011 with voice volumes up 8.5%, while non-voice volumes grew almost 34% year-over-year.

Volumes (in million)

Quarterly results as reported

Group - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues 1	1,641	1,664	1,640	1,658	6,603	1,583	1,612	1,596	1,616	6,406
Consumer Business Unit	590	592	585	600	2,368	565	579	571	572	2,288
Enterprise business unit	615	610	590	606	2,421	593	593	572	591	2,349
Service Delivery Engine & Wholesale	94	85	79	83	342	81	80	77	80	318
Staff&Support	10	7	10	7	35	8	7	25	8	47
International Carrier Services	378	414	415	402	1,610	372	388	401	401	1,562
Intersegment eliminations	-47	-45	-40	-39	-172	-36	-36	-51	-36	-159
Costs of materials and charges to revenues	-662	-674	-651	-655	-2,642	-609	-621	-633	-655	-2,517
Personnel expenses and pensions	-274	-275	-281	-278	-1,107	-274	-282	-278	-283	-1,117
Other operating expenses	-210	-212	-218	-230	-870	-220	-196	-213	-232	-860
EBITDA before non-recurring items	495	503	490	495	1,984	480	512	472	446	1,912
Segment EBITDA margin 1	30.2%	30.2%	29.9%	29.9%	30.0%	30.3%	31.8%	29.6%	27.6%	29.8%
Non recurring items	436	1	0	8	444	0	-18	0	4	-15
Ebitda	931	504	490	503	2,428	480	494	472	450	1,897

1. Before non-recurring items

Group - Capex

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Group Capex	154	222	139	219	734	173	161	163	279	777
Consumer Business Unit	49	19	11	54	132	44	27	24	40	134
Enterprise Business Unit	2	3	7	7	20	4	4	3	8	18
Service Delivery Engine & Wholesale	96	180	96	121	492	115	119	125	193	552
Staff & Support	5	13	19	26	62	7	9	9	26	51
International Carrier Services	2	8	6	11	27	3	2	3	14	22

CBU - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues	590	592	585	600	2,368	565	579	571	572	2,288
From Fixed	291	280	281	288	1,139	281	278	271	269	1,099
Voice	133	125	124	124	506	118	115	111	110	454
Data	85	85	84	83	337	85	83	82	82	332
TV	44	43	46	49	182	51	53	51	53	208
Terminals (excl, TV)	8	7	8	7	31	7	6	7	7	26
Scarlet	21	20	19	23	84	21	21	20	18	79
From Mobile	279	288	285	290	1,142	265	279	279	280	1,104
Voice	158	165	162	156	641	139	147	143	136	565
Data	83	82	82	88	334	87	92	93	97	369
Terminals (excl, TV)	15	16	17	21	68	14	14	16	19	63
Tango	24	25	25	25	99	25	26	28	28	107
Other	21	24	19	23	87	19	23	21	23	86
Costs of materials and charges to revenues	-180	-171	-158	-169	-678	-149	-149	-158	-168	-624
Personnel expenses and pensions	-81	-81	-82	-82	-325	-83	-85	-86	-87	-340
Other operating expenses	-65	-73	-70	-83	-291	-70	-74	-71	-84	-299
Segment result	264	267	276	266	1,073	264	271	257	233	1,025
Segment Contribution margin	44.7%	45.1%	47.1%	44.3%	45.3%	46.7%	46.8%	45.0%	40.8%	44.8%

CBU Operationals

	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
FROM FIxED
Number of access channels (thousands)	3,120	3,098	3,076	3,046	3,046	3,028	3,006	2,977	2,974	2,974
PSTN	1,904	1,877	1,850	1,817	1,817	1,781	1,756	1,728	1,712	1,712
ISDN	32	31	30	28	28	27	26	25	24	24
IP	93	92	90	88	88	88	88	86	83	83
ADSL, VDSL	1,091	1,099	1,107	1,113	1,113	1,131	1,136	1,138	1,156	1,156
Traffic (millions of minutes)	1,178	1,052	1,004	1,140	4,374	1,061	977	936	1,036	4,011
National	976	857	824	942	3,599	875	795	765	821	3,256
Fixed to Mobile	104	103	94	102	404	95	96	89	123	402
International	98	91	86	96	371	91	87	82	92	352
TV (thousands)	814	868	920	975	975	1,029	1,087	1,139	1,211	1,211
TV - households	713	753	795	839	839	879	925	963	1,021	1,021
of which multiple settop boxes	100	115	125	135	135	149	162	176	190	190
ARPU (EUR)
ARPU Voice	21.2	20.3	20.3	20.9	20.7	20.2	20.0	19.7	19.8	19.9
ARPU broadband	28.7	28.5	28.1	27.6	28.2	27.6	27.0	26.7	26.1	26.8
ARPU Belgacom TV	20.7	19.1	19.3	19.7	19.7	19.4	19.2	17.8	17.5	18.4
FROM MOBILE
Number of active customers (thousands)	3,739	3,745	3,773	3,769	3,769	3,723	3,726	3,774	3,805	3,805
Prepaid 1	2,201	2,188	2,199	2,165	2,165	2,117	2,096	2,111	2,116	2,116
Postpaid	1,538	1,557	1,573	1,604	1,604	1,606	1,630	1,663	1,690	1,690
Annualized churn rate (blended - variance in p.p.) 2	20.9%	20.1%	21.8%	22.8%	21.4%	21.3%	20.4%	20.4%	25.2%	21.8%
Net ARPU (EUR) 3
Prepaid	14.3	15.0	14.7	15.3	14.8	14.1	15.3	14.4	14.9	14.7
Postpaid	32.5	32.9	32.1	31.4	32.2	29.2	30.0	30.0	28.6	29.5
Blended	21.5	22.3	21.8	22.0	21.9	20.5	21.6	21.1	20.7	21.0
Blended voice	14.2	15.0	14.6	14.2	14.5	12.7	13.4	12.9	12.2	12.8
Blended data	7.3	7.3	7.2	7.8	7.4	7.8	8.2	8.2	8.5	8.2
UoU (units)	318.0	335.1	307.1	345.3	326.5	338.0	357.5	335.4	373.3	351.6
MoU (min) 4	104.4	110.5	105.9	107.5	107.0	102.2	106.6	103.6	103.8	104.3
SMS (units)	215.2	226.5	203.5	240.5	221.6	238.7	254.1	235.1	273.0	250.5

1. Prepaid includes Mobisud customers that were previously reported as MVNO customers

2. Q4 2011 impacted by clean-up of inactive prepaid cards. This clean-up has no impact on the number of active customers & prepaid net adds.

3. Mobile ARPU's 2010 have been adapted to reflect the change in mobile access revenue allocation 4. MoU reflect the duration of all calls from or to Proximus/voice customer/per month. In 2011 the definition of voice customers has been fine-tuned to exclude all data cards. 2010 MoU have been adapted accordingly.

MANAGEMENT REPORT/// page 96

EBU - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues	615	610	590	606	2,421	593	593	572	591	2,349
From fixed	432	425	413	427	1,697	420	417	398	420	1,655
Voice	141	136	130	132	539	128	125	121	122	496
Data	99	98	98	98	392	98	97	96	97	389
Terminals	18	18	19	18	74	18	18	18	18	72
ICT	174	172	166	179	692	175	177	163	182	697
From Mobile	177	180	174	170	702	169	171	169	168	677
Voice	129	130	123	119	500	115	115	110	108	448
Data	45	48	47	47	187	50	53	56	57	216
Terminals	3	3	3	5	15	4	3	3	3	13
Other	6	5	3	8	23	4	5	5	4	17
Costs of materials and charges to revenues	-183	-175	-163	-164	-685	-162	-160	-154	-164	-639
Personnel expenses and pensions	-91	-93	-96	-95	-375	-94	-98	-93	-96	-381
Other operating expenses	-36	-35	-39	-40	-149	-37	-37	-34	-36	-144
Segment result	306	308	292	306	1,212	300	298	291	296	1,185
Segment Contribution margin	49.7%	50.4%	49.5%	50.6%	50.0%	50.6%	50.3%	50.9%	50.0%	50.4%

EBU - Operationals

	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
FROM FIxED
Number of access channels (thousands)	1,922	1,912	1,901	1,886	1,886	1,861	1,849	1,834	1,820	1,820
PSTN	647	644	641	636	636	631	627	622	618	618
ISDN	818	810	801	791	791	781	771	763	752	752
IP	11	12	12	13	13	13	14	15	15	15
ADSL, VDSL	445	446	446	445	445	436	436	434	434	434
Traffic (millions of minutes)	848	790	727	781	3,145	782	732	672	716	2,901
National	579	529	487	529	2,123	526	485	445	476	1,932
Fixed to Mobile	173	168	153	165	660	165	160	147	160	633
International	96	93	86	87	362	90	86	80	80	336
ARPU (EUR)
ARPU Voice	30.9	30.2	29.0	29.7	30.0	29.1	28.9	28.1	28.6	28.7
ARPU Broadband	39.4	39.1	39.0	38.7	39.1	39.6	39.3	39.1	38.9	39.2
FROM MOBILE
Number of active customers (thousands)	1,252	1,271	1,286	1,303	1,303	1,327	1,357	1,380	1,408	1,408
Postpaid	1,252	1,271	1,286	1,303	1,303	1,327	1,357	1,380	1,408	1,408
Annualized churn rate (blended - variance in p.p.)	10.6%	10.9%	10.0%	10.8%	10.6%	11.1%	10.8%	9.4%	10.2%	10.3%
Net ARPU (EUR) 1
Postpaid	46.9	47.0	44.7	42.8	45.3	41.8	41.9	40.6	39.5	41.0
Postpaid voice	34.7	34.4	32.3	30.8	33.0	29.2	28.7	26.9	25.9	27.6
Postpaid data	12.2	12.6	12.5	12.1	12.3	12.6	13.2	13.8	13.7	13.3
UoU (units)	360.7	363.6	345.3	372.8	361.3	356.5	369.6	343.3	363.4	358.8
MoU (min) 2	322.0	324.3	308.3	330.5	321.8	317.1	328.3	305.0	322.8	318.9
SMS (units)	74.6	77.0	74.7	85.5	78.1	83.7	90.1	87.3	95.6	89.4

1. Mobile ARPU's 2010 have been adapted to reflect the change in mobile access revenue allocation.

2. MoU reflect the duration of all calls from or to Proximus/voice customer/per month. In 2011 the definition of voice customers has been fine-tuned to exclude all data cards. 2010 MoU have been adapted accordingly.

SDE&W - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues	94	85	79	83	342	81	80	77	80	318
Costs of materials and charges to revenues	-15	-10	-10	-10	-46	-9	-9	-9	-9	-36
Personnel expenses and pensions	-51	-48	-53	-50	-203	-49	-50	-50	-50	-199
Other operating expenses	-50	-50	-52	-50	-202	-52	-33	-48	-42	-175
Segment result	-23	-23	-36	-27	-109	-29	-12	-30	-21	-92

S&S - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues	10	7	10	7	35	8	7	25	8	47
Costs of materials and charges to revenues	1	0	0	0	1	0	0	0	-1	-1
Personnel expenses and pensions	-41	-43	-41	-40	-165	-39	-40	-40	-40	-160
Other operating expenses	-50	-45	-45	-52	-192	-47	-41	-66	-61	-215
Segment result	-80	-80	-75	-85	-320	-79	-74	-81	-95	-328

ICS - Financials

(EUR million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Revenues	378	414	415	402	1,610	372	388	401	401	1,562
Costs of materials and charges to revenues	-325	-359	-356	-344	-1,383	-320	-333	-342	-342	-1,338
Personnel expenses and pensions	-10	-9	-9	-10	-39	-10	-9	-9	-9	-37
Other operating expenses	-15	-15	-16	-12	-58	-18	-17	-15	-16	-65
Segment result	28	32	34	36	129	24	29	35	33	122
Segment EBITDA margin	7.4%	7.7%	8.1%	8.9%	8.0%	6.5%	7.5%	8.7%	8.3%	7.8%

ICS - Operationals

Volumes (in million)	Q110	Q210	Q310	Q410	2010	Q111	Q211	Q311	Q411	2011
Voice	5,922	6,254	6,433	6,680	25,290	6,574	6,997	6,853	7,018	27,442
Non-Voice (SMS/MMS)	168	188	209	235	800	230	253	276	315	1,074

The detailed Consolidated Financial Statements prepared under International Financial Reporting Standards can be consulted on the Belgacom website annualreport.belgacom.com The detailed Consolidated Financial Statements prepared under International Financial Reporting Standards can be consulted on the Belgacom website annualreport.belgacom.com

Internal control and risk management systems

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

Belgacom has set up an internal control system based on the COSO model, i.e. the internal control integrated framework and enterprise risk management 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.

1. Control environment

1.1 Organization of internal control

In accordance with the bylaws, Belgacom has an Audit and Compliance Committee (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 "licenciate" in commercial and financial sciences. He occupied during his career several functions as CFO, CEO and COO. Amongst his nonexecutive functions he is also member of the Audit Committee of Avis Europe.

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 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 Company'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 Belgacom's Code of Conduct and the Dealing Code.

The A&CC meets at least once every quarter.

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 the strictest ethical standards and principles, using the company 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.

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 the time 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.

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, but also provides the central support to the other accounting teams.

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.

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 must participate. 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 product & services.

2. Risk analysis

Belgacom believes that risk management is fundamental to corporate governance and the development of 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 31 of the consolidated financial statements. Risks related to important ongoing claims and judicial procedures are reported in note 33 of these statements. The Enterprise and financial reporting risks are detailed below. The related mitigating factors and control measures are described under caption 3.

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 company strategic development objectives. It seeks to maximise 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 is 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 A&CC.

Among the risks identified in the ERM exercise of 2011, the following risk categories were prioritized: changing business model, dependence on rightfully skilled personnel, the competitive environment, dependency on equipment and technology.

Changing business model:

As a telecom company, Belgacom operates in a dynamic environment that changes rapidly 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 WiFi, Mobile Internet and VoIP. This development could potentially impact Belgacom's future revenue and profit from billing by item, such as voice minutes or SMS.

The International Carrier Services segment too is subject to this changing business model, and could see its revenue from Voice traffic under pressure as IP technology makes inroads into traditional communications.

The rapid pace of the technological evolution requires internal innovation to be fast as well, which can be prevented by long internal development times hence stalling the launch of new services.

Dependence in rightfully skilled 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 products and services. Rapid changes in technology and the ceaseless 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 increases the need for staff with specific skills and expertise.

Competitive environment:

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 behavior among competitors. A new market entrant or radical price competition could cost Belgacom market share and revenues. For instance, a rapid transposition of an European directive on customer protection might see the Belgian government limit the contract duration of the customer to six months (rather than 12 months), which might intensify competitive pressure. Belgacom, however, has always adopted a rational pricing strategy and will continue to be disciplined in its customer offerings.

In the fixed business, cable companies are Belgacom's main competitors. Competition in the mobile market may become more intense now that Telenet Tecteo Bidco (which brings together Telenet and Voo) have obtained a mobile 3G-license.

In addition, the value of voice services is further challenged by OTT (Over The Top) players such as Skype on mobile.

New OTT players could also put ICS' revenues under pressure, with Skype, Google, Viber and Rebtel exerting competition and squeezing Voice-traffic margins.

Dependence on equipment and technology:

The business of Belgacom heavily depends on technical infrastructure such as telecommunication equipment and IT-platforms. Any technical failure could lead to business interruption, potentially with financial consequences and a reputation impact. Belgacom has a nation-wide access network, of which part is in place since 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 transformation program "Moveto-all-IP", which could be subject to delayed implementation and consequently delayed savings from the outphasing of technical buildings.

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.

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 reliability of the financials is put at risk.

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 additional administrative processes up in a short timeframe to collect relevant information or to implement updates to existing IT systems (e.g. billing systems).

Financial statement closing process:

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

3. Risk mitigation factors and control measures

Belgacom mitigation response strategies depend on the nature of the risk and may often combine various actions, including insurance, increased vendors SLA'S/ liabilities, credit scoring, risk avoidance or active risk management through people, processes and systems.

The cost of risk mitigation is considered in determining response strategies. Certain risks are consciously accepted based on their potential limited impact on the Belgacom organization and/or their low level of materiality. Risk such as political, economic, regulatory are beyond Belgacom control and mitigation is limited to responsive actions to limit their impact.

3.1. Enterprise risks

From the identified risks in the 2011 exercise, the following risk mitigation factors have been identified and control measures have been taken:

Changing business model:

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

MANAGEMENT REPORT/// page 102

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 of 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, such as cloud computing.

ICS is also pro-actively exploring new territories, geographically and technologically.

Dependence in rightfully skilled personnel: Belgacom's future success will be influenced by its 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, or the program for young potentials.

Competitive environment:

Belgacom is deliberately differentiating itself from the competition, by leveraging its virtualized entertainment offers in the private market and its cloud computing services for professionals. Simultaneously, Belgacom continues 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', available for non-Belgacom customers as well.

Dependence on equipment and technology:

Rolling-out a fiber-to-the-curb network was one of Belgacom's key priorities over the last years, while old copper cables are being replaced and new technologies show a promising evolutionary path for the last mile in copper.

Belgacom made the further improvement in the stability of its mobile network a priority as well. The "Network Resilience Program" has boosted the ability to keep the network in operation in the event of failures. In 2011, Belgacom cut the incidence of network problems in half.

To prevent problems in the supply chain, Belgacom monitors strictly its service and licence agreements with suppliers and vendors.

3.2. Financial reporting risks

In the area of financial reporting, the following mitigating factors have been identified and control measures have been taken:

New transactions and evolving standards:

It is the responsibility of the Corporate Accounting department to follow the evolution in area of evolving standard (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 guaranteed. 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.

Changes in tax law and regulations:

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.

Financial statement closing process:

Clear roles and responsibilities in the Closing Process of the Group Financial Statement 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.

4. Information and communication

4.1. Financial reporting IT systems

The accounting records of the Company 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.

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.

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 budget-actual 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).

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 company' 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 company 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.

Other information

Rights, commitments and contingencies as of 31 December 2011

Disclosures related to rights, commitments and contingencies are reported in note 33 of the consolidated financial statements.

Use of financial instruments

Disclosures related to the use of financial instruments are reported in note 31 of the consolidated financial statements.

Circumstances which may considerably impact the development of the Group

Circumstances which may considerably impact the development of the Group are reported in the section internal control and risk management systems of the management report.

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 2011, the research and development activities covered the following:

• Study of the potential of new technologies:
• Further detailed studies on solutions to migrate from traditional technologies to a fully IP based network. More specifically the solutions for replacing PSTN

and ISDN (Access Gateway, ISDN Access Devices) were investigated on their technical, economical and operational feasibility, and preparations have been started for the future introduction of IPv6 in the data network.

• Fibre to the Home study (FTTH): technical and economic studies have been further conducted to determine the most appropriate evolution path, taking into account evolution of users' bandwidth needs.
• Study of the solutions to optimize the data traffic handling on fixed networks, in order to ensure the best Quality of Service.
• 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:
• The mobile technology of the next generation LTE (Long Term Evolution) - was introduced by Belgacom in 2011, providing customers even much higher download and upload throughput.
• Furthermore "Quality of Service" has been developed and even higher data-rates have been implemented on the 3G network in order to further improve customer experience.
• By implementing FON, Belgacom enlarged significantly the possibility to access fixed internet outside the own residence.
• Evolution of the technology in terms of improvement and existing services extension such as:
• The IPTV platform (TV over IP) has been further enriched and improved with a new user interface and new possibilities to record TV programs. It has become possible to watch TV on multiple screens: apart from a TV screen, it is now also possible to watch TV programs on laptop, smartphone and tablet.
• VDSL2: this technology continues to be deployed and additional functionalities are being analysed and developed to further increase its potential. New pro-

files have been introduced to extend the coverage for HD Television. Belgacom went also in a partnership with Alcatel Lucent to jointly develop improvements on VDSL2 technology (Vectoring), which will further enhance the capacity and throughput of the VDSL2 network.

• The preparation of the introduction of new services:
• Belgacom completed the roll-out of a fiber-based pilot network in Kortrijk. Test users were provided with high-speed access. As such a "Living Lab" has been created which will enable application developers to test new applications and services in a real-life environment with a representative number of test users.
• In the area of mobile payments (using a mobile phone to pay for a wide range of services), Belgacom has taken multiple initiatives in developing new services i.e. Belgacom launched the possibility to pay parking sessions by scanning QR codes.
• Belgacom is developing a Cloud infrastructure offering on-demand integrated business services, and an open API framework providing access to unique functions of our network in an easy and structured way. This allows third parties in a partnership model to create new innovative services and drive new revenues through their own brands.

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 S.B.O. (Strategisch Basis Onderzoek) research projects.

Treasury shares

Disclosures related to treasury shares are reported in note 15 of the consolidated financial statements.

Major risks and uncertainties

Major risks and uncertainties are reported in the section internal control and risk management systems of the management report.

Capital management

The purpose of the Group's capital management is to maintain net financial debt and equity ratios that allow for security of liquidity at all times via flexible access to capital markets, in order to be able to finance strategic projects and to offer an attractive remuneration to shareholders. The latter was updated by the Belgacom Board of Directors of 25 February 2010 and Belgacom now commits to return, in principle, most of its annual consolidated cash flow before financing activities (or "Free Cash Flow"), to its shareholders. The return of free cash flow either through dividends or share buybacks, will be reviewed on an annual basis, in order to keep strategic financial flexibility for future growth, organically or via selective merger and acquisition projects, with a clear focus on value creation. This also includes confirming appropriate levels of distributable reserves.

Over the two periods presented, the Group didn't issue new shares or any other dilutive instrument.

Post-balance sheet events

Disclosures related to post-balance sheet events are reported in notes 33 and 39 of the consolidated financial statements.

On behalf of the Board of Directors, Brussels, 1 March 2012.

Didier BELLENS President & CEO Michel Moll Director

Consolidated Financial Statements

Prepared under International Financial Reporting Standards for each of the two years ended 31 December 2011 and 2010

Consolidated income statement	2
Consolidated statement of other comprehensive income	2
Consolidated balance sheet	3
Consolidated cash flow statement	4
Consolidated statement of changes in equity	5
Notes to the consolidated financial statements	6
Note 1. Corporate information	6
Note 2. Significant accounting policies	6
Note 3. Goodwill	13
Note 4. Intangible assets with finite useful life	15
Note 5. Property, plant and equipment	16
Note 6. Investments in subsidiaries, joint ventures and associates	17
Note 7. Other participating interests	21
Note 8. Income taxes	21
Note 9. Assets and liabilities for pensions, other post-employment benefits and termination benefits	23
Note 10. Other non-current assets	26
Note 11. Trade receivables	27
Note 12. Other current assets	27
Note 13. Investments	27
Note 14. Cash and cash equivalents	28
Note 15. Equity	28
Note 16. Interest-bearing liabilities	29
Note 17. Provisions	30
Note 18. Other non-current payables	30
Note 19. Other current payables	30
Note 20. Net revenue	30
Note 21. Other operating income	31
Note 22. Non-recurring income	31
Note 23. Costs of materials and services related to revenue	31
Note 24. Personnel expenses and pensions	31
Note 25. Other operating expenses	32
Note 26. Non-recurring expenses	32
Note 27. Depreciation and amortization	32
Note 28. Net finance income / (costs)	33
Note 29. Earnings per share	33
Note 30. Dividends paid and proposed	34
Note 31. Additional disclosures on financial instruments	34
Note 32. Related party disclosures	41
Note 33. Rights, commitments and contingent liabilities	42
Note 34. Cross-border lease arrangements	45
Note 35. Share-based Payment	45
Note 36. Relationship with the auditors Note 37. Segment reporting	47 47
Note 38. Recent IFRS pronouncements	49
Note 39. Post balance sheet events	49
Auditor's report	50

Consolidated income statement

		Year ended 31 December
(EUR million)	Note	2010	2011
Net revenue	2 0	6,552	6,361
Other operating income	2 1	5 1	4 5
Non-recurring income	2 2	436	1 1
Total income		7,040	6,417
Costs of materials and services related to revenue	2 3	-2,642	-2,517
Personnel expenses and pensions	2 4	-1,107	-1,117
Other operating expenses	2 5	-870	-860
Non-recurring expenses	2 6	8	-26
Total operating expenses before depreciation and amortization		-4,612	-4,520
Operating income before depreciation and amortization		2,428	1,897
Depreciation and amortization	2 7	-809	-756
Operating income		1,619	1,141
Finance income		2 1	3 0
Finance costs		-123	-137 -106
Net finance costs	2 8	-102
Income before taxes		1,517	1,035
Tax expense	8	-233	-262
Net income		1,283	773
Non-controlling interests	1 5	1 7	1 7
Net income (group share)		1,266	756
Basic earnings per share (in EUR)	2 9	3.94 EUR	2.36 EUR
Diluted earnings per share (in EUR)	2 9	3.94 EUR	2.36 EUR
Weighted average number of outstanding ordinary shares	2 9	321,138,048	319,963,423
Weighted average number of outstanding ordinary shares for diluted earnings per share	2 9	321,712,030	320,514,286

Consolidated statement of other comprehensive income

	Year ended 31 December
(EUR million)	2010	2011
Net income	1,283	773
Other comprehensive income: Available-for-sale investments: Transfer to profit or loss on sale Exchange differences on translation of foreign operations	-5 0	0 -1
Other comprehensive income net of related tax effects	-5	-2
Total comprehensive income	1,278	772
Attributable to: Equity holders of the parent Non-controlling interests	1,262 1 7	755 1 7

Consolidated balance sheet

		As of 31 December
(EUR million)	Note	2010	2011
ASSETS
NON-CURRENT ASSETS		6,185	6,217
Goodwill	3	2,337	2,323
Intangible assets with finite useful life	4	1,190	1,155
Property, plant and equipment	5	2,348	2,401
Investments in associates	6	2	3
Other participating interests	7	2 6	3 1
Deferred income tax assets	8	158	121
Pension assets	9	2	2
Other non-current assets	1 0	122	180
CURRENT ASSETS		2,326	2,095
Inventories		114	116
Trade receivables	1 1	1,246	1,328
Current tax assets	8	198	143
Other current assets	1 2	142	152
Investments	1 3	4 3	3 6
Cash and cash equivalents	1 4	584	320
TOTAL ASSETS		8,511	8,312
LIABILITIES AND EQUITY
EQUITY	1 5	3,342	3,303
Shareholders' equity	1 5	3,108	3,078
Issued capital		1,000	1,000
Treasury shares		-484	-570
Restricted reserve		100	100
Stock compensation		1 1	1 3
Retained earnings		2,476	2,532
Foreign currency translation		4	2
Non-Controlling interests	1 5	235	225
NON-CURRENT LIABILITIES		2,364	2,749
Interest-bearing liabilities	1 6	1,406	1,931
Liability for pensions, other post-employment benefits and termination benefits	9	565	479
Provisions	1 7	203	180
Deferred income tax liabilities	8	187	157
Other non-current payables	1 8	3	2
CURRENT LIABILITIES		2,804	2,260
Interest-bearing liabilities	1 6	783	4 1
Trade payables		1,304	1,343
Tax payables	8	188	229
Other current payables	1 9	529	647
TOTAL LIABILITIES AND EQUITY		8,511	8,312

Consolidated cash flow statement

2010 2011 (EUR million) Note Cash flow from operating activities Net income (group share) 1,266 756 Adjustments for: Non-controlling interests 1 5 1 7 1 7 Depreciation and amortization on intangible assets and property, plant and equipment 5 809 756 Increase of impairment on intangible assets and property, plant and equipment 5 1 2 Increase of provisions 2 6 2 Deferred tax expense 8 7 5 2 0 Fair value adjustments on financial instruments 1 4 Loans amortization 0 -1 (Gain) / loss on disposal of consolidated companies and remeasurement of previously held 6 -437 6 interest Gain on disposal of property, plant and equipment -3 -3 Other non-cash movements 1 0 9 Operating cash flow before working capital changes 1,766 1,569 Increase in inventories -27 -8 Decrease / (increase) in trade receivables 1 -103 Decrease / (increase) in current income tax assets -28 1 Decrease in other current assets 5 8 4 2 Increase in other non current assets 0 -34 Increase / (decrease) in trade payables -2 8 2 Increase in income tax payables 4 8 8 6 Increase / (decrease) in other current payables -13 2 8 Decrease in net liability for pensions, other post-employment benefits and termination benefits 9 -113 -85 Decrease in other non-current payables and provisions -23 -26 Increase in working capital, net of acquisitions and disposals of subsidiaries -99 -17 Net cash flow provided by operating activities (1) 1,666 1,551 Cash flow from investing activities Cash paid for acquisitions of intangible assets and property, plant and equipment 3, 4, 5 -734 -757 Cash paid for acquisitions of other participating interests -26 -6 Cash (paid) / received for acquisition of consolidated companies, net of cash acquired 5 6 -14 Cash received from sales of consolidated companies, net of cash disposed of 6 0 4 Cash received from sales of intangible assets and property, plant and equipment 1 6 7 Net cash received from other non-current assets 1 1 Net cash used in investing activities -686 -764 Cash flow before financing activities 980 788 Cash flow from financing activities Dividends paid to shareholders 3 0 -702 -701 Dividends / capital paid to non-controlling interests 1 5 -30 -24 Net sale / (acquisition) of treasury shares 2 5 -86 Net sale of investments 2 6 8 Decrease of shareholders' equity -1 -2 Issuance of long term debt 6 495 Repayment of long term debt -4 -773 Issuance / (repayment) of short term debt -49 3 2 Net cash used in financing activities -728 -1,051 Net increase / (decrease) of cash and cash equivalents 252 -264 Cash and cash equivalents at 1 January 332 584 Cash and cash equivalents at 31 December 1 4 584 320 (1) Net cash flow from operating activities includes the following cash movements : Interest paid -93 -91 Interest received 5 8		Year ended 31 December
	Income taxes paid	-139	-154

Consolidated statement of changes in equity

(EUR million)	Issued capital	Share premium Treasury	shares	Restricted reserve	Available for sale and hedge reserve	Foreign currency trans lation	Stock Compen sation	Retained Earnings	Sharehol ders' Equity	Non controlling interests	Total Equity
Balance at 1 January 2010	1,000	0	-509	100	5	4	1 0	1,911	2,521	7	2,528
Fair value changes in available-for-sale investments	0	0	0	0	-5	0	0	0	- 5	0	- 5
Equity changes not recognised in the income statement	0	0	0	0	-5	0	0	0	- 5	0	- 5
Net income	0	0	0	0	0	0	0	1,266	1,266	1 7	1,283
Total comprehensive income	0	0	0	0	- 5	0	0	1,266	1,262	1 7	1,278
Dividends to shareholders (relating to 2009)	0	0	0	0	0	0	0	-539	-539	0	-539
Interim dividends to shareholders (relating to 2010)	0	0	0	0	0	0	0	-161	-161	0	-161
Dividends of subsidiaries to non-controlling interests	0	0	0	0	0	0	0	0	0	-9	- 9
Non-controlling interests arising in a business combination	0	0	0	0	0	0	0	0	0	220	220
Treasury shares	0
Exercise of stock options	0	0	1 7	0	0	0	0	-2	1 5	0	1 5
Sale of treasury shares under a discounted share purchase plan Stock options	0	0	9	0	0	0	0	-1	7	0	7
Stock options granted and accepted	0	0	0	0	0	0	3	0	3	0	3
Deferred stock compensation	0	0	0	0	0	0	-3	0	- 3	0	- 3
Amortization deferred stock compensation	0	0	0	0	0	0	3	0	3	0	3
Exercise of stock options	0	0	0	0	0	0	-2	2	0	0	0
Total transactions with equity holders	0	0	2 5	0	0	0	1	-701	-675	211	-464
Balance at 31 December 2010	1,000	0	-484	100	0	4	1 1	2,476	3,108	235	3,342
Currency translation differences	0	0	0	0	0	-2	0	0	- 2	0	- 1
Equity changes not recognised in the income statement	0	0	0	0	0	-2	0	0	- 2	0	- 2
Net income	0	0	0	0	0	0	0	756	756	1 7	773
Total comprehensive income	0	0	0	0	0	- 2	0	756	755	1 7	772
Dividends to shareholders (relating to 2010)	0	0	0	0	0	0	0	-540	-540	0	-540
Interim dividends to shareholders (relating to 2011)	0	0	0	0	0	0	0	-159	-159	0	-159
Dividends of subsidiaries to non-controlling interests	0	0	0	0	0	0	0	0	0	-24	-24
Non-controlling interests resulting from acquisitions and disposals Treasury shares	0	0	0	0	0	0	0	-1	- 1	-3	- 4
Exercise of stock options	0	0	5	0	0	0	0	0	5	0	5
Acquisition of treasury shares	0	0	-100	0	0	0	0	0	-100	0	-100
Sale of treasury shares under a discounted share purchase
plan	0	0	8	0	0	0	0	-1	7	0	7
Stock options
Stock options granted and accepted	0	0	0	0	0	0	3	0	3	0	3
Deferred stock compensation	0	0	0	0	0	0	-3	0	- 3	0	- 3
Amortization deferred stock compensation	0	0	0	0	0	0	3	0	3	0	3
Exercise of stock options Total transactions with equity holders	0 0	0 0	0 -86	0 0	0 0	0 0	-1 2	1 -700	0 -784	0 -27	0 -811
Balance at 31 December 2011	1,000	0	-570	100	0	2	1 3	2,532	3,078	225	3,303

Notes to the consolidated financial statements

Note 1. Corporate information

The consolidated financial statements at 31 December 2011 were authorized for issue by the Board of Directors on 1 March 2012. They comprise the financial statements of Belgacom SA, its subsidiaries and joint ventures (hereafter "the Group") as well as the Group's share of results in associates.

Belgacom SA is a "Limited Liability Company of Public Law" registered in Belgium. The transformation of Belgacom SA from "Autonomous State Company" into a "Limited Liability Company of Public Law" was implemented by the Royal Decree of 16 December, 1994. Belgacom SA headquarters are located at Boulevard du Roi Albert II, 27 1030 Brussels, Belgium.

As from 1 January 2008 onwards, the Board of Directors, the Chief Executive Officer and the Belgacom Management Committee manage the operations of the Belgacom Group based on the new customer-oriented organization structured around the five following reportable operating segments:

• The Consumer Business Unit (CBU) sells voice products and services, internet and television, both on fixed and mobile networks, to residential customers, mainly on the Belgian market;
• The Enterprise Business Unit (EBU) sells ICT services and products to professional customers, whether they are selfemployed persons, small companies or major corporations. These ICT solutions, including telephone services, are marketed mainly under the Belgacom, Proximus and Telindus brands, on both the Belgian and international markets;
• The Service Delivery Engine & Wholesale (SDE&W) centralizes all the network and IT services and costs (excluding costs related to customer operations and to the service delivery of ICT solutions), provides services to CBU and EBU and sells these services to other telecom and cable operators;
• International Carrier Services (ICS) is responsible for international carrier activities;
• Staff and Support (S&S) brings together all the horizontal functions (human resources, finance, legal, strategy and corporate communication), internal services and real estate that support the Group's activities.

Further information concerning the operating segments is included under note 37.

The number of employees of the Group (in full time equivalents) amounted to 15,788 at 31 December 2011 and 16,308 at 31 December 2010. For the year 2011, the average number of headcount of the Group was 147 management personnel, 14,239 employees and 2,034 workers. For the year 2010, the average number of headcount of the Group was 151 management personnel, 14,702 employees and 2,113 workers.

Note 2. Significant accounting policies

Basis of preparation

The accompanying consolidated financial statements as of 31 December 2011 and for the year then ended have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union. The Group did not early adopt any IASB standards or interpretations.

The consolidated financial statements have been prepared on a historical cost basis, except for the measurement at fair value of derivatives and available-for-sale financial assets. The carrying values of assets and liabilities that are hedged with fairvalue hedges are adjusted to record the change in the fair value attributable to the risks that are being hedged.

Changes in accounting policies

The accounting policies applied are consistent with those of the previous financial years except that the Group applied the new or revised IFRS standards and interpretations as adopted by the European Union that became mandatory on 1 January 2011 and that are detailed as follows:

• IFRIC 19 ("Extinguishing Financial Liabilities"),
• IFRIC 14 ("Prepayments of a Minimum Funding Requirement"),
• IAS 32 ("Financial Instruments: Presentation Classification of Rights Issue"),
• IAS 24 Revised ("Related Parties") and
• Improvements to IFRS's issued in 2010.

The adoption of these new standards and interpretations did not affect the financial statements of the Group. The Group doesn't anticipate the application of standards and interpretations.

Basis of consolidation

Note 6 lists the Group's subsidiaries, joint ventures and associates.

Subsidiaries are those entities controlled by the Group. Control exists when Belgacom has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The investments in subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Intercompany balances and transactions, and resulting unrealized profits or losses between Group companies are eliminated in consolidation. When necessary, accounting policies of subsidiaries are adjusted to ensure that the consolidated financial statements are prepared using uniform accounting policies.

Companies that are jointly controlled (defined as those entities in which the Group has joint control through a contractual arrangement requiring unanimous consent of the parties sharing control) are included using the proportionate consolidation method, from the date on which joint control is established and until the date on which the Group ceases to have joint control over the joint venture. The Group's share of the assets, liabilities, expenses, income and cash-flow of joint ventures are combined on a line-by-line basis with similar items in the consolidated financial statements. The Group's proportionate share of the intercompany balance and transactions and resulting unrealized profits or losses between Group companies and jointly controlled entities are eliminated in consolidation.

Associated companies in which the Group has a significant influence, defined as an investee in which Belgacom has the power to participate in its financial and operating policy decisions (but not to control the investee), are accounted for using the equity method. Under that method, the investments held in associates are initially recorded at cost and the carrying amount is subsequently adjusted to recognize the Group's share in the profit or losses of the associate as from the date of acquisition. These investments and the equity share of results for the period are shown in the balance sheet and income statement as investments in associates and share in the result of the associates, respectively.

Subsidiaries and joint ventures acquired and held exclusively with a view of disposal within twelve months are consolidated and presented in the balance sheet as assets and liabilities held for sale.

Judgments and estimates

In preparing the consolidated financial statements, management is required to make judgments and estimates that affect amounts included in the financial statements.

Judgments and estimates that are made at each reporting date reflect conditions that existed at those dates (e.g. market prices, interest rates and foreign exchange rates). Although these estimates are based on management's best knowledge of current events and actions that the Group may undertake, actual results may differ from those estimates.

Major judgments and estimates are principally made in the following areas:

Claims and contingent liabilities

Related to claims and contingencies, judgment is necessary in assessing the existence of an obligation resulting from a past event, in assessing the probability of an economic outflow, and in quantifying the probable outflow of economic resources. This judgment is reviewed when new information becomes available and with support of outside experts advises.

Recoverable amount of cash generating units including goodwill

In the context of the impairment test, the key assumptions that are used for estimating the recoverable amounts of cash generating units including goodwill are discussed in note 3 (Goodwill).

Actuarial assumptions related to the measurement of employee benefit obligations and plan assets

The Group holds several employee benefit plans such as pension plans, other post-employment plans and termination plans. In the context of the determination of the obligation, the plan asset and the net periodic cost, the key assumptions that are used are discussed in note 9 (Assets and liabilities for pensions, other post-employment benefits and termination benefits).

Acquisition of control in BICS on 1 January 2010

The shareholders' agreement of BICS foresees new decision-making rules and a deadlock procedure in force as from 1 January 2010 leading to the Group to conclude that it controls BICS as from that date. As a result of this and in application of the revised IFRS 3, BICS is fully consolidated as from 1 January 2010 and the previously held interest is re-measured to fair value. The Group estimated the fair value of this interest to EUR 564 million using valuation methodologies, such as discounted cash flows with a terminal value.

Foreign currency translation

Foreign currency transactions

The presentation currency for the Group is the Euro. Foreign currency transactions are translated, on initial recognition, at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the balance sheet date using the exchange rate at that date. Net exchange differences on the translation of monetary assets and liabilities are classified in "other operating expenses" in the income statement in the period in which they arise.

Foreign operations

Some foreign subsidiaries and joint-ventures operating in non-EURO countries are considered as foreign operations that are integral to the operations of the reporting enterprise. Therefore, monetary assets and liabilities are translated using the exchange rate at balance sheet date, non-monetary assets and liabilities are translated at the historical exchange rate, except for non-monetary items that are measured at fair value in the domestic currency that are translated at the exchange rate when the fair value was determined. Revenue and expenses of these entities are translated at the weighted average exchange rate. The resulting exchange differences are classified in "other operating expenses" in the income statement.

For other foreign subsidiaries and joint-ventures operating in non-EURO countries, assets and liabilities are translated using the exchange rate at balance sheet date. Revenue and expenses of these entities are translated at the weighted average exchange rate. The resulting exchange differences are taken directly to a separate component of equity. On disposal of such entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the income statement.

All exchange differences arising from a monetary item that forms part of the Group's net investment in such entity are recognized in the same separate component of equity.

Goodwill

Goodwill represents the excess of the sum of the consideration transferred, the amount of non-controlling interests, if any, and the fair value of the previously held interest, if any, over the net fair value of identifiable assets, liabilities and contingent liabilities acquired in business combination. When the Group obtains control, the previously held interest in the acquiree, if any, is re-measured to fair value through the income statement.

When the net fair value, after reassessment, of identifiable assets, liabilities and contingent liabilities acquired in a business combination exceeds the sum of the consideration transferred, the amount of non-controlling interests, if any, and the fair value of the previously held interest, if any, this excess is immediately recognized in income statement as a bargain purchase gain.

Changes in a contingent consideration included in the consideration transferred are adjusted against goodwill when they arise during the provisional purchase price allocation period and when they relate to facts and circumstances existing at acquisition date. In other cases, depending if the contingent consideration is classified as equity or not, changes are taken into equity or in the income statement.

Acquisition costs are expensed and non-controlling interests are measured at acquisition date either at their value or at their proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Goodwill is stated at cost and not amortized but subject to an annual impairment test at the level of the cash generating unit to which it relates and whenever there is an indicator that the cash generating unit to which the goodwill has been allocated, may be impaired.

Intangible assets with finite useful life

Intangible assets consist primarily of the Global System for Mobile communication ("GSM") license, the Universal Mobile Telecommunication System ("UMTS") license, 4G license, customer bases and trade names acquired in business combinations, internally developed software and other intangible assets such as football rights and broadcasting rights and externally developed software.

The Group capitalizes certain costs incurred in connection with developing or purchasing software for internal use when they are identifiable, when the group controls the asset and when future economic benefits from the asset are probable. Capitalized software costs are included in internally generated and other intangible assets and are amortized over three to five years.

Intangible assets with finite life acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

Intangible assets with finite useful life are stated at cost less accumulated amortization and impairment losses. The residual value of such intangible assets is assumed to be zero. Customer bases and trade names acquired in business combinations are straight-line amortized over their estimated useful life. GSM and UMTS licenses, other intangible assets and internally generated assets with finite useful life are amortized on a straight-line basis over their estimated useful life. Amortization commences when the intangible asset is ready for its intended use.

The useful lives are assigned as follows:

GSM, UMTS, 4G and other network licenses Over the license period

• Customer bases and trade names acquired 3 to 20
• Software

Rights to use, football and broadcasting rights

The amortization period and the amortization method for an intangible asset with finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses when it does not extend the life of the asset or does not significantly increase its capacity to generate revenue. The cost of an item of property, plant and equipment includes the costs of its dismantlement, removal or restoration, the obligation for which the Group incurs as a consequence of installing the item.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognized.

Depreciation of an asset begins when the asset is ready for its intended use. Depreciation is calculated using the straight-line method over the estimated useful life of the asset.

The useful lives are assigned as follows:

	Land and buildings	Useful life (years)
	Land	Indefinite
	Buildings and building equipment	22 to 33
	Facilities in buildings	3 to 10
	Leasehold improvements and advertising equipments	3 to 10
	Technical and network equipment
	Cables and ducts	15 to 20
	Switches	8 to 10
	Transmission	6 to 8
	Radio Access Network	6 to 7
	Mobile sites and site facility equipment	5 to 10

• Equipment installed at client premises 2 to 8
• Data and other network equipment 2 to 15

Useful life (years)

5

Over the contract period

Furniture and vehicles

	Furniture and office equipment	3 to 10
	Vehicles	5 to 10

The asset's residual values, useful life and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

Costs of material, personnel expenses and other operating expenses are shown net of work performed by the enterprise that is capitalized in respect of the construction of property, plant and equipment.

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset.

Impairment of non-financial assets

The Group reviews the carrying value of its non-financial assets at each balance sheet date for any indication of impairment.

The Group compares at least once a year the carrying value with the estimated recoverable amount of intangible assets under construction and cash generating units including goodwill. The Group performs this annual impairment test during the fourth quarter of each year.

When indication of impairment exists or when annual impairment testing for an asset or a cash generating unit is required, an impairment loss is recognized when the carrying value of the asset or cash generating unit exceeds the estimated recoverable amount, being the higher of the asset's or cash generating unit's fair value less costs to sell and its value in use for the Group.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.

Impairment losses on goodwill, intangible assets and property, plant and equipment are recorded in operating expenses. An assessment is made at each balance sheet date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, impairment losses in respect of assets other than goodwill are reversed in order to increase the carrying amount of the asset to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement in operating expenses.

Deferred taxation

Deferred taxation is provided for all temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet and their respective taxation bases.

Deferred tax assets associated to deductible temporary differences and unused tax losses carried forward are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary difference or the unused tax losses can be utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset will be realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets and liabilities are recognized in the income statement except to the extent that they relate to items recognized directly in equity, in which case the tax effect is also recognized directly in equity.

Provision for taxation that could arise if undistributed retained profit of certain subsidiaries is remitted to the parent company, is only recognized where a decision has been taken to remit such retained profit, i.e., where the subsidiary intends to distribute a dividend.

Pensions, other post-employment benefits and termination benefits

The Group operates several defined benefit pension plans to which the contributions are made through separately managed funds. The Group also agreed to provide additional post-employment benefits to certain employees. The cost of providing benefits under the plans is determined separately for each plan using the projected credit unit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the cumulative unrecognized gains or losses for an individual plan at the end of the previous reporting period exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at the beginning of the year. This excess is recognized over the average remaining service life of the employees participating in the individual plan.

The Group also operates several defined contribution plans. Contributions are expensed as incurred.

The Group operates several restructuring programs that involve termination benefits or other forms of additional compensation. The actuarial gains and losses on these liabilities are recognized in the income statement when incurred.

The total expense recognized in the income statement is classified in personnel expenses and pensions, except non-recurring expenses and the interest cost that is classified as finance cost in respect of the liability for termination benefits and additional compensations resulting from external mobility programs and from the collective labor agreement of 2005.

Short term and long term employee benefits

The cost of all short-term and long-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are recognized during the period in which the employee renders the related service. The Group recognizes those costs only when it has a present legal or constructive obligation to make such payment and a reliable estimate of the liability can be made.

Financial instruments

Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value of financial instruments:

• For investments in quoted companies and mutual funds, the fair value is their quoted price;
• For investments in non-quoted companies, fair value is estimated by reference to recent sale transactions on the shares of these non-quoted companies and, in the absence of such transactions, by using different valuation techniques such as discounted future cash flow models and multiples methods;
• For investments in non-quoted companies for which no fair value can be reliably determined, fair value is based on the historical acquisition cost, adjusted for impairment losses, if any;
• For long term debts carrying a floating interest rate, the amortized cost is assumed to approximate fair value;
• For long term debts carrying a fixed interest rate, the fair value is determined based on the market value when available or otherwise based on the discounted future cash flows;
• For trade receivables, trade payables, other current assets and current liabilities, the carrying amounts reported in the balance sheet approximate their fair value considering their short maturity;
• For cash and cash equivalents, the carrying amounts reported in the balance sheet approximate their fair value considering their short maturity;
• For derivatives, fair values have been estimated by using different valuation techniques, in particular the discounting of future cash flows.

Criteria for initial recognition and for de-recognition of financial assets and liabilities

Financial instruments are initially recognized when the Group becomes party to the contractual terms of the instruments. Normal purchases and sales of financial assets are accounted for at their settlement dates.

Financial assets (or a portion thereof) are de-recognized when the Group realizes the rights to the benefits specified in the contract, the rights expire or the Group surrenders or otherwise loses control of the contractual rights that comprise the financial asset. Financial liabilities (or a portion thereof) are de-recognized when the obligation specified in the contract is discharged, cancelled or expires.

Criteria for offsetting financial assets and liabilities

Where a legally enforceable right of offset exists for recognized financial assets and liabilities, and there is an intention to settle the liability and realize the asset simultaneously, or to settle on a net basis, all related financial effects are offset.

Criteria for classifying financial instruments as held to maturity

Some financial instruments are classified as held to maturity based on the ability and the intention of the Group to keep these instruments until maturity. The Group has already a large experience of respecting that statement. This is reinforced by the fact that the financial instruments classified as held to maturity are medium to short term.

Criteria for classifying financial instruments as available-for-sale

Non-derivative financial assets that the Group has no intention nor ability to keep until maturity, that the Group does not classify as loans and receivables and that the Group does not designate as at fair value through profit and loss at inception, are classified as available-for-sale.

Shares in equity of non-consolidated entities are usually classified as available-for-sale financial assets. Shares in mutual funds or similar funds are classified as available-for-sale, if not designated at fair value through profit and loss at inception.

Other participating interests

Other participating interests are equity instruments in entities that are not subsidiaries, joint ventures or associates. They are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. These interests are classified as available-for-sale financial assets in the balance sheet.

After initial recognition, other participating interests are carried at fair value, with recognition of the changes in fair value directly in equity, until the financial asset is sold, collected or otherwise disposed of, at which time the cumulative gain or loss previously reported in equity is included in income statement.

Other non-current financial assets

Other non-current financial assets include derivatives (see below), long-term interest-bearing receivables such as loans to joint-ventures, personnel and cash guarantees and long-term investments such as notes and purchased bonds. Long-term receivables are accounted for as loans and receivables originated by the Group and are carried at amortized cost. Long-term investments are classified as held-to-maturity and are carried at amortized cost.

Trade receivables and other current assets

Trade receivables and other current assets are shown on the balance sheet at nominal value (generally, the original invoice amount) less the allowance for doubtful debts.

Investments

Investments include shares in funds and mutual funds, fixed income securities and deposits with a maturity greater than three months but less than one year.

Shares are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. After initial recognition, shares are treated as available-for-sale, with re-measurement to fair value recorded directly in equity until the investment is sold, collected or otherwise disposed of, at which time the cumulative gain or loss previously reported in equity is included in income statement.

Fixed income securities are initially recognized at cost, being the fair value of the consideration given and including acquisition costs associated with the investment. After initial recognition, fixed income securities that are classified as available-for-sale, are measured at fair value, with gains and losses on re-measurement recognized in equity until the investment is sold, collected or otherwise disposed of, at which time the cumulative gain or loss reported in equity is included in income statement. Fixed income securities that are intended to be held-to-maturity are measured at amortized cost, using the effective interest rate method.

Deposits are considered as held-to-maturity and measured at amortized cost.

Cash and cash equivalents

Cash and cash equivalents include cash, current bank accounts and investments with an original maturity of less than three months, and that are highly liquid.

Cash and cash equivalents are carried at amortized cost.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. When the carrying amount of the financial asset is greater than its recoverable amount, an impairment loss is recorded.

An allowance account is always used to account for impairment losses, whether impairment is caused by credit losses or not.

Allowances and impairment losses on financial assets are accounted for as finance costs when the asset relates to financing activities. When the asset relates to operating or investing activities, allowances and impairment losses are accounted for as other operating expenses.

Impairment losses on receivables are determined when it is probable that the Group will not be able to collect any amount due, on basis of individualized criteria or based on portfolio statistics and analysis of ageing balances.

In case of impairment due to credit losses, the impairment allowance is reversed when it becomes probable that the Group will collect the financial asset, as a result of various indicators such as the receipt of collaterals, a successful capital increase at the customer etc.

The impairment allowance will also be reversed when the asset is definitively sold, collected or at the opposite, uncollectible, at what time, the definitive gain (loss) on disposal of the asset is recorded in income statement.

Impairment losses on available for sale equity investments are recognized in net income in case of significant or prolonged decline in the fair value below cost. These impairment losses are not reversed in income statement. If it appears that an existing impairment loss has to be reversed, reversal will be recorded in equity, as a re-measurement to fair value.

Interest-bearing liabilities

All loans and borrowings are initially recognized at cost, being the fair value of the consideration received, net of issuance costs associated with the borrowings.

After initial recognition, debts are measured at amortized cost using the effective interest rate method, with amortization of discounts or premiums through the income statement.

Derivatives

The Group makes use of derivatives such as IRS, IRCS, forward foreign exchange contracts and currency options to reduce its risks associated with interest rate and foreign currency fluctuations on underlying assets, liabilities and anticipated transactions. The derivatives are carried at fair value under the captions other assets (non-current and current), interestbearing liabilities (non-current and current) and other payables (non-current and current).

The Group uses IRS and IRCS to reduce its exposure to interest rate and foreign currency fluctuations on long-term debts. These economical hedges are not accounted for as hedges.

The Group does not hold or issue derivative financial instruments for trading purposes but some of its derivative contracts do not meet the criteria set by IAS 39 to be considered as hedges and are therefore treated as derivatives held-for-trading, with changes in fair value recorded in the income statement.

The Group uses currency options and forward foreign exchange contracts to manage its foreign currency exposure arising from operational contracts. Nevertheless, since the matching between these instruments and the underlying exposure is not sufficiently effective, or the effectiveness cannot be easily demonstrated, these instruments are not accounted for as hedges and are consequently carried at fair value, with changes in fair value recognized in the income statement.

Some debts issued by the Group include embedded derivatives. Such derivatives are separated from their host contract and carried at fair value with changes in fair value recognized in the income statement. The mark-to-market effects on these embedded derivatives are neutralized by those on other derivatives.

As from September 2011, the Group started contracting derivatives to hedge its exposure to part of commodity price fluctuations for highly probable forecasted transactions. The Group applies cash flow hedge accounting; the effective portion of the gains and losses on the hedging instrument is recognized via other comprehensive income until the hedged item occurs. At the time of the initial recognition of the asset the carrying amount is adjusted to include the amount previously recognized via other comprehensive income. The ineffective portion of a cash flow hedge is always recognized in profit or loss.

Net gains and losses on financial instruments

The Group excludes dividends, interest income and interest charges from the net gains and losses on financial instruments. Dividends, interest income and interest charges arising from financial instruments are posted to the finance income/(costs).

Net gains/(losses) from disposals or settlements of financial instruments are accounted for as finance income/(costs) when the instruments relate to financing activities. When the financial instruments relate to operating or investing activities, net gains/(losses) from disposals or settlements are accounted for as other operating income/(expenses).

Net gains and losses resulting from fair value measurement of derivatives used to manage foreign currency exposure on operating activities that do not qualify for hedge accounting under IAS 39 are recorded as operating expenses.

Net gains and losses resulting from fair value measurement of derivatives used to manage interest rate exposure on interestbearing liabilities that do not qualify for hedge accounting under IAS 39 are recorded in finance income/(costs).

Inventories

Inventories are stated at the lower of cost and net realizable value.

Cost is determined based on the weighted average cost method except for IT equipments (FIFO method) and goods purchased for resale as part of specific construction contracts (individual purchase price).

For construction contracts, the percentage of completion method is applied. The stage of completion is measured by reference to the amount of contract costs incurred for work performed at balance sheet date in proportion to the estimated total costs for the contract. Contract cost includes all expenditures directly related to the specific contract and an allocation of fixed and variable overheads incurred in connection with contract activities based on normal operating capacity.

Leases

Leases of assets through which all the risks and the benefits of ownership of the asset are substantially transferred to the Group are classified as finance lease. Finance leases are recognized as assets and liabilities (interest-bearing liabilities) at amounts equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments at inception of the lease. Amortization and impairment testing for depreciable leased assets, is the same as for depreciable assets that are owned. Lease payments are apportioned between the outstanding liability and finance charges so as to achieve a constant periodic rate of interest on the remaining balance of the liability.

Leases of assets through which all the risks and the benefits of ownership of the asset are substantially retained by the leasing company are classified as operating lease. Payments under operating leases are recognized as an expense in the income statement on a straight-line basis over the lease term.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation resulting from past events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. A past event is deemed to give rise to a present obligation if, taking into account the available evidence, it is more likely than not that a present obligation exists at the balance sheet date.

Certain assets and improvements that are situated on property owned by third parties must eventually be dismantled, and the property must be restored to its original condition. The estimated costs associated with dismantling and restorations are recorded under property, plant and equipment and depreciated over the useful life of the asset. The total estimated cost required for dismantling and restoration, discounted to its present value, is recorded under provisions. Where discounting is used, the increase in the provision due to the passage in time is recognized in financial expense in the income statement.

Assets and associated liabilities classified as held for sale

Assets and associated liabilities held for sale are recorded at the lower of their carrying value or fair value less costs to sell, and are classified as current assets.

Share based payment

The fair value of share options issued under the Group's Employee Stock Option Plans is determined at grant date taking into account the terms and conditions upon which the options are granted, and by using a valuation technique that is consistent with generally accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and assumptions that knowledgeable, willing market participants would consider in setting the price. The fair value of the share options is recognized in personnel expenses over their vesting period, together with an increase of the caption "stock compensation" of the shareholders' equity for the equity part and an increase of a dividend liability for the dividend part. When the share options give right to dividends declared after granting the options, the fair value of this right is re-measured annually.

Revenue and operating expenses

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Specific revenue streams and related recognition criteria are as follows:

• Revenue from wireline, carrier and mobile traffic is recognized on usage.
• Revenue from connection fees and installation fees is recognized in income at the time of connection or installation.
• Revenue from sales of communication equipment is recognized upon delivery to the third party distributors or upon delivery by the own Belgacom shops to the end-customer.
• Revenues relating to the monthly rent or access fees, which are applicable to wireline and mobile revenues are recognized in the period in which the services are provided.
• Subscription fees are recognized as revenue over the subscription period on a pro-rata basis.
• Prepaid revenue such as revenue from pre-paid fixed and mobile phone cards is deferred and recognized based on usage of the cards.
• Maintenance fees are recognized as revenue over the maintenance period on a pro-rata basis.
• Commissions received are recognized when the Group acts as an agent, i.e. when the Group does not bear inventory risk and credit risk, does not set the prices nor change or perform part of the services and has no latitude in the supplier's selection.
• The revenue from sales arrangements with multiple deliverables are allocated to the different components of the arrangements based on their relative fair values.

Net revenue is defined as the gross inflow of economic benefits during the period arising in the course of the ordinary activities and taking into account the amount of any trade discounts and volume rebates allowed by the Group. The award credits (loyalty programs) are recorded as a separate component of the sales transaction and recorded as deduction form the initial sale in net revenue. Revenue from award credits is recognized at redemption.

Expenditure on research activities is recognized in the income statement as an expense as incurred.

The Group's consolidated income statement presents operating expenses by nature. Operating expenses are reported net of work performed by the enterprise that is capitalized.

The costs of materials and services related to revenues include the costs for purchases of materials and services directly related to revenue.

Costs for advertising and other marketing charges are expensed as incurred.

The upfront dealer commissions relating to contracts in excess of one year with mobile post-paid customers, are expensed over the estimated contract period. Commissions to dealers for other contracts are expensed as incurred.

Non-recurring income and non-recurring expenses include gains or losses on the disposal of consolidated companies exceeding individually EUR 5 million, fines and penalties imposed by competition authorities or by the regulator exceeding EUR 5 million, costs of employee restructuring programs including actuarial gains and losses and the effect of settlements of postemployment benefit plans.

Note 3. Goodwill

(EUR million)	Goodwill
As of 1 January 2010	2,088
Acquisition of control in BICS Acquisition of MBS TELECOM NV Acquisition of Sahara Net LLC Price adjustments of Scarlet Other	252 1 5 -7 -1
As of 31 December 2010	2,337
Acquisition of Eudasys SAS Disposal of Telindus SA (Spain) Disposal of Scarlet BV (Curaçao)	6 -17 -2
As of 31 December 2011	2,323

In 2010, as a result of the acquisition of control on BICS on 1 January 2010 requiring to re-measure the previously held interest at fair value (see notes 6.4 and 22), goodwill increased with EUR 252 million in 2010. The Group elected not to apply the full goodwill option for this acquisition, meaning that the non-controlling interests are measured at acquisition date at their share in the net assets of BICS measured at fair value.

In 2011 the goodwill evolution was mainly impacted by the disposal of Telindus SA (Spain) in June 2011.

Goodwill is tested for impairment at the level of operating segments as these are the Group cash-generating units, the performance, financial position (including goodwill) and capital expenditures within the Group being monitored at operating segment level.

For the purpose of impairment testing, goodwill acquired in a business combination is, at acquisition date, allocated to each of the Group operating segments that is expected to benefit from the business combination. Therefore this allocation is based on the nature of the acquired customers and activities. At 31 December 2011, all businesses acquired were fully allocated to one single operating segment, with the exception of the goodwill resulting from the acquisition of non-controlling interests in 2007, which was allocated to the Consumer Business Unit and the Enterprise Business Unit on basis of their relative value in use for the Group at 31 December 2007.

The carrying amount of goodwill is allocated to the operating segments as follows:

		As of 31 December
(EUR million)	2010	2011
Consumer Business Unit	1,001	999
Enterprise Business Unit	1,084	1,073
International Carrier Services	252	252
Total	2,337	2,323

The recoverable amount at segment level (including goodwill) was based on the value in use estimated through a discounted free cash flow model. The key variables used in determining the value in use are the EBITDA (except for the International Carrier Services segment for which the direct margin is more important), the capital expenditures, the long term growth rate and the post-tax weighted average cost of capital.

The free cash flows considered for calculating the value in use are estimated for the concerned assets in their current condition and exclude the cash inflows and outflows that are expected to arise from any future restructuring to which the Group is not yet committed and from improving or enhancing the assets performance.

For the years 2012 to 2016, the operating segments free cash flows were based on the Five Year Plan as approved by the management and Board of Directors. For subsequent years, the data of the Five Year Plan were extrapolated based on a growth rate varying between 0.0% and 1.0% per year (CBU:0.5%, EBU:1.0% and ICS:0.5%), reflecting management vision about the long term evolution of the market and based on historical data.

Free cash flows of each segment were discounted with the Group post-tax weighted average cost of capital of 7.08%, with the exception of the ICS segment for which a specific post-tax weighted average cost of capital of 9.04% was used, its activities being deemed different enough from those of the rest of the Group to justify a specific calculation. The Pre-tax weighted average cost of capital, derived from the post-tax weighted average cost of capital via an iterative method, was comprised between 9.60% and 10.95%. The calculated weighted average costs of capital at Group level and for the ICS segment are based on the relative weight of their capital structure components and include a risk premium specific to their inherent risks.

None of the goodwill was impaired at 31 December 2011.

Sensitivity analysis for all segments demonstrates that in case of a reasonable change in one of the key assumptions the value in use still exceeds the net carrying value of the cash generating units (segments).

For the particular situation of the ICS segment, the impairment test outcome is sensitive to a change in direct margin. The ICS segment value in use would not support a decrease of that direct margin, in isolation, by more than 46% compared to its level assumed in the Five Year Plan. Per 31 December 2011, management estimates this risk as being remote.

Note 4. Intangible assets with finite useful life

(EUR million)	GSM and UMTS licenses	Internally generated assets	Customer bases and trade names acquired	TV rights	Other intangible assets	Total
As of 1 January 2010 net of accumulated amortization and impairment	111	100	148	8 3	181	623
Additions	7 4	6 7	0	6 9	6 7	277
Acquisition of subsidiary	0	0	541	0	9	550
Disposals	0	0	0	0	-1	-1
Reclassifications	-7	0	0	0	8	1
Amortization charge for the year	-24	-36	-67	-68	-65	-260
As of 31 December 2010 net of accumulated amortization and impairment	154	132	621	8 3	199	1,190
Additions	2 0	7 0	0	5 4	8 4	229
Acquisition of subsidiary	0	0	8	0	0	8
Disposals	0	0	0	0	0	0
Disposal of subsidiary	0	0	-1	0	0	-1
Reclassifications	0	0	0	0	-4	-4
Impairment charge	0	0	0	0	-1	-1
Amortization charge for the year	-24	-59	-62	-60	-61	-266
As of 31 December 2011 net of accumulated amortization and impairment	150	143	566	7 8	217	1,155

(EUR million)	GSM and UMTS licenses	Internally generated assets	Customer bases and trade names acquired	TV rights	Other intangible assets	Total
As of 31 December 2010
Cost	450	450	790	219	877	2,786
Accumulated amortization and impairment	-295	-318	-169	-136	-678	-1,596
Net carrying amount	154	132	621	8 3	199	1,190
As of 31 December 2011
Cost	470	520	797	156	831	2,773
Accumulated amortization and impairment	-319	-377	-230	-78	-614	-1,618
Net carrying amount	150	143	566	7 8	217	1,155

The increase in 2010 results primarily from the full consolidation of BICS and the acquisition of control of BICS leading to a purchase price allocation of BICS (see note 6.4).

The GSM and UMTS licenses addition in 2010 relates to the Global System for Mobile communication ("GSM") and Universal Mobile Telecommunication System ("UMTS"). In 1994, the Group acquired a GSM license (covering the use of 900 MHz spectrum) in Belgium for an amount of EUR 226 million. Amortization started in 1995 over the initial life of the license (15 years). Since 6 April 2008, the GSM license has been prolonged until 8 April 2015 free of charge. On 15 March 2010, the Belgian State adopted a Law imposing an additional fee for the extension of the 2G licenses until 2015 for EUR 74 million (for 12 MHz duplex), amortized over 5 years. Belgacom has chosen to pay by installments. On 18 August 2010, Belgacom lodged an annulment procedure before the Constitutional Court against the 15 March 2010 law. The Belgian Constitutional Court has referred to the Court of Justice of the European Union for a preliminary ruling.

Beside this annulment procedure, Belgacom has initiated an action against the Belgian State and the BIPT to ensure the possibility to recover the amounts paid.

In March 2001, the Group acquired an UMTS license in Belgium for an amount of EUR 150 million. Amortization started in June 2004 over the initial life of the license that is scheduled to end in 2021.

In 2011 Belgacom acquired a 4G license in the 2,6 GHz frequency band for an amount of EUR 20 million which will be paid in 2012. The license is valid for 15 years effective as of 1 July 2012, amortization will start as from July 2012.

Customer bases and trade names acquired include intangible assets recognized as part of business combinations (see note 6.4).

TV rights include football rights and broadcasting rights acquired.

Other intangible assets mainly include purchased software and rights of use for cables.

The acquisition value of the disposed intangible assets amounted to EUR 240 million in 2011 versus EUR 137 million in 2010.

Note 5. Property, plant and equipment

(EUR million)	Land and buildings	Technical and network equipment	Other tangible assets	Assets under construction	Total
As of 1 january 2010 net of accumulated depreciation and impairment	512	1,788	109	1 1	2,420
Additions	1 6	397	3 0	1 4	457
Acquisition of subsidiary	0	2 8	2	3	3 4
Disposals Reclassifications	-4 0	-7 1 2	0 1	0 -14	-11 -1
Impairment	0	0	0	0	-1
Depreciation charge for the year	-38	-480	-31	0	-549
As of 31 December 2010 net of accumulated depreciation and impairment	486	1,738	110	1 3	2,348
Additions	9	493	3 6	1 1	548
Acquisition of subsidiary	0	0	0	0	0
Disposals	-3	-1	0	0	-4
Disposal of subsidiary	0	-4	0	0	-4
Reclassifications	0	2 3	-2	-18	4
Impairment	0	-1	-1	0	-1
Depreciation charge for the year	-34	-423	-33	0	-489
As of 31 December 2011 net of accumulated depreciation and impairment	459	1,825	111	6	2,401

(EUR million)	Land and buildings	Technical and network equipment	Other tangible assets	Assets under construction	Total
As of 31 December 2010 Cost Accumulated depreciation and impairment Net carrying amount	839 -353 486	10,531 -8,792 1,738	378 -268 110	1 3 0 1 3	11,761 -9,413 2,348
As of 31 December 2011 Cost Accumulated depreciation and impairment Net carrying amount	831 -371 459	10,451 -8,627 1,825	392 -281 111	6 0 6	11,680 -9,279 2,401

The increase in 2010 results primarily from the full consolidation of BICS (see note 6.4).

The acquisition value of the disposed tangible fixed asset amounted to EUR 631million in 2011 and EUR 483 million in 2010.

Note 6. Investments in subsidiaries, joint ventures and associates

Note 6.1. Investments in subsidiaries

The consolidated financial statements include the financial statements of Belgacom SA and the subsidiaries listed in the following table.

Name	Registered office	Country of incorporation			Group's participating interests
				2010	2011
Belgacom SA under Public Law	Bld du Roi Albert II 27	Belgium			Mother company
	1030 Bruxelles VAT BE 0202.239.951
Belgacom Finance SA	Rue de Merl 74	Luxemburg		100%	100%
Belgacom Group International Services SA	2146 Luxembourg Bld du Roi Albert II 27	Belgium		100%	100%
	1030 Bruxelles
BGC Re	VAT BE 0466.917.220 Rue de Merl 74	Luxemburg		-	100%
Finbel Re SA	2146 Luxembourg Rue de Merl 74	Luxemburg		100%	-
	2146 Luxembourg
Connectimmo SA	Bld du Roi Albert II 27 1030 Bruxelles	Belgium		100%	100%
	VAT BE 0477.931.965
Belgacom Skynet SA	Bld du Roi Albert II 27 1030 Bruxelles	Belgium		100%	100%
	VAT BE 0460.102.672
Skynet iMotion Activities SA	Rue Carli 2 1140 Evere	Belgium		100%	100%
Tango SA	VAT BE 0875.092.626 Rue de Luxembourg 177	Luxemburg	(9)	100%	100%
	8077 Bertange
Telindus Group NV	Geldenaaksebaan 335 3001 Heverlee	Belgium		100%	100%
Telindus - ISIT BV	VAT BE 0422.674.035 Krommewetering 7	The Netherlands		100%	100%
	3543 AP UTRECHT
Telindus International BV	Krommewetering 7 3543 AP UTRECHT	The Netherlands	(1)	100%	-
Telindus Networks SA	Chemin des Primevères 45	Switzerland	(2)	100%	-
Telindus SA	1701 Fribourg Chemin des Primevères 45	Switzerland	(2)	100%	-
	1701 Fribourg
Telindus SA	Plaza Ciudad de Viena 6 28040 Madrid	Spain	(3)	100%	-
Telindus SA	Route d'Arlon 81– 83	Luxemburg	(4)	65%	65%
Telectronics SA	8009 Strassen 2 Rue des Mines	Luxemburg	(4)	65%	65%
Beim Weissenkreuz SA	4244 Esch sur Alzette Route d'Arlon 81– 83	Luxemburg	(4)	64%	64%
	8009 Strassen
Telindus LTD	Centurion - Riverside Way - Watchmoor Park Camberley - Surrey -GU15 3 YL	United Kingdom	(4)	100%	100%
Telindus Surveillance Solutions Ltd	Centurion - Riverside Way - Watchmoor Park	United Kingdom	(4)	100%	100%
Telindus France SA	Camberley - Surrey -GU15 3 YL ZA de Courtaboeuf- 12, Avenue de l'Oceanie	France	(4)	100%	100%
	91940 Les Ulis
Groupe Telindus France SA	ZA de Courtaboeuf- 12, Avenue de l'Oceanie 91940 Les Ulis	France	(4)	100%	100%
Telindus Sweden AB	p/a Advokatfirman VINGE Smarlandsgatan 20 - Box 1107	Sweden	(4) (2)	100%	-
	111 87 Stockholm
Telindus Morocco SAS	Casablanca Nearshore Park, 1100 Bd. Al Qods, Shore III, Casanearshore, Sidi Maârouf	Morocco	(4)	100%	100%
	Casablanca
ISit BV	Krommewetering 7 3543 AP UTRECHT	The Netherlands	(4) (1)	100%	-
ISit ICT Services BV	Krommewetering 7 3543 AP UTRECHT	The Netherlands	(4) (1)	100%	-
ISit NV	Culliganlaan 1B	Belgium	(4) (2)	100%	-
Euremis SA	1831 DIEGEM Chaussée de Nivelles 81	Belgium	(2)	100%	-
	1420 Braine-l'Alleud
Belgacom Bridging ICT NV	2146 Luxembourg Koning Albert II laan 27	Belgium		100%	100%
	1030 Brussels VAT BE 0826.942.915
Belgacom ICT - Expert Community CVBA	Ambachtenlaan 34	Belgium		-	94%
	3001 Heverlee VAT BE 0841.396.905
Belgacom Opal SA	Bld du Roi Albert II 27 1030 Bruxelles	Belgium		100%	100%
	VAT BE 0861.583.672
Belgacom Development SA	Rue de Merl 74 2146 Luxembourg	Luxemburg		100%	100%
Beldiscom SA	Bld d'Avroy 242	Belgium		100%	100%
	4000 Liege VAT BE 0440.935.769
Mobile-For SA	Bld du Roi Albert II 27	Belgium		100%	100%
	1030 Bruxelles VAT BE 0881.959.533

					Group's participating
Name	Registered office	Country of incorporation		2010	interests 2011
Tango Mobile SA	Rue de Luxembourg 177	Luxemburg	(7)	100%	-
Tango Fixed SA	8077 Bertange Rue de Luxembourg 177	Luxemburg	(7)	100%	-
	8077 Bertange
Tango Services SA	Rue de Luxembourg 177 8077 Bertange	Luxemburg	(7)	100%	-
Scarlet NV	Ketelmeerstraat 198 8226JX Lelystad	The Netherlands	(5)	100%	100%
Scarlet Telecom BV	Ketelmeerstraat 198 8226JX Lelystad	The Netherlands	(5)	100%	100%
Scarlet Belgie Holding BV	Ketelmeerstraat 198 8226JX Lelystad	The Netherlands	(5)	100%	100%
Scarlet Extended NV	Belgicastraat 5 1930 Zaventem	Belgium	(5) (10)	100%	-
ST Integration NV	VAT BE 0463.815.792 Belgicastraat 5	Belgium	(5) (2)	100%	-
	1930 Zaventem VAT BE 0472.046.243
Scarlet Business NV	Belgicastraat 5	Belgium	(5)	100%	100%
	1930 Zaventem VAT BE 0463.079.780
Scarlet Luxembourg SARL	Rue Jean Piret 3 2350 Luxembourg	Belgium	(5)	100%	100%
Scarlet Telecom BVBA	Belgicastraat 5 1930 Zaventem	Belgium	(5) (2)	100%	-
NetNet BVBA	VAT BE 0466.942.657 Belgicastraat 5	Belgium	(5) (10)	100%	-
	1930 Zaventem
Scarlet Belgium NV	VAT BE 0461.549.853 Belgicastraat 5	Belgium	(5)	100%	100%
	1930 Zaventem VAT BE 0447.976.484
Full Telecom NV	Belcrownlaan 13i	Belgium	(5) (10)	100%	-
	2100 Deurne VAT BE 0864.940.684
MBS TELECOM NV	Belgicastraat 5 1930 Zaventem	Belgium	(5) (6)	100%	100%
	BE 0882.760.574
Sahara International Ventures NV	Franse Kampweg 6 1406 NW Bussum	The Netherlands	(3)	51%	-
Sahara LAC BV	Amstel 108 1017 AD Amsterdam	The Netherlands	(3)	51%	-
Sahara Net LLC	Al-Dabal Commercial Tower (ACT) 2nd Floor, Prince Mohammad Quarter, Prince Mohammad Street (First Street) P.O. Box 5480 Zip Code 31422 - Damman	Saudi-Arabia		36%	70%
Scarlet BV (Curaçao)	Fokkerweg 26 Willemstad Curacao	Netherlands Antilles	(6) (3)	42%	-
Caribbean Satellite Communications Inc	50 Soldado Serrano, Ocean park	Puerto Rico	(6) (3)	42%	-
Scarlet NV (BTS)	San Juan 00911 Kaya J.A. Abraham Boulevard 73	Netherlands Antilles	(6) (3)	42%	-
Scarlet NV (SNM)	Bonaire Three Palm Plaza 60, Unit 1, Welfare Road, Colebay	Netherlands Antilles	(6) (3)	42%	-
Carib - online NV	Sint Maarten Fokkerweg 26	Netherlands Antilles	(6) (3)	42%	-
Scarlet Inc	Willemstad Curacao 1334 Redwood Avenue	United States	(6) (3)	42%	-
Scarlet AARC NV	Brighton Iowa 52540 Santa Rosaweg 17	Netherlands Antilles	(6) (3)	42%	-
	Willemstad Curacao
All America Cables and Radio (Sint Maarten) NV	36G Airport Road, Simpson Bay Sint Maarten	Netherlands Antilles	(6) (3)	42%	-
Scarlet Telecom NV	Watapanastraat 7 Oranjestad	Aruba	(6) (3)	42%	-
Rainbow Internet Services NV	Watapanastraat 7 Oranjestad	Aruba	(6) (3)	42%	-
Scarlet (BVI) Ltd	Arias Fabrega & Fabrega Trust Co BVI Ltd Wickhams Cay, Road Town Britisch Virgin Islands		(6) (3)	42%	-
Belgacom International Carrier Services SA	Tortola Rue Lebeau 4	Belgium	(11)	58%	58%
	1000 Brussels VAT BE 0866.977.981
Belgacom International Carrier Services Deutschland GMBHMendelssohnstrasse 87	60325 Frankfurt	Germany	(11)	58%	58%
Belgacom International Carrier Services UK Ltd	Great Bridgewaterstreet 70	United Kingdom	(11)	58%	58%
Belgacom International Carrier Services Nederland BV	M1 5ES Manchester Wilhelminakade 91	The Netherlands	(11)	58%	58%
Belgacom International Carrier Services North America Inc Corporation trust center - 1209 Orange street	3072 AP Rotterdam	United States	(11)	58%	58%
Belgacom International Carrier Services Asia Pte Ltd	USA - 19801 Willington Delaware 80, Robinson Road # 02-00,	Singapore	(11)	58%	58%
Belgacom International Carrier Services (Portugal) SA	Singapore 066898 Avenida da Republica, 50, 10th floor	Portugal	(11)	58%	58%
	1069-211 Lisbon
Belgacom International Carrier Services Italia Srl	Via della Moscova 3 20121 Milano	Italy	(11)	58%	58%
Belgacom International Carrier Services Spain SL	Avenida de Aragon, 330 Edificio 5,3°	Spain	(11)	58%	58%
Belgacom International Carrier Services Switzerland AG Papiermülhestrasse 14	28022 Madrid	Switzerland	(11)	58%	58%
	3014 Bern
Belgacom International Carrier Services Austria GMBH	Teinfaltstrasse, 4 1010 Wien	Austria	(11)	58%	58%
Belgacom International Carrier Services Sweden AB	Drottninggatan 30 41114 Goteborg	Sweden	(11)	58%	58%
Belgacom International Carrier Services JAPAN KK	#409 Raffine Higaski Ginza, 4-14 Tsukyi 4 - Chome - Chuo-ku	Japan	(11)	58%	58%
	Tokyo 104-00
Belgacom International Carrier Services China Ltd	Three Pacific Place - Level 28 1, Queen's road East	China	(11)	58%	58%
Belgacom International Carrier Services France SAS	Hong Kong Rue du Colonel Moll 3	France	(11)	58%	58%
(1) Entity merged in 2011 into Telindus ISIT BV	75017 Paris

(2) Liquidated in 2011

(3) Entity disposed in 2011

(4) Subsidiaries of the Group Telindus (5) Subsidiaries of the Group Scarlet

(6) Entity indirectly controlled by the Group

(7) Entity merged in 2011 in Belgacom Invest SARL- renamed in Tango SA

(8) Entity merged in 2010 in Telindus SA (Luxembourg)

(9) Previous name Belgacom Invest SARL

(10) Entity merged in 2010 in Scarlet Belgium NV (11) BICS Group, fully consolidated as from 2010

Note 6.2. Investments in joint ventures

The Group has a joint-venture interest in the following companies.

		incorporation		2010	Group's participating interests 2011
Allo Bottin SA	101/109, rue Jean-Jurès 92300 Levalloi-Perret	France	(1)	50%	50%
E-Port Communications Systems SA	Slijkensesteenweg 2 8400 Oostende VAT BE 0864.818.940	Belgium	(2)	50%	50%
(1) In liquidation

Note 6.3. Investments in associates

Name	Registered office	Country of incorporation	Group's participating interests
			2010	2011
Tunz.com SA	Boulevard de Waterloo 1000 Bruxelles VAT BE 0886.476.763	Belgium	40%	40%
ClearMedia NV	Zagerijstraat 11 2960 Brecht VAT BE 0831.425.897	Belgium	40%	40%

Note 6.4. Acquisitions and disposal of subsidiaries, joint ventures and associates

Acquisition of control into BICS on 1 January 2010

Name	Registered office	Country of incorporation	2010	Group's participating interests 2011
Allo Bottin SA	101/109, rue Jean-Jurès	France	(1) 50%	50%
E-Port Communications Systems SA	92300 Levalloi-Perret Slijkensesteenweg 2 8400 Oostende VAT BE 0864.818.940	Belgium	(2) 50%	50%
(1) In liquidation (2) Joint ventures of Belgacom SA
Note 6.3. Investments in associates
	The Group has a significant influence in the following companies.
Name	Registered office	Country of incorporation		Group's participating interests
			2010	2011
Tunz.com SA	Boulevard de Waterloo 1000 Bruxelles VAT BE 0886.476.763	Belgium	40%	40%
ClearMedia NV	Zagerijstraat 11 2960 Brecht VAT BE 0831.425.897	Belgium	40%	40%
Acquisition of control into BICS on 1 January 2010	Note 6.4. Acquisitions and disposal of subsidiaries, joint ventures and associates Effective 1 January 2010, the BICS shareholders' agreement foresaw new decision-making rules and a deadlock procedure in force as from 1 January 2010 leading to the Group to conclude that it controls BICS as from that date. As a result of this and in application of the revised IFRS 3, BICS is fully consolidated as from 1 January 2010 and the previously held interest is re
transaction of acquisition of control.	measured to fair value. The Group estimated the fair value of this interest to EUR 564 million using valuation methodologies, such as discounted cash flows with a terminal value. The Group has not identified intangible assets that can't be individually separated and reliably measured due to their nature. The resulting non-recurring gain amounts to EUR 436 million. The Group has chosen not to apply the full goodwill option for this acquisition. This means that the non-controlling interests aren't measured at fair value. No equity instruments were issued as part of the cost and the Group did not incur any cost in this
immediately prior to the acquisition were:	The fair value of the identifiable assets and liabilities of BICS Group at the date of acquisition and the corresponding carrying amounts
(EUR million)			Fair value recognised on acquisition	Carrying value
Intangible assets with finite useful life			639	156
Property, plant and equipment Trade receivables			7 7 366	7 7 366
Current income tax assets			2	2
Other current assets Investments and cash and cash equivalents			2 4 121	2 4 121
Total assets			1,229	746
Non-current interest-bearing liabilities Liability for pensions and termination benefits Provisions and contingent liabilities			0 -2 -5	-2 0 -5
Deferred income tax liabilities			-166	-2
Trade payables Income tax payables			-419 -8	-419 -8
Other current payables Total non-controlling interests and liabilities			-101 -700	-101 -536
Net assets			529	210
Non-controlling interests			-217	-82
Net assets acquired			312	128
Goodwill arising on acquisition			252
Previously held interest measured at fair value			564
The cash outflow on acquisition is as follows:
Consideration paid Net cash acquired of the subsidiary Unpaid amounts			0 121 0
Net cash outflow			121
	Due to the fact that BICS was jointly controlled in 2009, the cash increased with EUR 51 million when changing from a proportional consolidation on 31th December 2009 to the full consolidation on 1 January 2010. At the date of acquisition, trade receivable amounted to EUR 410 million nominal value and EUR 43 million allowance for doubtful debtors. The purchase price allocation did not lead to the recognition of contingent liabilities.

Other acquisitions in 2010

In 2010, the Group acquired MBS TELECOM NV for an amount of EUR 2 million and Sahara Net LLC (Saudi-Arabia) for an amount of EUR 5 million. The fair value o f the identifiable assets and liabilities o f these acquisitions a t the date o f acquisition and the corresponding carrying amounts

immediately prior to the acquisition were:

(EUR million)	Fair value recognised on acquisition	Carrying value
Intangible assets with finite useful life Property, plant and equipment Trade receivables	2 1 3	0 1 3
Other current assets Investments and cash and cash equivalents Total assets	2 3 1 1	2 3 9
Trade payables Other current payables Total non-controlling interests and liabilities	-6 -3 - 9	-6 -3 - 9
Net assets acquired	2	0
Goodwill arising on acquisition Consideration	5 7
The consideration is detailed as follows: Cash paid to shareholders Consideration	7 7
The cash outflow on acquisition is as follows: Consideration paid Net cash acquired of the subsidiary Net cash outflow	7 -3 4

Acquisition of 2011

The acquisitions of 2011 impacted the Group financial statements as follows:

(EUR million)	Fair value recognised on acquisition	Carrying value
Intangible assets with finite useful life	8	0
Trade receivables	3	3
Other current assets	1	1
Investments and cash and cash equivalents	5	5
Total assets Non-controlling interests	1 7 3	9 3
Deferred income tax liabilities	-3	0
Trade payables	-4	-4
Other current payables	-1	-1
Total non-controlling interests and liabilities	- 4	- 2
Net assets acquired	1 3	7
Goodwill arising on acquisition	6
Equity movement	1
Consideration	1 9
The consideration is detailed as follows:
Cash paid to shareholders	1 9
Consideration	1 9
The cash outflow on acquisition is as follows:	0
Consideration paid	1 9
Net cash acquired of the subsidiary	-5
Net cash outflow	1 4

The net cash outflow linked to the acquisitions of 2011 results mainly from the acquisition by the Group in April 2011 of 100% of the shares of Eudasys SAS, a data-storage market leader in France, for EUR 11 million. Eudasys SAS merged into Telindus France SA in 2011.

Disposals of 2011

In 2011 the Group sold some minor participations.

The net assets disposed with respect to those subsidiaries are summarised as follows:

The net assets disposed with respect to those subsidiaries are summarised as follows:
Note	Disposals of 2011
Non-current assets disposed of Current assets disposed of, excluding cash and cash equivalents Cash and cash equivalents disposed of Non-controlling interests disposed of Non-current liabilities disposed of Current liabilities disposed of Net assets disposed of	2 5 3 2 6 9 -1 -17 -29 8 0
Consideration received, net of transaction costs	7 3
Gain/(loss) on disposal - including non-recurring income 2 2 - including non-recurring expense 2 6	- 7 1 1 -18
The net cash inflow on disposal is as follows: Cash received	7 3
Cash and cash equivalents disposed of with the subsidiaries Net cash inflow / (outflow)	-69 4

Note 7. Other participating interests

significant influence.
The net carrying amount of other participating interests evolved on the following way:
	As of 31 December
(EUR million)	2010	2011
Net carrying amount as of 1 January	1	2 6
Additions	2 5	5
Total	2 6	3 1

	As of 31 December
(EUR million)	2010	2011
Cost	3 3	3 7
Accumulated impairment losses	-7	-7
Net carrying amount	2 6	3 1

Note 8. Income taxes

Current assets disposed of, excluding cash and cash equivalents Cash and cash equivalents disposed of Non-controlling interests disposed of Non-current liabilities disposed of Current liabilities disposed of Net assets disposed of Consideration received, net of transaction costs Gain/(loss) on disposal - including non-recurring income - including non-recurring expense The net cash inflow on disposal is as follows: Cash received Cash and cash equivalents disposed of with the subsidiaries	2 2 2 6	3 2 6 9 -1 -17 -29 8 0 7 3 - 7 1 1
		-18
Net cash inflow / (outflow)		7 3 -69 4
Note 7. Other participating interests
Other participating interests only include participating interests for which the Group does not exercise control, joint control or significant influence.
The net carrying amount of other participating interests evolved on the following way:
(EUR million)	As of 31 December 2010	2011
Net carrying amount as of 1 January	1	2 6
Additions	2 5	5
Total	2 6	3 1
(EUR million)	As of 31 December 2010	2011
Cost	3 3	3 7
Accumulated impairment losses Net carrying amount	-7 2 6	-7 3 1
In 2010, the Group acquired minority interests in Onlive Inc, In3Depth Systems NV and Jinny Media LTD for an aggregate amount of EUR 25 million.
In 2011, the Group acquired minority interests in Dacentec NV and Awingu NV for an aggregate amount of EUR 5 million.
Note 8. Income taxes
Gross deferred income tax assets / (liabilities) relate to the following:	As of 31 December
(EUR million)	2010	2011
Deferred income tax liabilities Accelerated depreciation for tax purposes	-16	-9
Fair value adjustments on acquisition	-172	-158
Statutory provisons not retained under IFRS	-15	0
Deferred taxation on sales of property, plant and equipment Other	-5 -16	-4 -24
	-223	-195
Gross deferred income tax liabilities
Deferred income tax assets
Fair value adjustment on fixed assets	4 3	4
Remeasurement of financial instruments to fair value	7
Liability for post-employment and termination benefits	119	8
Tax losses carried forward Capital losses on investments in subsidiaries	1 0 1
Other	1 4	1
Gross deferred income tax assets	195
Net deferred income tax assets / (liabilities), when grouped per taxable entity, are as follows :		4 8 6 8 1 2 160
Net deferred income tax liability Net deferred income tax asset	-187 158	-157 121

December 2011 (EUR 289 million in 2010) of which EUR 110 million has no expiration date, EUR 2 million and EUR 26 million expire respectively in 2013 and 2014 and EUR 99 million has a longer expiration date.

The share of Belgacom in the undistributed retained profit of subsidiaries amounts to EUR 5,401 million at 31 December 2011 (EUR 5,940 million in 2010) and is taxable at an effective tax rate of 1.7% upon remittance to the parent company. No deferred tax liability is recorded for such undistributed earnings except when a decision is taken to remit such retained profit i.e. when the subsidiary intends to distribute a dividend

In the income statement, deferred tax income/ (expense) relate to the following:

In the income statement, deferred tax income/ (expense) relate to the following:
	Year ended 31 December
(EUR million)	2010	2011
Relating to deferred income tax liabilities Accelerated depreciation for tax purposes Fair value adjustments on acquisition Excess liabilities Remeasurement of financial instruments to fair value Other	2 6 1 8 -1 1 9	7 1 6 0 0 -8
Relating to deferred income tax assets Fair value adjustment on fixed assets Remeasurement of financial instruments to fair value Liability for post-employment and termination benefits Tax losses carried forward Capital losses on investments in subsidiaries Other	0 -1 -39 -45 -40 -3	1 1 -33 -2 0 -3
Deferred tax expense of the year	-75	-20

The consolidated income statement includes the following tax expense:

	As of 31 December
(EUR million)	2010	2011
Current income tax Current income tax expense Adjustments in respect of current income tax of previous periods	-160 1	-241 -1
Deferred income tax Expense resulting from changes in temporary differences Expense resulting from use of tax losses carried forward and tax credits	-30 -45	-19 -2
Income tax expense reported in consolidated income statement	-233	-262

The reconciliation o f income tax expense applicable t o income before taxes a t the statutory income tax rate t o income tax expense a t the group's effective income tax rate for each of the two years ended is as follows:

	As of 31 December
(EUR million)	2010	2011
Income before taxes	1,517	1,035
At Belgian statutory income tax rate of 33.99%	516	352
Lower income tax rates of other countries	-2	-1
Income tax consequences of disposal of subsidiaries and other participating interests	-148	2
Income tax consequences of capital losses on investments in subsidiaries	-7	0
Non-taxable income from subsidiaries and notional interest deduction	-128	-134
Non-deductible expenditures for income tax purposes	9	2 7
Other	-6	1 7
Income tax expense	233	262
Effective income tax rate	15.39%	25.28%

The effective tax rate for 2011 was 25.28% whereas this was 15.39% in 2010 as a result of the realized non-taxable capital gain of EUR 436 million through the acquisition of control of BICS on 1 January 2010.

The non-taxable income from subsidiaries mainly relates to the application of general principles of tax law such as the notional interest deduction applicable in Belgium.

Non-deductible expenditures for income tax purposes primarily relate to various expenses that are disallowed for tax purposes and unrecognized tax losses carried forward.

Other adjustments for the year 2011 mainly relate to taxes on intragroup dividends.

The tax effects relating to each component of other comprehensive income are as follows:
		As of 31 December
(EUR million)	2010	2011
Equity increase from remeasurement to fair value of available-for-sale investments	2	0
Total	2	0

Note 9. Assets and liabilities for pensions, other post-employment benefits and termination benefits

The Group has several plans that are summarized below:

	As of 31 December
(EUR million)	2010	2011
Termination benefits and additional compensations in respect of restructuring programs	353	257
Defined benefit plans for complementary pension plans (net liability)	1	1
Post-employment benefits other than pensions	196	204
Other liabilities	1 5	1 6
Net liability recognized in the balance sheet	565	479
Defined benefit plans for complementary pension plans (net asset)	-2	-2
Net asset recognized in the balance sheet	-2	-2

The calculation of the net liability is based on the assumptions established at the balance sheet date. The assumptions for the various plans have been determined based on both macro-economic factors and the specific terms of each plan relating to the duration and the beneficiary population, in order to apply the most relevant measure of estimated outflow of resources.

Note 9.1. Termination benefits and additional compensations in respect of restructuring programs

Termination benefits and additional compensations included in this chapter relate to employee restructuring programs. No plan assets are accumulated for these benefits.

In 2002, Belgacom SA implemented the Belgacom E-Strategic Transformation ("BeST") employee restructuring program. Under the terms of the plan, the Group will pay guaranteed salary allowances until the year 2012.

In 2005, the Group implemented a leave program and a career outphasing program (tutorship). Under the terms of the plan, the Group will pay benefits until the year 2015.

In 2007, the Group implemented a voluntary external mobility program to the Belgian State for its statutory employees.

In 2008, the Group increased its liability for restructuring programs by an amount of EUR 53 million, disclosed as nonrecurring expenses. This increase reflects the impact of the evolution of the index during 2008 on all the salary components of all restructuring programs (EUR 19 million), and the success of the external mobility program started in 2007 (EUR 34 million).

In 2009, the Group implemented restructuring programs for employees in subsidiaries that resulted in a non-recurring expense of EUR 7.5 million (see note 26).

In 2010, the Group introduced additional conditions for participants to benefit from a leave premium in the voluntary external mobility program launched in 2007, leading to a reduced number of volunteers.

Any subsequent re-measurement of the liability for termination benefits and additional compensations is recognized immediately in the income statement.

The funded status of the plans for termination benefits and additional compensations is as follows :

	As of 31 December
(EUR million)	2010	2011
Defined Benefit Obligation	353	257
Benefit obligation in excess of plan assets	353	257

	Year ended 31 December
(EUR million)	2010	2011
Interest cost Actuarial (gain) / loss recognized	1 1 -8	5 5
Expense recognized in the income statement, before curtailment, settlement and special termination benefits	4	1 0
Special termination benefits	0	0
Expense recognized in the income statement	4	1 0

(EUR million) At the beginning of the year 469 353 Expense for the period ⁴ 1 0 Business combination 1 0 Actual employer contribution -121 -105 At the end of the year 353 257 The movement in the net liability recognized in the balance sheet is as follows : Year ended 31 December 2010 2011

Change in plan assets :

		As of 31 December
(EUR million)	2010	2011
At the beginning of the year	0	0
Actual employer contribution	121	105
Distributions to beneficiaries	-121	-105
At the end of the year	0	0

Change in the defined benefit obligation :

Change in the defined benefit obligation :
As of 31 December
(EUR million)	2010	2011
At the beginning of the year	469	353
Interest cost	1 1	5
Actuarial (gain) / loss recognized	-8	5
Business combination	1	0
Distributions to beneficiaries	-121	-105
At the end of the year	353	257

The liability for termination benefits and additional compensations was determined using the following
	As of 31 December
	2010	2011
Discount rate	2.6 %- 4.5%	2.6 %- 4.5%
Future price inflation	2.00%	2.00%

Sensitivity analysis

An increase or decrease of 0.5% in the effective discount rate involves a fluctuation of the liability by approximately EUR 2 million.

The Group expects to pay an amount of EUR 99 million for termination benefits and additional compensations in 2012.

Note 9.2. Defined benefit plans for complementary pensions

Belgacom SA and some subsidiaries have a joint complementary defined benefit pension plan for their employees. This plan provides pension benefits for services as of 1 January 1997. The related separately administrated pension fund was created in 1998. The pension fund of Belgacom Mobile created in 2001 merged into the Belgacom SA pension plan in 2009.

Telindus BV, a subsidiary established in the Netherlands, has a complementary defined benefit pension plan for its employees financed through an insurance company.

The funded status of the pension plans is as follows :

The funded status of the pension plans is as follows :
	As of 31 December
(EUR million)	2010	2011
Defined Benefit Obligation	239	273
Plan assets at fair value	-211	-231
Deficit / (surplus)	2 8	4 3
Unrecognized actuarial gain / (loss)	-29	-44
Deficit / (surplus) after unrecognized actuarial gain / (loss) composed of :	-1	-1
Net liability recognized in the balance sheet	1	1
Net assets recognized in the balance sheet	-2	-2

Historical data:

	As of 31 December
(EUR million)	2007	2008	2009	2010	2011
Defined Benefit Obligation	5	168	196	239	273
Plan assets at fair value	-4	-131	-172	-211	-231
Deficit / (surplus)	0	3 7	2 4	2 8	4 3
Experience adjustment on plan liabilities : gain / (loss)	0	1 0	2	-10	5
Experience adjustments on plan assets : gain / (loss)	0	-45	1 0	5	-20

The components of the expense recognized in the income statement are as follows :
	Year ended 31 December
(EUR million)	2010	2011
Current service cost - employer	2 5	3 1
Interest cost	1 1	1 2
Expected return on plan assets	-11	-14
Expense recognized in the income statement	2 5	2 9
The movement in the net liability/(assets) recognized in the balance sheet is as follows :
	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	-1	-1
Expense for the period	2 5	2 9
Actual employer contribution	-25	-29
Deficit / (surplus) after unrecognized actuarial gain / (loss) composed of :	-1	-1
Net liability at the end of the year	1	1
Net assets at the end of the year	-2	-2

Change in plan assets :
	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	172	211
Expected return on plan assets	1 1	1 4
Actuarial gains / (losses) on plan assets	5	-20
Actual employer contribution	2 5	2 9
Benefits payments and expenses	-3	-3
At the end of the year	211	231

Change in the defined benefit obligation :
	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	196	239
Service cost	2 5	3 1
Interest cost	1 1	1 2
Benefits payments and expenses	-3	-3
Actuarial loss / (gain)	1 0	-5
At the end of the year	239	273

The pension liability was determined using the following assumptions :

	As of 31 December
	2010	2011
Discount rate	5.00%	5.00%
Expected rate of return on plan assets Telindus BV	2.25 %	2.25 %
Expected rate of return on plan assets Belgacom Group	6.20%	6.20%
Future price inflation	2.00%	2.00%
Nominal future salary increase		2.00% - 4.50% 2.00% - 4.50%
Nominal future baremic salary increase		2.00% - 3.95% 2.00% - 3.95%

The expected return on plan assets is an assumption based on market data and future long term expectations. It takes into account the asset allocation of the respective pension plans that may evolve over time depending on achieved and future expected returns.

The assets of the pension plans are detailed as follows:	As of 31 December
	2010	2011
Equities	49%	46%
Fixed income : bonds and cash	44%	47%
Insurance deposits (for the plan of Telindus BV)	7%	7%

(EUR million) Actual return on plan assets 1 6 -7 The actual return on plan assets is as follows: As of 31 December 2010 2011

The Group expects to contribute an amount of EUR 31 million to these pension plans in 2012.

Note 9.3. Post-employment benefits other than pensions

Historically, the Group grants to its retirees post-employment benefits other than pensions in the form of socio-cultural aid premium and other social benefits including hospitalization. There are no plan assets for such benefits.

In 2011, the Group decided to replace the hospitalization plan and to settle a large part of the risks related to the future benefits payments for retirees. In the new plan, the amount to be paid by the group will be based on an indexed lump sum per beneficiary. This resulted in a total net negative impact of EUR 3 million on the income statement.

The funded status of the plans is as follows :

	As of 31 December
(EUR million)	2010 2011
Defined Benefit Obligation	253	256
Plan assets at fair value	0	0
Unrecognized actuarial loss	-55	-50
Unrecognized past service cost	-2	-2
Net liability recognized in the balance sheet	196	204

(EUR million) Defined Benefit Obligation 6 9 ^{235 238 253 256} Benefit obligation in excess of plan assets 6 9 ^{235 238 253 256} Experience adjustment on plan liabilities : gain / (loss) 0 2 0 -12 -25 Historical data: As of 31 December 2007 2008 2009 2010 2011

	Year ended 31 December
(EUR million)	2010	2011
Current service cost - employer	2	3
Interest cost	1 3	1 2
Amortization actuarial loss	1	2
Expense recognized in the income statement, before curtailment, settlement and special termination benefits	1 7	1 8
Curtailment or settlement loss / (gain) and past service cost	0	3
Expense recognized in the income statement	1 7	2 1

The movement in the net liability recognized in the balance sheet is as follows :	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	191	196
Expense for the period	1 7	2 1
Actual employer contribution	-12	-12
At the end of the year	196	204

Change in plan assets :

Change in plan assets :
	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	0	0
Actual employer contribution	-12	-12
Distributions to beneficiaries	1 2	1 2
At the end of the year	0	0

Change in the defined benefit obligation :

	As of 31 December
(EUR million)	2010	2011
At the beginning of the year	238	253
Service cost	2	3
Interest cost	1 3	1 2
Settlement	0	-25
Distributions to beneficiaries	-12	-12
Actuarial (gain)/loss	1 2	2 5
At the end of the year	253	256

The liability for post-employment benefits other than pensions was determined using the following assumptions :

	As of 31 December
	2010	2011
Discount rate	5.00%	5.00%
Future cost trend	2.00% - 4.00%	2.00%
Future price inflation	2.00%	2.00%

The liability for post-employment benefits other than pensions is determined based on the entity's best estimate of the financial and demographic assumptions which are reviewed on an annual basis.

Sensitivity analysis

An increase or decrease of 1% in the medical cost trend would result in an increase of EUR 14 million respectively a decrease of EUR 11 million of the defined benefit obligation, and in an increase or decrease of the expense (service and interest cost) of the year of respectively.EUR 2 million and EUR 1 million.

The Group expects to contribute an amount of EUR 15 million to these plans in 2012.

Note 9.4. Other liabilities

The Group has a legal obligation to pay child allowance benefits to a limited number of statutory retirees and to the beneficiaries of the employee restructuring programs.

Telindus France has a legal obligation to pay a one-time post-employment benefit in accordance with local law in France.

Those amounts are directly paid by the Group and therefore no plan assets are accumulated for such benefits. Any subsequent re-measurement of the liability is recognized immediately in the income statement.

The funded status is as follows :
	As of 31 December
(EUR million)	2010	2011
Defined Benefit Obligation	1 5	1 6
Net liability recognized in the balance sheet	1 5	1 6
The liability was determined using the following assumptions :
	2010	2011
Discount rate	3.75%	3.75%
Future price inflation	2.00%	2.00%

Note 10. Other non-current assets

		As of 31 December
(EUR million)	Note	2010	2011
Other derivatives	3 1	106	132
Non-current investments		5	5
Other assets		1 1	4 3
Total		122	180

Note 11. Trade receivables

Most trade receivables are non-interest bearing and are usually on 30-90 days terms. Terms are somehow longer for the receivables of the International Carrier Services segment, since major part of its trade receivables on other Telco operators are paid via netting agreements.

As of 31 December	Gross receivables	Allowance for doubtful debtors	Net carrying amount	Neither past due nor impaired	Past due but not impaired
(EUR million)					< 30 days	30-60 days			60-90 days 90-180 days 180-360 days > 360 days
2006	1,340	-133	1,207
2007	1,295	-138	1,158
2008	1,350	-145	1,205	933	125	2 9	1 8	3 1	3 4	3 5
2009	1,209	-120	1,089	858	102	3 4	1 5	2 8	1 4	3 7
2010	1,389	-143	1,246	923	8 4	4 4	2 9	4 5	4 7	7 3
2011	1,472	-144	1,328	933	9 7	5 3	3 3	6 6	5 8	8 7

The analysis of trade receivables that were past due but not impaired is as follows:

As of 31 December 2010 and 2011, 74% and 70% respectively of the total of trade receivables were neither past due nor impaired.

For the two years presented, no trade receivables were pledged as collaterals. In 2011, Belgacom Group received bank and parent guarantees of EUR 7 million (in 2010 EUR 6 million) as securities for the payment of outstanding invoices.

The evolution of the allowance for doubtful debtors is as follows:
(EUR million)	Note	2010	2011
As of 1 January		-120	-143
Increase posted in operating expenses Other movements	2 5	-8 -15	-4 2
As of 31 December		-143	-144

Note 12. Other current assets

Note 12. Other current assets
		As of 31 December
(EUR million)	Note	2010	2011
VAT receivables		7	1 6
Other derivatives	31.1	1	3
Prepaid expenses		100	108
Accrued income		1 9	1 2
Other receivables		1 4	1 3
Total		142	152

Note 13. Investments

Note 13. Investments
			As of 31 December
(EUR million)	Note	2010	2011
Shares	3 1	4 3	3 6
Total		4 3	3 6

Shares include Sicavs and funds invested mainly in money markets instruments, euro-bonds and equity instruments.
	As of 31 December
(EUR million)	2010	2011
Cost	4 3	3 6
Accumulated re-measurements to fair value	0	0
Net carrying amount	4 3	3 6

On the two years presented, the net carrying amount of investments evolved on the following way:
		As of 31 December
(EUR million)	Note	2010	2011
Net carrying amount as of 1 January		7 6	4 3
Additions		3 8	8
Disposals		-64	-16
Re-measurements to fair value
Transfer to profit or loss on sale	2 8	-7	0
Net carrying amount as of 31 December		4 3	3 6

Note 14. Cash and cash equivalents

As of 31 December
2011
147
109
6 4
320

The Group invests part of its liquidities in treasury certificates held-to-maturity. Short-term deposits are made for periods varying between one month and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Cash at bank earns interest at floating rates based on daily bank deposit rates.

Note 15. Equity

Note 15.1 Shareholders' equity

At 31 December 2011, the share capital of Belgacom SA amounted to EUR 1 billion (fully paid up), represented by 338,025,135 shares, with no par value and all having the same rights, provided such rights are not suspended or cancelled in the case of treasury shares. The Board of Directors of Belgacom SA is entitled to increase the capital for a maximum amount of EUR 200 million.

Distribution of retained earnings of Belgacom SA, the parent company, is limited by a restricted reserve built up in prior years in accordance with Belgian Company Law up to 10% of Belgacom's issued capital.

Belgacom SA has a statutory obligation to distribute 5% of the parent company income before taxes to its employees. In the accompanying consolidated financial statements, this profit distribution is accounted for as personnel expenses.

On 31 December 2011, the number of treasury shares amounts to 20,376,314 of which 4,663,114 entitled to dividend rights and 15,713,200 without dividend rights. Dividends allocated to treasury shares entitled to dividend rights are accounted for under the caption "Reserves not available for distribution" in the statutory financial statements of Belgacom SA.

In 2010 and 2011, the Group sold respectively 294,304 and 277,474 treasury shares to its senior management for EUR 6 million under discounted share purchase plans at a discount of 16.67% (see note 35).

During the years 2010 and 2011, employees exercised respectively 573,654 and 189,681 share options. In order to honor its obligation in respect of these exercises, Belgacom used treasury shares (see note 35).

In 2010, the Group granted 1,023,210 share options to its key management and senior management with an exercise price of EUR 26.445. In 2011, the Group granted 1,036,061 share options to its key management and senior management with an exercise price of EUR 25.015 (see note 35).

In the context of the share buyback program, Belgacom acquired in the second and third quarter of 2011 4,300,975 treasury shares for an amount of EUR 100 million.

In order to cover the outstanding stock options with dividend rights granted in 2010 and 2011, the Board of Directors approved the conversion of 2,025,774 treasury shares without dividend rights into treasury shares entitled to dividend rights, on 27th October 2011.

Number of shares (including treasury shares):	2010	2011
As of 1 January	338,025,135	338,025,135
Cancellation As of 31 December	0 338,025,135	0 338,025,135
Number of treasury shares:	2010	2011
As of 1 January	17,410,452	16,542,494
Acquisition	0	4,300,975
Sale under a discounted share purchase plan	-294,304	-277,474
Exercice of stock option	-573,654	-189,681
As of 31 December	16,542,494	20,376,314

Note 15.2 Non-controlling interests

Non-controlling interests include

• the 42.4% of the minority shareholders (Swisscom and MTN Dubai) into BICS as from 1 January 2010;
• the 30% stake of the minority shareholder in the equity and net income of Sahara Net LCC;
• the 35% stake of the minority shareholder Arcelor Mittal in the equity and net income of Telindus SA (established in Luxembourg) and subsidiaries (see note 6).

Note 16. Interest-bearing liabilities

Note 16.1 Non-current interest-bearing liabilities

		As of 31 December
(EUR million)	Note	2010	2011
Unsubordinated debentures		1,306	1,798
Leasing and similar obligations		3	2
Credit institutions		8	4
Other derivatives	3 1	8 9	127
Total		1,406	1,931

All long term debt is unsecured. During 2010 and 2011 there have been no defaults or breaches on loans payables. Over the two years presented, interest rate swaps (IRS) and interest rate and currency swaps (IRCS) were used to manage the currency and interest rate exposure on the JPY unsubordinated debentures. The swaps enabled the Group to transform the interest rate on these debentures from a fixed interest rate to a floating interest rate or vice versa.

		Carrying amount Nominal amount	Measurement under IAS 39	Maturity date	Interest payment / repriceable	Interest rate payable	Effective interest rate
	(EUR million)	(EUR million)				(b)
Unsubordinated debentures
Floating rate borrowings
JPY (a)	8 4	7 3	Amortized cost	Dec-26	Semi-annually	1.51%	1.51%
Fixed rate borrowings
EUR	746	750	Amortized cost	Nov-16	Annually	4.38%	4.50%
EUR	178	200	Amortized cost	Nov-16	Annually	4.38%	7.16%
EUR	125	125	Amortized cost	Dec-13	Annually	6.00%	6.11%
EUR	495	500	Amortized cost	Feb-18	Annually	3.88%	4.05%
	1,544	1,575
JPY (a)	8 3	7 3	Amortized cost	Nov-15	Annually	6.18%	6.18%
JPY (a)	8 8	7 2	Amortized cost	Dec-15	Annually	6.21%	6.21%
	171	145
Total unsubordinated debentures	1,798	1,792
Credit institutions
Fixed rate borrowings
EUR	4	4	Amortized cost	Nov-13	Semi-annually	3.78%	3.78%
Leasing and similar obligations	2	2	Amortized cost	2014	Quarterly	4.85%	4.85%
Total non-current financial liabilities (derivatives excluded)	1,804	1,798
Derivatives
Derivatives held-for-trading (c)	127	-	Fair value
Total	1,931	1,798

(a) converted into a loan in EUR via currency interest rate swap

(b) for floating rate borrowings, interest rate is the one prevailing at the last repricing date before 31 December 2011

(c) Economic hedges of JPY borrowings

Unsubordinated debentures in EUR and in JPY are issued by Belgacom SA. The capital is repayable in full on the maturity date. In January 2011 the Group issued a seven-year unsubordinated bond of EUR 500 million under the Euro Medium Term Note program, partially offsetting the reimbursement of two loans maturing in November 2011, for a nominal amount of EUR 775 million.

The foreign currency exposure on liabilities in JPY is fully hedged economically by interest rate and currency swaps converting these liabilities in JPY into liabilities in EUR (see note 31).

The credit institution in EUR is primarily a loan granted to Belgacom SA by a bank for which interests are payable semiannually and the capital is amortized semi-annually. An amount of EUR 4 million of the total nominal amount is reimbursed annually.

Note 16.2 Current interest-bearing liabilities

	As of 31 December
(EUR million)	2010	2011
Unsubordinated debentures - current portion	773	0
Leasing and similar obligations - current portion	3	2
Credit institutions - current portion	4	4
Other loans	3	3 5
Total	783	4 1

Note 17. Provisions

(EUR million)	Workers' accidents	Litigation	Illness days	Other risks	Total
Additions	2	1 3	9	8	3 2
Utilisations	-3	-4	-13	-4	-24
Withdrawals	0	-1	0	-5	-6
Unwinding	2	0	0	0	2
As of 31 December 2010	4 2	9 6	2 5	3 9	203
Additions	0	1 6	2 0	8	4 4
Utilisations	-3	-3	-15	-4	-25
Withdrawals	-1	-42	0	-1	-44
Unwinding	2	0	0	0	2
As of 31 December 2011	4 1	6 7	3 0	4 2	180

The provision for workers' accidents relates to compensation that Belgacom SA could pay to members of personnel injured (including professional illness) when performing their job and on their way to work. Until 31 December 2002, according to the law of 1967 (public sector) on labor accidents, compensation was funded and paid directly by Belgacom. This provision (annuities part) is based on actuarial data including mortality tables, compensation ratios, interest rates and other factors defined by the law of 1967 and calculated with the support of a professional insurer. Taking into account the mortality table, it is expected that most of these costs will be paid out until 2053.

As from 1 January 2003, contractual employees are subject to the law of 1971 (private sector) and statutory employees remain subject to the law of 1967 (public sector). For both the contractual and statutory employees, Belgacom is covered as from 1 January 2003 by insurance policies for workers' accidents and therefore will not directly pay members of personnel.

The provision for litigation represents management's best estimate for probable losses due to pending litigation where the Group has been sued by a third party or is subject to a judicial or tax dispute. The expected timing of the related cash outflows depends on the progress and duration of the underlying judicial procedures. The major part of the withdrawals results from a settlement of network related disputes in 2011.

The provision for illness days represents management's best estimate of probable charges related to the granting by Belgacom of accumulating non-vesting illness days to its statutory employees. The provision has been determined based on statistical data.

The provision for other risks mainly include the expected costs for dismantling and restoration of mobile antenna sites and sites where payphones are installed, environmental risks and sundry risks. It is expected that most of these costs will be paid during the period 2009-2024. The provision for restoration costs is estimated at current prices and discounted using a discount rate that varies between 2% and 5%, depending the expected timing to settle the obligation.

Note 18. Other non-current payables

(EUR million)	2010	2011
Other amounts payable	3	2
Total	3	2

Note 19. Other current payables

Note 19. Other current payables
		As of 31 December
(EUR million)	2010	2011
VAT payables	1 8	2 5
Payables to employees	107	131
Accrual for holiday pay	7 8	7 9
Accrual for social security contributions	6 5	5 5
Other taxes	1 7	9 1
Deferred income	191	195
Accrued expenses	2 4	3 6
Other amounts payable	2 9	3 4
Total	529	647

Deferred income mainly includes prepaid telecommunication and ICT services.

Other amounts payable mainly relate to advances received on ICT contracts and amounts collected on behalf of third parties.

Note 20. Net revenue

		Year ended 31 December
(EUR million)	2010	2011
Sales of goods	565	565
Rendering of services	5,987	5,796
Total	6,552	6,361

Note 21. Other operating income

		Year ended 31 December
(EUR million)	2010	2011
Gain on disposal of intangible assets and property, plant and equipment	4	4
Gains on realization of trade debtors	1	2
Other income	4 5	3 9
Total	5 1	4 5

Other income mainly includes compensation for network damages as well as employee and third party contributions for sundry services.

Note 22. Non-recurring income

		Year ended 31 December
(EUR million)	2010	2011
Gain on disposal of subsidiaries Remeasurement to fair value of previously held interest in BICS	0 436	1 1 0
Total	436	1 1

Gains on the disposal of subsidiaries and joint-ventures are reported as non-recurring income when they individually exceed EUR 5 million.

In 2010, as a result of the acquisition of control into BICS and in application of the revised IFRS 3, the previously held interest into BICS has been re-measured to fair value, leading to the recognition of a non-recurring income of EUR 436 million (see note 6.4).

In 2011, the disposal of a consolidated company engaged in non-core activities resulted in a non-recurring income of EUR 11 million.

Note 23. Costs of materials and services related to revenue

		Year ended 31 December
(EUR million)	2010	2011
Purchases of materials	438	428
Purchases of services	2,204	2,089
Total	2,642	2,517

Purchases of materials are shown net of work performed by the enterprise that is capitalized for an amount of EUR 63 million in 2010 and EUR 77 million in 2011.

Note 24. Personnel expenses and pensions

		Year ended 31 December
(EUR million)	2010	2011
Salaries and wages	818	818
Social security expenses	202	203
Pension costs	2 5	2 9
Post-employment benefits other than pensions and termination benefits	2 0	2 3
Other personnel expenses	4 3	4 4
Total	1,107	1,117

Salaries and wages and social security expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 60 million in 2010 and EUR 70 million in 2011.

Note 25. Other operating expenses

	Year ended 31 December
(EUR million)	2010	2011
Rent expense	116	116
Maintenance and utilities	205	206
Advertising and public relations	9 9	8 5
Consultancy	136	141
Administration and training	6 2	6 2
Telecommunications, postage costs and office equipment	3 8	4 3
Outsourcing	113	139
Allowances for trade debtors	8	4
Loss on realization of trade debtors	2 5	2 2
Impairment on intangible assets and property,	1	2
plant and equipment
Taxes other than income taxes	3 0	6
Other operating charges (1)	3 7	3 6
Total	870	860

(1) Including unrealized and realized net exchange gains amounting to EUR 5 million in 2010 and EUR 5 million in 2011.

Other operating expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 132 million in 2010 and EUR 143 million in 2011.

Note 26. Non-recurring expenses

Note 26. Non-recurring expenses
		Year ended 31 December
(EUR million)	2010	2011
Loss on disposal of subsidiaries	0	1 8
Termination benefits and additional compensation	-8	8
Total	-8	2 6

Losses on the disposal of subsidiaries and joint-ventures that individually exceed EUR 5 million, costs of restructuring programs (including actuarial gains and losses) and the effect of settlements of post-employment benefit plans are recorded as non-recurring expenses.

In 2010, the Group reviewed the assumptions used in the estimation of the liability for termination benefits that resulted in a decrease of the liability with EUR 8 million (see note 9.1)

On 30 June 2011, the Belgacom Group disposed Telindus SA (Spain) and recognized a loss on disposal of EUR 18 million through the non-recurring expenses.

In 2011, the Group replaced the group's hospitalization plan resulting in a non-recurring expense of EUR 3 million (see note 9.3), and reviewed the estimation of the liability for termination benefits resulting in a non-recurring expense of EUR 5 million (see note 9.1).

Note 27. Depreciation and amortization

	Year ended 31 December
(EUR million)	2010	2011
Amortization of licenses and other intangible assets	260	266
Depreciation of property, plant and equipment	549	489
Total	809	756

Note 28. Net finance income / (costs)

		Year ended 31 December
(EUR million)	2010	2011
Finance income
Interest income on financial instruments
At amortized cost	4	8
At fair value through income statement	1	2
Interest income on assets
On receivables	0	8
Gain on disposal of
Investments	7	0
Fair value adjustments of financial instruments
Not in a hedge relationship	6	9
Other finance income	2	3
Finance costs
Interests and debt charges on financial instruments
At amortized cost	-92	-101
At fair value through income statement	-11	-12
Discounting charges
On provisions	-1	0
On termination benefits	-9	-5
On long term payables	0	-2
Fair value adjustments of financial instruments
Not in a hedge relationship	-7	-13
Other finance costs	-4	-3
Total	-102	-106

Note 29. Earnings per share

Basic earnings per share are calculated by dividing the net income for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net income for the year attributable to ordinary shareholders, by the weighted average number of ordinary shares outstanding during the year, both adjusted for the effects of dilutive potential ordinary shares.

The following table reflects the income and share data used in the computation of basic and diluted earnings per share.

		Year ended 31 December
(in millions, except per share amounts)	2010	2011
Net income attributable to ordinary shareholders (EUR million)	1,266	756
Weighted average number of outstanding ordinary shares	321,138,048	319,963,423
Adjustment for share options	573,981	550,862
Weighted average number of outstanding ordinary shares for diluted earnings per share	321,712,030	320,514,286
Basic earnings per share (EUR)	3.94	2.36
Diluted earnings per share (EUR)	3.94	2.36

Earnings per share are influenced by non-recurring items included in the net income (see notes 22 and 26).

The stock options granted in 2004, 2007 and 2011 are anti-dilutive and hence not included in the calculation of diluted earnings per shares, while the other options granted are dilutive.

Note 30. Dividends paid and proposed

	Year ended December 31
(in millions, except per share amounts)	2010	2011
Dividends on ordinary shares:
Proposed dividends (EUR million)	540	534
Number of outstanding shares with dividend rights	321,482,641	317,648,821
Dividend per share (EUR)	1.68	1.68
Special dividend proposed to the shareholders' meeting (EUR million)	-	-
Special dividend per share (EUR)	-	-
Interim dividend paid to the shareholders (EUR million)	161	159
Interim dividend per share (EUR)	0.50	0.50

The proposed dividends for 2010 have been effectively paid in April 2011. The interim dividend of 2010 has been paid in December 2010. The interim dividend of 2011 has been paid in December 2011.

Note 31. Additional disclosures on financial instruments

Note 31.1 Derivatives

		As of 31 December
(EUR million)	Note	2010	2011
Non-current assets
Other derivatives - interest related	1 0	106	132
Current assets
Other derivatives	1 2	1	3
Total assets		107	134
Non-current liabilities
Other derivatives - interest related	1 6	8 9	127
Total liabilities		8 9	127

The Group makes use of derivatives such as interest rate swaps (IRS), interest rate and currency swaps (IRCS), forward foreign exchange contracts and currency options.

The tables below show the positive and negative fair value of derivatives, included in the balance sheet respectively as current/non-current assets or liabilities, together with the notional amounts presented by the term of maturity.

	Fair value
		Within	3 - 12	1 - 5	over 5	Total
Asset	Liability	2 months	months	years	years
		0	0	144	0	144
		0	0	-144	0	-144
		0	0	145	7 3	217
		0	0	-145	-73	-217
	-64	0	0	0	0	0
		0	8	1	0	8
		0	-22	-99	0	-121
	-89	0	-14	-98	0	-112
(1)		0 -25 106 0 0 1 0 107				Notional amount (1)

Total 107 -89 0 -14 -98 0 -112 (1) The sign "+" refers to notional amounts to be cashed in and the sign "-" to notional amounts to be cashed out.

As of 31 December 2011			Fair value	Notional amount (1)
(EUR million)		Asset	Liability	Within 2 months	3 - 12 months	1 - 5 years	over 5 years	Total
Commodity swap		0	0	-1	-6	-1	0	-8
Derivatives qualifying as cash flow hedges		0	0	- 1	- 6	- 1	0	- 8
Interest rate swaps				0		-25	0	0	144	0	144
			0	0	-144	0	-144
Interest rate and currency swaps		132	0	0	0	145	7 3	217
				0	0	-145	-73	-217
Interests and currency related - other derivates		0	-101	0	0	0	0	0
Forward foreign exchange contracts		3	0	0	9	1 8	0	2 7
				0	-15	-72	0	-87
Derivatives not qualifying as hedges	(1)	134	-127	0	- 6	-54	0	-60
Total		134	-127	- 1	-12	-54	0	-68

Note 31.2 Financial risk management objectives and policies

The Group's main financial instruments comprise unsubordinated debentures, trade receivables and trade payables. The main risks arising from the Group's use of financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. The Group is also exposed to financial risks associated with forecasted transactions.

All financial activities are subject to the principle of risk minimization. To achieve this, all matters related to funding, foreign exchange, interest rate and counterparty risk management are handled by a centralized Group Treasury department. Simulations are performed using different market (including worst case) scenarios with a view to estimating the effects of varying market conditions. All financial transactions and financial risk positions are managed and monitored in a centralized treasury management system.

Group Treasury operations are conducted within a framework of policies and guidelines approved by the Board of Directors. Group Treasury is responsible for implementing these policies. According to the policies, derivatives are used to hedge interest rate and currency exposures. Derivatives are used exclusively as hedging instruments, i.e., not for trading or other speculative purposes. Derivatives used by the Group mainly include forward exchange contracts, interest rate swaps, interest rate and currency swaps and future rate agreements (FRA's).

The Group's internal auditors regularly review the internal control environment at Group Treasury.

No material changes occurred during the period 2010-2011 in the nature of the exposure of the Group to financial risks nor in the Group's policies and processes for managing financial risk.

Interest rate risk

The Group's exposure to changing market interest rates primarily relates to its long-term financial obligations. Group Treasury manages exposure of the Group to changes in interest rates and the overall cost of financing by using a mix of fixed and variable rate debts, in accordance with the Group's financial risk management policies. The aim of such policies is to achieve an optimal balance between total cost of funding, risk minimization and avoidance of volatility in financial results, whilst taking into account market conditions and opportunities as well as overall business strategy.

Accordingly, the company entered into several interest rate swaps (IRS) and interest rate and currency swaps (IRCS) to transform the interest rate exposure on certain financial liabilities from a fixed interest rate to a floating interest rate mechanism or vice versa.

These IRS and IRCS derivatives are economic hedges and do not qualify for hedge accounting.

The tables below summarize the non-current interest-bearing liabilities (excluding leasing and similar obligations), the interest rate and currency swap agreements (IRCS), the interest rate swap agreements (IRS) and the net currency obligations of the Group at 31 December 2010 and 2011.

							As of 31 December 2010
		Direct borrowing		IRCS agreements				IRS agreements		Net currency obligations
	Notional amount	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity
	(EUR million)		(in years)	(EUR million)			(in years) (EUR million)		(in years)	(EUR million)		(in years)
EUR Fixed Variable	1,858	4.43%	4	217	1.15%	9	144 -144	6.20% 1.27%	5 5	2,002 7 3	4.55% 0.93%	4 1 6
JPY Fixed	217	4.99%	9	-217	-4.99%	9				0
Total	2,076	4.48%	4	0			0			2,076	4.43%	4

(1) Weighted average interest rate taking into account last repriced interest rates for floating borrowings.

							As of 31 December 2011
		Direct borrowing			IRCS agreements			IRS agreements			Net currency obligations
	Notional amount	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity	Amount payable (receivable)	Weighted average interest rate (1)	Average time to maturity
	(EUR million)		(in years)	(EUR million)			(in years) (EUR million)		(in years)	(EUR million)		(in years)
EUR Fixed Variable	1,579	4.41%	5	217	1.61%	8	144 -144	6.20% 1.74%	4 4	1,723 7 3	4.56% 1.37%	5 1 5
JPY Fixed Variable	217	4.99%	8	-217	-4.99%	8				0
Total	1,796	4.48%	5	0			0			1,796	4.43%	5

The Group expects immaterial impacts for 2012 on the income statement resulting from interest payable on floating rate borrowings on the one hand and from measurement at fair value in income statement of some IRS derivatives that do not qualify as hedging instruments on the other hand1.

¹ The volatility on the financial income/(costs) depends on the fluctuations of the EURIBOR at three months (EURIBOR 3M) for the interest payable on the floating rate borrowings and of the IRS-EURIBOR at seven years (IRS-EURIBOR 7 years) for the measurement at fair value of the IRS derivatives.

Foreign currency risk

The Group's main currency exposures result from its operating activities. Such exposure arises from sales or purchases by operating units in currencies other than their respective functional currency. Transactions in currencies other than the functional currency mainly occur in the International Carrier Services ("ICS") segment whose international carrier activities generate payments to and receipts from other telecommunications operators in various foreign currencies, as well as in some affiliates of the Telindus subgroup running USD denominated operating activities and finally also, in relationship with international activities (roaming, capital and operating expenditure) of the Group.

Risks from foreign currencies are hedged to the extent that they are liable to influence the Group's cash flows. Foreign currency risks that do not influence the Group's cash flows (i.e., the risks resulting from the translation of assets and liabilities of foreign operations into the Group's reporting currency) as a rule are not hedged. However, the Group could envisage hedging such so-called translation differences should their potential impact become material to the Group's consolidated financial statements.

The typical financial instruments used to hedge foreign currency risk are forward foreign exchange contracts.

In 2010 and 2011, the Group only incurred currency exposures relative to its operating activities. Any re-measurement to fair value of underlying open trade positions in foreign currencies is recorded via the income statement and reduced or offset by the accompanying re-measurement to fair value of derivatives used to hedge such underlying exposures.

The Group performed a sensitivity analysis on the exchange rates EUR/USD, EUR/SDR2 EUR/GBP, and EUR/CHF, four currency pairs to which it is typically exposed in its operating activities, for the years 2010 and 2011. For 2010 and 2011, there was no material impact on the Group's income statement. For 2012, the Group does not expect any material impact of currency fluctuations on its overall financial performance either. This results on the one hand from the fact that overall the Group continues to have relatively limited ( albeit increasing in light of the growing ICS activities) foreign currency exposures and on the other hand from timely and adequately hedging such exposures as they surface in the course of business.

Credit risk and significant concentrations of credit risk

Belgacom is exposed to credit risk from its operating activities and from its financing activities (financial investments done to manage cash of the Group). Credit risk encompasses all forms of counterparty exposure, i.e. where counterparties may default on their obligations to Belgacom in relation to lending, hedging, settlement and other financial activities.

The Group's maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event the counterparties fail to perform their obligations in relation to each class of recognized financial assets, including derivatives with positive market value, is the carrying amount of those assets in the balance sheet.

To reduce the credit risk in respect of financing activities and cash management of the Group, transactions as a rule are only entered into with leading financial institutions whose credit rating equals at least A (S&P) and/or A2 (Moody's).

Credit risk on operating activities with significant clients is managed and controlled on an individualized basis. When needed, the Group requests additional collaterals. These significant customers are however not material to the Group, since the client portfolio of the Group is mainly composed of a large number of small customers. Hence, credit risk and concentration of credit risk on trade receivables is limited. For amounts receivable from other telecommunication companies, the concentration of credit risk is also limited due to netting agreements with accounts payable to these companies, prepayment obligations, bank guarantees, parent guarantees and the use of credit limits obtained via credit insurance.

The Group is exposed to credit loss in the event of non-performance by a counterparty on financial derivatives (see note 31.1) and a cross-border lease arrangement (see note 34). However, the Group does not anticipate non-performance by any of these counterparties, seeing it only deals with prime financial institutions. In one case, a collateral (margin call) of EUR 32 million was obtained from a bank to contain the counterparty risk within the Group policy limits.

In addition, the Group is exposed to credit risk by occasionally granting financial guarantees. At 31 December 2011, it had granted bank guarantees for an amount of EUR 34 million.

Liquidity risk

In accordance with the treasury policy, Group Treasury manages its overall cost of financing by using a mix of fixed and variable rate debts.

A liquidity reserve in the form of credit lines and cash is maintained to guarantee the solvency and financial flexibility of the Group at all times. For this purpose, Belgacom SA entered into bilateral credit agreements with different maturities and into two separate Syndicated Revolving Facilities. For medium to long-term funding, the Group uses bonds and medium term notes. The maturity profile of the debt portfolio is spread over several years. Group Treasury frequently assesses its funding resources taking into account its own credit rating and general market conditions.

The table below summarizes the maturity profile of the Group's interest bearing financial liabilities at each reporting date. This maturity profile is based on contractual undiscounted interests payments and capital reimbursements and takes into account the impact on cash flows of interest rate derivatives used to convert fixed interest rate liabilities into floating interest rate liabilities and vice versa. For floating rate liabilities, interest rates used to determine cash outflows are the ones prevailing at their last price fixing date before reporting date (as of 31 December 2010 and 2011, respectively).

(EUR million)	2011	2012	2013	2014	2015	2016-2029
As of 31 December 2010
Non-current interest-bearing liabilities	5 9	6 2	189	5 2	197	1,083
Current interest-bearing liabilities	818	0	0	0	0	0
Total	877	6 2	189	5 2	197	1,083
As of 31 December 2011
Non-current interest-bearing liabilities		7 8	209	7 2	216	1,645
Current interest-bearing liabilities		4 3	0	0	0	0
Total		121	209	7 2	216	1,645

² SDR: Special Drawing Rights: basket of currencies, transactional money used in netting agreements between telecom operators

Bank credit facilities at 31 December 2011

In addition to the interest-bearing liabilities disclosed in notes 16.1 and 16.2, the Group is backed by long term credit facilities of EUR 350 million and short term credit facilities of EUR 515 million. These facilities are provided by a diversified group of banks. As at 31 December 2011, there were no outstanding balances under any of these facilities. A total of some EUR 865 million of credit lines was therefore available3 for drawdown as at 31 December 2011.

The Group has also established a EUR 2.5 billion Euro Medium Term Note ("EMTN") Program and a EUR 1 billion Commercial Paper ("CP") Program. As at 31 December 2011, there was an outstanding balance under the EMTN Program of EUR 1,575 million and no outstanding balance under the CP Program.

Note 31.3 Net financial position of the Group and capital management

The Group defines the net financial position as the net amount of investments, cash and cash equivalents minus any interestbearing liabilities and related derivatives (including re-measurement to fair value).

bearing liabilities and related derivatives (including re-measurement to fair value).
		As of 31 December
(EUR million)	Note	2010	2011
Assets
Non-current investments (1) Current investments (1)	1 0 1 3	5 4 3	5 3 6
Cash and cash equivalents (1)	1 4	584	320
Non-current derivatives	1 0	106	132
Liabilities
Non-current interest-bearing liabilities (1)	1 6	-1,406	-1,931
Current interest-bearing liabilities (1)	1 6	-783	-41
Net financial position (1) after remeasurement to fair value, if applicable.		-1,451	-1,479
Non-current interest-bearing liabilities include non-current derivatives at fair value amounting to EUR 89 million in 2010 and EUR 127 million in 2011 (see note 16.1).
The purpose of the Group's capital management is to maintain net financial debt and equity ratios that allow for security of liquidity at all times via flexible access to capital markets, in order to be able to finance strategic projects and to offer an attractive remuneration to shareholders. The latter was updated by the Belgacom Board of Directors of 25 February 2010 and Belgacom now commits to return, in principle, most of its annual cash flow before financing activities (or "Free Cash Flow"), to its shareholders. The return of free cash flow either through dividends or share buybacks will be reviewed on an annual basis, in order to keep strategic financial flexibility for future growth, organically or via selective merger and acquisition projects, with a clear focus on value creation. This also includes confirming appropriate levels of distributable reserves. Over the two years presented, the Group did not issue new shares or any other dilutive instruments.
3 Some credit facilities are conditional to the compliance with certain debt ratios at group level.

Note 31.4 Categories of financial instruments

The Group has interest rate and currency swaps (IRCS) to manage the exposure to interest rate risk and to foreign currency risk on its non-current interest bearing liabilities (see note 31.2).

The following tables present the Group's financial instruments per category defined under IAS 39, as well as gains and losses resulting from re-measurement to fair value. Based on market conditions at 31 December 2011, the fair value of the unsubordinated debentures, which are accounted for at amortized cost, exceeds the carrying amount by EUR 116 million. The Group does not intend to reimburse these loans before their maturity.

As of 31 December 2010
(EUR million)	Note	Category	Carrying		Amounts recognized in balance sheet according to IAS 39
		according to IAS 39 (1)	amount	Amortized cost	Acquisition cost net of impairment losses, if any	Fair value adjustment recognized in equity	Fair value adjustment recognized in income statement
ASSETS
Non-current assets
Other participating interests	7	AFS	2 6		2 6	0
Other non-current assets
Other derivatives	31.1	FAHfT	106				106
Non-current investments	1 0	AHTM	5	5
Other financial assets	1 0	LaR	1 1	1 1
Current assets
Trade receivables	1 1	LaR	1,246	1,246
Other current assets
VAT and other receivables	1 2	LaR	2 1	2 1
Prepaid expenses	1 2	LaR	100	100
Accrued income	1 2	LaR	1 9	1 9
Other derivatives	31.1	FAHfT	1				1
Investments	1 3	AFS	4 3		4 3	0
Cash and cash equivalents
Fixed income securities	1 4	HTM	332	332
Short-term deposits	1 4	LaR	252	252
LIABILITIES
Non-current liabilities
Interest-bearing liabilities
Unsubordinated debentures not in a hedge relationship	1 6	FLAC	1,306	1,306
Leasing and similar obligations	1 6	FLAC	3	3
Credit institutions	1 6	FLAC	8	8
Other loans	1 6	FLAC	0	0
Other derivatives	31.1	FLHfT	8 9				8 9
Other non-current payables	1 8	FLAC	3	3
Current liabilities
Interest-bearing liabilities, current portion
Unsubordinated debentures not in a hedge relationship	1 6	FLAC	773	773
Leasing and similar obligations	1 6	FLAC	3	3
Credit institutions	1 6	FLAC	4	4
Interest-bearing liabilities
Other loans	1 6	FLAC	3	3
Trade payables		FLAC	1,304	1,304
Other current payables
Accrued expenses	1 9	FLAC	2 4	2 4
V.A.T. and other amounts payable	1 9	FLAC	314	314
(1) The categories according to IAS 39 are the following :

AFS: Available-for-sale financial assets AHTM: Financial assets held-to-maturity

FAHfT: Financial assets held-for-trading

LaR: Loans and Receivables financial assets

FLAC: Financial liabilities at amortized costs

FLHfT: Financial liabilities held-for-trading

As of 31 December 2011
(EUR million)	Note	Category	Carrying		Amounts recognized in balance sheet according to IAS 39
		according to IAS 39 (1)	amount	Amortized cost	Acquisition cost net of impairment losses, if any	Fair value adjustment recognized in equity	Fair value adjustment recognized in income statement
ASSETS
Non-current assets
Other participating interests	7	AFS	3 1		3 1	0
Other non-current assets
Other derivatives	31.1	FAHfT	132				132
Non-current investments	1 0	AHTM	5	5
Other financial assets	1 0	LaR	4 3	4 3
Current assets
Trade receivables	1 1	LaR	1,328	1,328
Other current assets
VAT and other receivables	1 2	LaR	2 9	2 9
Prepaid expenses	1 2	LaR	108	108
Accrued income	1 2	LaR	1 2	1 2
Other derivatives	31.1	FAHfT	3				3
Investments	1 3	AFS	3 6		3 5	1
Cash and cash equivalents	1 4	LaR	320	320
Fixed income securities	1 4	HTM	147	147
Short-term deposits	1 4	LaR	173	173
LIABILITIES
Non-current liabilities
Interest-bearing liabilities
Unsubordinated debentures not in a hedge relationship	1 6	FLAC	1,798	1,798
Leasing and similar obligations	1 6	FLAC	2	2
Credit institutions	1 6	FLAC	4	4
Other derivatives	31.1	FLHfT	127				127
Non interest-bearing liabilities
Other non-current payables	1 8	FLAC	2	2
Current liabilities
Interest-bearing liabilities, current portion
Leasing and similar obligations	1 6	FLAC	2	2
Credit institutions	1 6	FLAC	4	4
Interest-bearing liabilities
Other loans	1 6	FLAC	3 5	3 5
Trade payables		FLAC	1,393	1,393
Other current payables
Accrued expenses	1 9	FLAC	3 6	3 6
V.A.T. and other amounts payable	1 9	FLAC	341	341
(1) The categories according to IAS 39 are the following :

AFS: Available-for-sale financial assets

AHTM: Financial assets held-to-maturity FAHfT: Financial assets held-for-trading

LaR: Loans and Receivables financial assets

FLAC: Financial liabilities at amortized costs

FLHfT: Financial liabilities held-for-trading

Note 31.5 Assets and liabilities measured at fair value

The Group held as at 31 December 2011 financial instruments measured at fair value.

Those instruments are disclosed in the table below according to the valuation technique used. The hierarchy between the techniques reflects the significance of the inputs used in making the measurements:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable for the asset or liability, either directly or indirectly;
• Level 3: valuation techniques for which all inputs which have a significant effect on the recorded fair value are not based on observable market data.

(EUR million)	Category		Balance at 31	Fair values measurement at end of the
	Note	according to IAS 39 (1)	December 2010	Level 1	Level 2	Level 3
ASSETS
Non-current assets Other participating interests Other non-current assets Other derivatives	7 31.1	AFS FAHfT	2 6 106		106	2 6
Current assets Other current assets Other derivatives Investments LIABILITIES	31.1 1 3	FAHfT AFS	1 4 3	4 3	1
Non-current liabilities Interest-bearing liabilities Other derivatives	31.1	FLHfT	8 9		8 9
(1) The categories according to IAS 39 are the following : AFS: Available-for-sale financial assets AHTM: Financial assets held-to-maturity FAHfT: Financial assets held-for-trading LaR: Loans and Receivables financial assets FLAC: Financial liabilities at amortized costs FLHfT: Financial liabilities held-for-trading
(EUR million)

	Category according to IAS 39 (1) Note		Balance at 31		Fair values measurement at end of the
			December 2011	Level 1	Level 2	Level 3
ASSETS
Non-current assets Other participating interests Other non-current assets Other derivatives	7 31.1	AFS FAHfT	3 1 132		132	3 1
Current assets Other current assets Other derivatives Investments	31.1 1 3	FAHfT AFS	3 3 6	3 6	3
LIABILITIES
Non-current liabilities Interest-bearing liabilities Other derivatives	31.1	FLHfT	127		127

(1) The categories according to IAS 39 are the following :

AFS: Available-for-sale financial assets

AHTM: Financial assets held-to-maturity FAHfT: Financial assets held-for-trading

LaR: Loans and Receivables financial assets

FLAC: Financial liabilities at amortized costs

FLHfT: Financial liabilities held-for-trading

The evolution of the fair value of the instruments classified in Level 3 compared to the situation prevailing at 31 December 2010 originates from the acquisition of minority interests in Dacentec NV and Awingu NV for an aggregate amount of EUR 5 million. The reported amount of EUR 31 million consists, for an amount of EUR 30 million, of minority interests in companies still being in a start-up phase. These minority interests are valorized at fair value according to the Group accounting policy.

Note 32. Related party disclosures

Note 32.1. Consolidated companies

Subsidiaries, joint-ventures and associates are listed in note 6.

Commercial terms and market prices apply for the supply of goods and services between Group companies.

Associates

Tunz.com SA

In 2009, the Group acquired 40% of Tunz.com SA but the Group had no significant transactions with this minority participation in 2010 and 2011.

ClearMedia SA

In 2010, the Group acquired 40% of ClearMedia SA but the Group had no significant transactions with this minority participation in 2010 and 2011.

Note 32.2. Relationship with shareholders

The Belgian State is the majority shareholder of the Group, with a stake of 53.5%. The Group holds treasury shares for 6.0%. The remaining 40.5% are traded on the First Market of Euronext Brussels.

Relationship with the Belgian State

The Group supplies telecommunication services to the Belgian State and various administrations of the Belgian State. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favorable than those available to other customers and suppliers. The services provided to those administrations do not represent a significant component of the Group's net revenue.

Note 32.3. Relationship with other State-controlled enterprises

The Group supplies telecommunication services to various State-controlled enterprises. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favorable than those available to other customers and suppliers. The services provided to State-controlled enterprises do not represent a significant component of the Group's net revenue.

Note 32.4. Relationship with key management personnel

Compensation of the directors is as follows: an annual fixed compensation of 50,000 EUR for the Chairman of the Board of Directors and of 25,000 EUR for the other members of the Board of Directors, with the exception of the President and Chief Executive Officer. All members of the Board of Directors, with the exception of the President and Chief Executive Officer, have the right to an attendance fee of 5,000 EUR per attended meeting of the Board of Directors. Attendance fees of 2,500 EUR per meeting are granted to each member of an advising committee to the Board of Directors, with the exception of the President and Chief Executive Officer. For the Chairman these attendance fees are doubled. The total remuneration for the directors amounts to EUR 914,375 for 2010 and EUR 1,065,000.for 2011. The directors have not received any loan or advance from the Group.

The number of meetings of the Board of Directors and advising committees are detailed as follows:

	2010	2011
Board of Directors	5	7
Audit and Compliance Committee	5	7
Nomination and Remuneration Committee	8	6
Ad hoc Committee	0	0
Strategic and Business Development Committee	2	2

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 parent 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. These transactions take place in the ordinary course of business and at arm's length. Belgacom is also 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 EUR 30,250 in 2011.

For the year ended 31 December 2010, a total amount of EUR 11,264,598 (social security costs and share-based payments included) was paid in aggregate to the members of the "Belgacom Management Committee" (BMC), Chief Executive Officer included. In 2010, the members of the Belgacom Management Committee were A. De Lathauwer, D. Bellens, R. Stewart, S. Alcott, M. Georgis, M. De Coster (8 months) and G. Dallemagne.

For the year ended 31 December 2011, a total amount of EUR 12,717,629 (social security costs and share-based payments included) was paid in aggregate to the members of the "Belgacom Management Committee" (BMC), Chief Executive Officer included. In 2011, the members of the Belgacom Management Committee were D. Bellens, S. Alcott, B. Chauvat (4 months); G. Dallemagne (3 months), A. De Lathauwer (9 months), M. Georgis, R. Stewart, and B. Van Den Meersche

These total amounts of key management compensation include the following components:

• Short-term employee benefits : annual salary (base and variable) as well as other short-term employee benefits such as medical insurance, private use of management cars, luncheon vouchers, and including social security contributions paid on these benefits;
• Post-employment benefits: insurance premiums paid by the Group in the name of members of the BMC. The premiums cover mainly a post-retirement complementary pension plan;
• Share-based payments: cost of the discount of 16.67% compared to the market price in Discounted Share Purchase Plan and the fair value of stock options (that is expensed over the vesting period in accordance with the graded vesting method); and
• Termination benefits: paid or accrued

		Year ended 31 December
EUR	2010	2011
Short-term employee benefits	5,876,229	6,493,127
Post-employment benefits	1,958,144	1,059,795
Termination benefits	984,886	2,699,193
Share-based payments	2,445,339	2,465,514
Total	11,264,598	12,717,629

No other long-term benefits were granted to the BMC members in 2010 nor in 2011.

Note 32.5. Regulations

The telecommunications sector is regulated through the legislation adopted in the Belgian parliament, through a series of Royal and Ministerial Decrees, and also through decisions of the Belgian Institute for Postal services and Telecommunications, commonly referred to as the "BIPT/IBPT". The Belgian licensing regime provides for individual licenses for the provision of public fixed voice telephony services, public network infrastructure services and mobile telecommunications services.

The company is also governed by certain provisions and principles of Belgian public and administrative law whereby Belgacom has obligations such as the delivery of regulated services and public services.

Note 33. Rights, commitments and contingent liabilities

Operating lease commitments

The Group rents sites for its telecom infrastructure and leases buildings, technical and network equipment, as well as furniture and vehicles under operating leases with terms of one year or more. Rental expenses in respect of these operating leases amounted EUR 125 million in 2010 and EUR 123 million in 2011.

(EUR million)	Within one year	From 1 to 3 years	From 3 to 5 years	More than 5 years	Total
Buildings	2 1	2 9	1 2	5	6 6
Sites	2 1	4 0	3 8	6 9	167
Technical and network equipment	1 6	4	1	1	2 2
Furniture	0	0	0	0	0
Vehicles	3 0	3 5	6	0	7 2
Other material	1	1	0	0	2
Total	8 8	109	5 7	7 5	330

Claims and legal proceedings

From time to time, the Group has been, and expects to continue to be, subject to legal, regulatory and tax proceedings and claims arising in the ordinary course of its business. The Group is currently involved in various judicial and regulatory proceedings, including those for which a provision has been made (see note 17) and those described below for which no or limited provisions have been accrued, in the jurisdictions in which it operates concerning matters arising in connection with the conduct of its business. These include also proceedings before the Belgian Institute for Postal services and Telecommunications ("BIPT"), appeals against decisions taken by the BIPT, and proceedings with the Belgian tax administrations with respect to real estate withholding taxes and corporate income taxes.

1. After the launch on 1 June 2005 of the Happy Time tariff scheme by Belgacom, Tele2 filed a complaint with the Belgian Competition Authority i) alleging that said tariffs constitute an abuse of dominant position (27 June 2005) and ii) requesting interim measures, i.e. suspension of the Happy Time offer, pending the procedure (5 July 2005).

On 1 September 2006, Tele2's request for interim measures was initially rejected by the President of the Competition Council. Following an appeal by Tele2, the Court of Appeal, on 18 December 2007, nullified the aforementioned decision, arguing a.o. a lack of reasoning.

However, Tele2 did not ask the President to adopt a new decision on its request for interim measures but initiated on 18 April 2008 a damage claim before the commercial court based on an alleged abuse of dominance (the Happy Time plan) (claim for EUR 1 provisional and request for appointment of an expert to compute the precise damage). This case on the merits is still pending before the Court and the timing for a decision on the merits is unknown.

In the case on the merits with the Competition Authority, the Prosecutor issued on 29 September 2009 his reasoned report proposing to the Competition Council that Belgacom abused and still abuses its dominant position, retaining the allegation of price squeeze. The hearings before the Competition Council have taken place. The further timing for a decision on the merits is currently unknown.

Following the report of the Prosecutor, management reassessed the contingent liabilities of the Group, taking into account the current legal status of both litigation files. Belgacom will continue to monitor any further development in both cases and in the meantime vigorously continues to defend its interests.

It is to be noted that given different reorganizations within the KPN Group the claimant in the aforementioned case is now KPN Belgium.

1. Between 12 and 14 October 2010, the Belgian Directorate General of Competition started a dawn raid in Belgacom's offices in Brussels. This investigation concerns allegations by Mobistar and KPN regarding the wholesale DSL services of which Belgacom would have engaged in obstruction practices.This measure is without prejudice to the final outcome of the full investigation which has started. Following the inspection, the Directorate General of Competition is to examine all the relevant elements of the case. Eventually the College of Competition Prosecutors may propose a decision to be adopted by the Competition Council. During this procedure, Belgacom will be in a position to make its views heard. (This procedure may last several years.)

2. 1. In June 2003, KPN Group Belgium (former BASE) filed a damage action against Belgacom (former Belgacom Mobile) before the Commercial Court of Brussels alleging that:
3. Since 1 October 2000 Belgacom's, mobile termination rates are not in accordance with the official telecommunications regulations requiring cost oriented pricing;
4. Belgacom's Proximus-to-Proximus tariffs, also referred to as on-net tariffs, as of 1999 constitute an abuse of Belgacom's alleged dominant position in the Belgian market.

In respect of both allegations, KPN Group Belgium's provisional estimate of its claims for compensation varied in the course of the procedure based upon different methodologies presented to the Court. Based upon the last documents in the file (prior to the 2007 interim ruling, detailed below), said claims amounted to approximately EUR 1 billion.

In March 2004, Mobistar filed a request to intervene voluntarily in the action brought by KPN Group Belgium against Belgacom, alleging the same in respect of Belgacom's on-net tariffs, although Mobistar's allegation targets primarily tariff schemes offered by Belgacom to business and corporate customers. Besides a claim for compensation, Mobistar requested the court to appoint a court expert to calculate the amount of the alleged damages.

On 29 May 2007 following an extensive exchange of factual and legal arguments, the Commercial Court of Brussels ruled the following:

• In respect of the first allegation, Belgacom did not infringe the obligation requiring cost oriented pricing for its termination rates; the damages claim in this respect was consequently dismissed; and
• In respect of the second allegation, the alleged abuse of dominant position as to the Proximus-to-Proximus tariffs:
• o The Court did not find any proof for the existence of a dominant position during 2005; for the former years (1999 – 2004) the Court considered Belgacom as being in a dominant position;
• o The Court rejected two types of alleged abuses; and
• o In respect of two possible other types of abuses, the Court requested a panel of experts, composed of Mr. Robert Wtterwulghe and Mr. Cyril Nourissant to further examine the case with the following mission:
  • Network effects:
  • Determine whether the Proximus pricing plans, which contain an off-net/on-net differential and as such are criticised by KPN Group Belgium and Mobistar, have anti-competitive effects related to a network effect; and
  • If possible, determine the damage caused.

Price squeeze:

• Determine whether there was an anti-competitive price squeeze in respect of the aforementioned tariff plans; and
• If possible, determine the damage caused.
• On 2 October 2009, the panel of experts filed their preliminary report and concluded:
• To the existence of the alleged competition law infringements;
• That it could be considered that the alleged impact of the Proximus on-net tariffs during the years 1999-2004 amounted to EUR 1,18 billion.

According to Belgacom, this first preliminary report does not provide a demonstration of the alleged infringements of the competition rules nor the existence of any damages.

Belgacom observed that an unprecedented and prospective method was put forward by this panel of experts, and assessed the use and implementation of this method as inappropriate. The panel considered that due to the alleged competition law infringements KPN Group Belgium and Mobistar underperformed as compared to the results and market shares that they would have achieved in an efficient market, to which reasoning and conclusions Belgacom strongly disagrees. Furthermore, the panel referred for its benchmark of an efficient market to the UK during the period 1999-2004, which is according to Belgacom in this case highly disputable. Finally, review of the report raised a series of questions with respect to data used and mathematical accuracy of calculations at all levels of the assessment of the case. Taking these observations into account, Belgacom can only be of the opinion that the conclusions of this first preliminary report cannot be considered as a reliable outcome of the mission entrusted to the panel of experts.

On 10 December 2010, the panel of experts filed a second preliminary report, which a.o. takes into account the exchange of additional information that had been requested by the experts. Still pursuing the principles reflected in the first preliminary report, and thus, in particular, based on the same unprecedented and prospective method, this second report states that it could be considered that the alleged impact on Mobistar and KPN Group Belgium amounts to EUR 1,84 billion.

According to Belgacom, this second report, which remains preliminary of nature, does neither provide any demonstration of the alleged infringements of the competition rules. Following a thorough analysis, Belgacom noted that in the second preliminary report the vast majority of the observations and criticisms that it expressed on the first preliminary report remain unanswered and that moreover Belgacom's own expert reports related to the different elements to be assessed by the panel of experts, being the questions of network effect of the on-net tariffs, of the existence of price squeeze, of their respective anti-competitive effects and of the respective damages that these practices would allegedly have caused, were largely disregarded. Moreover this second report introduces certain new elements that Belgacom finds to be highly contestable (in particular, those new elements leading to an increase of the alleged amount of damages as compared to the first preliminary report, a.o. the introduction of a constant profitability benchmark for the whole period based on the UK market for the period 1999-2004, during which the UK operators were in a different phase of development as compared to those on the Belgian market).

For this and a number of other reasons, Belgacom decided to introduce a motion with the court in respect of the expert panel, requesting their recusal/replacement. Following the dismissal by the Commercial Court on 17 March 2011 of Belgacom's motion, an appeal procedure was initiated. In a preliminary ruling of 1 June 2011, the Court of Appeal decided to suspend the expertise awaiting the ruling of the Court of Appeal on the motion whereby Belgacom requests to recuse/replace said panel of experts. The pleadings on this request took place on 6, 7 and 8 February 2012.

In the meantime, on 2 January 2012, Belgacom lodged an appeal against the initial decision of 29 May 2007 of the Commercial Court. The introductory hearing took place and these appeal proceedings are to cover all relevant aspects of the case.

In any event and as foreseen in the proceedings, Belgacom will continue to submit at the required stages of the proceedings, its detailed observations and criticisms that will cover all aspects of the pending matter.

It is to be understood that it will always be upon the court (i) to decide whether anti-competitive practices have been committed that infringe the competition rules, (ii) to determine whether Belgacom is liable for such practices and (iii) to decide upon the amount of the possible damages to be paid, after having assessed the advice of the Expert panel and the parties' defense arguments.

Indeed, this matter does not only involve a debate on the possible damages that would have been caused, but first the existence of the alleged anti-competitive practices is to be demonstrated. If a final report should still be required, Belgacom considers that the experts will need to take the observations and criticisms of Belgacom into account.

Belgacom continues to contest the claims of both KPN Group Belgium and Mobistar and hence also the content of the second preliminary report of the panel of experts in respect of the existence of the infringements itself as well as in respect of the calculation of the damages. Belgacom also contests the claims of both KPN Group Belgium and Mobistar in the appeal proceedings that Belgacom has started.

Following the second preliminary report of the expert panel, management reassessed the contingent liabilities of the Group, taking into account the current legal status of this litigation file. Belgacom will continue to monitor any further development and in the meantime vigorously continues to defend its interests.

In October 2009, seven parties (Telenet, KPN Group Belgium (former Base), KPN Belgium Business (Tele 2 Belgium), KPN BV (Sympac), BT, Verizon filed an action against Belgacom Mobile (currently Belgacom and hereinafter indicated as Belgacom) before the Commercial Court of Brussels formulating allegations that are similar to those in the case mentioned above (including Proximus-to-Proximus tariffs constitute an abuse of Belgacom's alleged dominant position in the Belgian market), but for different periods depending on the claimant, in particular, in the 1999 up to now timeframe (claim for EUR 1 provisional and request for appointment of an expert to compute the precise damage). In November 2009 Mobistar filed another similar claim for the period 2004 and beyond. This case has been postponed for an undefined period.

1. In the proceedings following a complaint by KPN Group Belgium in 2005 with the Belgian Competition Authority the latter confirmed on 26 May 2009 one of the five charges of abuse of dominant position put forward by the Prosecutor on 22 April 2008, i.e. engaging in 2004-2005 in a "price-squeeze" on the professional market. The Belgian Competition Authority considered that the rates for calls between Proximus customers ("on-net rates") were lower than the rates it charged competitors for routing a call from their own networks to that of Proximus (=termination rates), increased with a number of other costs deemed relevant. All other charges of the Prosecutor were rejected. The Competition Authority also imposed a fine of EUR 66.3 million on Belgacom (former Belgacom Mobile) for abuse of a dominant position during the years 2004 and 2005. Belgacom was obliged to pay the fine prior to 30 June 2009 and recognized this charge (net of existing provisions) as a non-recurring expense in the income statement of the second quarter 2009. Belgacom filed an appeal against the ruling of the Competition Authority with the Court of Appeal of Brussels, contesting a large number of elements of the ruling: a.o. the fact that the market impact was not examined. Also KPN Group Belgium

and Mobistar filed an appeal against said ruling.

• 1. The Belgian tax authorities notified a foreign subsidiary of the Group in 2007 to be considered as a tax resident of Belgium rather than of Luxembourg and therefore to be subject to Belgian corporate income tax for the year 2004. In 2008, the Belgian tax authorities maintained their 2004 assessment and assessed the Belgian corporate income tax for the subsequent years 2005 and 2006. Belgacom has strong arguments to ward off the cumulative proposed tax assessment of EUR 69 million excluding interests (years 2004, 2005 and 2006 together) and has started legal proceedings before Court.
• 1. Since 2003, Belgacom considers the enrolments of real estate tax on telecom equipment as undue and therefore recognizes an asset against the tax authorities in the 'current tax assets' caption for an amount of EUR 116 million at 31 December 2011 (with a related liability of EUR 25 million) and EUR 170 million at 31 December 2010 (with a related liability of EUR 24 million).

Capital expenditure commitments

At 31 December 2011, the Group has contracted commitments of EUR 70 million, mainly for the acquisition of intangible assets and technical and network equipment.

Other rights and commitments

At 31 December 2011, the Group has the following other rights and commitments:

• The Group received guarantees for EUR 7 million from its customers to guarantee the payment of its trade receivables and guarantees for EUR 8 million from its suppliers to ensure the completion of contracts or works ordered by the Group;
• The Group granted guarantees for an amount of EUR 38 million (including the bank guarantees mentioned in note 31.2) to its customers and other third parties to guarantee, among others, the completion of contracts and works ordered by its clients and the payment of rental expenses related to buildings and sites for antennas installation;
• Belgacom has a right, established by Belgian legislation with respect to Universal Services, to receive compensation from the Universal Services Obligation fund for offering Social Tariffs as from 1 of July 2005. This right is contested by some operators, and the European Commission attacked Belgium before the European Court. In October 2010, the European Court found the Belgian legislation non-compliant, requiring new legislative initiatives from the Belgian State. For these reasons, the Group qualifies the compensation receivable as a contingent asset.

Note 34. Cross-border lease arrangements

During the period 1996 through 2001, the Group entered into several cross-border lease arrangements with foreign investors relating to part of its fixed and mobile switch equipment. Only the arrangement of Ben Nederland Group remained open at 31 December 2011. On 25 September 2002, the Group sold its investment in Ben Nederland Group but agreed it would continue to guarantee the payment of leasing debts, amounting to USD 25 million (EUR 20 million) at 31 December 2011, in case the payment undertakers on the related cross-border lease arrangement would become insolvent. The risk that this guarantee would result in a payment by the Group was mitigated by the fact that the deposit institutions involved are rated AA+ or A+ by Standard & Poor's. The early buyout option for the transaction has been exercised in January 2012, consequently terminating the last transaction the Group remained a party in. This early buyout had no impact on the Group's financial statements.

Note 35. Share-based Payment

Discounted Share Purchase Plans

In 2010 and 2011, the Group launched Discounted Share Purchase Plans.

Under the 2010 and 2011 plans, Belgacom sold respectively 294,304 shares and 277,474 to the senior management of the Group at a discount of 16.67% compared to the market price (discounted price of respectively EUR 22.04 and EUR 20.85 per share). The cost of the discount amounted to EUR 0.9 million in 2010 and EUR 1,2 million in 2011 and was recorded in the income statement as personnel expenses (see note 24).

Employee Stock Option Plans

In 2010 and 2011, Belgacom launched once a year a tranche of Long Term Incentive Plan (Employee Stock Option Plan) whereby respectively 1,023,210 and 1,036,061 share options were granted to the key management and senior management of the Group. The Plan rules have been adapted early 2011 according to the Belgian legislation. Therefore as from 2011, the Group launched two different series: one for the Belgacom Management Committee" (BMC), Chief Executive Officer included (382,232 share options in the 2011 tranche) and one for the other key management and senior management (653,829 share options in the 2011 tranche).

As prescribed by IFRS 2 ("Share-based Payments"), the Group recognizes the fair value of the equity portion of the share options at inception date over their vesting period in accordance with the graded vesting method and periodic re-measurement of the liability component. Such fair value amounts to EUR 3 million for the 2010 tranche and for the 2011 tranche. The annual charge of the graded vesting including the liability component re-measurement is recognized as personnel expenses and amounts to EUR 10 million in 2010 and EUR 9 million in 2011.

At the moment of exercise, the employee will pay the exercise price of 26.445 EUR per share for the 2010 tranche and 25.015 EUR for the 2011 tranche, with physical delivery of the share. The share options are exercisable until 02 May 2017 for the 2010 tranche and 08 May 2018 for the 2011 tranche at the latest.

The tranches granted in 2004, 2005, 2006, 2007, 2008 and 2009 are still open. All the tranches except the 2004 tranche provide the beneficiaries with a right to the dividends declared after granting the options. The dividend liability amounted to EUR 11 million on 31 December 2010 and EUR 16 million on 31 December 2011 and is included under the caption "Other current payables'.

In 2009, the Group gave the opportunity to its option holders to voluntary extend the exercise period of all the tranches (except the 2009 tranche) with 5 years, within the guidelines as established by the law.

For all the tranches except the 2004 tranche and the 2011 tranche for the BMC (as described below),

• in case of voluntary leave of the employee, all unvested options forfeit except during the first year, for which the first third of the options vests immediately and must be exercised prior to the second anniversary following the termination date of the contract, as for all vested options
• In case of involuntary leave of the employee, except for serious cause, all unvested options vest immediately and must be exercised prior to the second anniversary following the termination date of the contract or prior to the expiration date of the options whichever comes first , as for all vested options

For the 2011 tranche for the BMC:

• in case of voluntary leave of the BMC member during a period of three year following the grant 50% of the options immediately forfeit. If the voluntary leave takes place after that date, the options continue to vest according to the plan rules and regular vesting calendar. The exercise may only take place at the earliest on the first business day following the 3rd anniversary of the offer date. The exercise should take place prior to the 5th anniversary following the termination of the contract or prior to the expiration date of the options, whichever comes first, otherwise the options become forfeited.
• in case of involuntary leave of the BMC member, except for serous cause, the options will continue to vest according to the plan rules and regular vesting calendar. The exercise may only take place at the earliest on the first business day following the 3rd anniversary of the offer date. The exercise should take place prior to the 5th anniversary following the termination of the contract or the expiration date of the options, whichever comes first, otherwise the options become forfeited.

The evolution of the stock option plans is as follows:

			Number of stock options
	Plan 2004	Plan 2005	Plan 2006	Plan 2007	Plan 2008	Plan 2009	Plan 2010	Plan 2011
Outstanding at 1 January 2004	0
Movements during the year 2004	0
Granted	1,128,500
Forfeited	0
Exercised	0
Expired Outstanding at 31 December 2004 Exercisable at 31 December 2004	0 1,128,500 0	- -	- -	- -
Movements during the year 2005
Granted		538,541
Forfeited	-21,114	-
Exercised	-169,435	-
Expired	-	-
Total Outstanding at 31 December 2005	-190,549 937,951	538,541 538,541	-	-
Exercisable at 31 December 2005	210,255	0	-	-
Movements during the year 2006
Granted	-	-	608,928
Forfeited	-5,583	-1,600	-
Exercised	-196,188	-5,562	-9,265
Expired	-	-	-
Total Outstanding at 31 December 2006	-201,771 736,180	-7,162 531,379	599,663 599,663	-
Exercisable at 31 December 2006	386,879	177,562	31,722	-
Movements during the year 2007
Granted	-	-		475,516
Forfeited	-5,255	-5,491	-5,341	-1,236
Exercised	-140,292	-29,373	-81,096	-
Expired	-	-	-	-
Total Outstanding at 31 December 2007	-145,547 590,633	-34,864 496,515	-86,437 513,226	474,280 474,280
Exercisable at 31 December 2007	590,633	341,739	211,182	30,742
Movements during the year 2008
Granted	-	-	-	-	796,197
Forfeited	-2,310	-3,800	-4,096	-5,070	-
Exercised	-269,776	-1,786	-9,358	-	-
Expired Total	- -272,086	-5,586	-13,454	-5,070	- -
Outstanding at 31 December 2008	318,547	490,929	499,772	469,210	796,197
Exercisable at 31 December 2008	318,547	490,929	354,825	183,044	21,584
Movements during the year 2009
Granted						1,008,021
Forfeited	-6,750	-18,735	-180	-617	-	-
Exercised Expired	-15,911 -	-31,496 -	-11,777 -	- -	- -	- -
Total	-22,661	-50,231	-11,957	-617	-	1,008,021
Outstanding at 31 December 2009	295,886	440,698	487,815	468,593	796,197	1,008,021
Exercisable at 31 December 2009	295,886	440,698	487,815	334,171	297,619	3,621
Movements during the year 2010
Granted						-	1,023,210
Forfeited Exercised	-2,406 -260,726	1,500 -37,960	-16,580 -206,602	156 -7,237	-308 -4,096	- -57,033
Expired	-	-	-	-	-	-
Total	-263,132	-36,460	-223,182	-7,081	-4,404	-57,033	1,023,210
Outstanding at 31 December 2010	32,754	404,238	264,633	461,512	791,793	950,988	1,023,210
Exercisable at 31 December 2010	32,754	404,238	264,633	461,512	579,250	341,745	40,435
Movements during the year 2011
Granted Forfeited	-2,305	-3,200	-6,464	-73,856	-1,109	-2,977	-5,514	1,036,061 -3,132
Exercised	-2,331	-103,449	-47,632	0	-1,849	-34,420	0	0
Expired
Total	-4,636	-106,649	-54,096	-73,856	-2,958	-37,397	-5,514	1,032,929
Outstanding at 31 December 2011	28,118	297,589	210,537	387,656	788,835	913,591	1,017,696	1,032,929
Exercisable at 31 December 2011	28,118	297,589	210,537	387,656	788,835	642,363	437,768	20,361
The following assumptions were applied for determining the weighted average fair value of the stock options at grant date:
	Plan 2004	Plan 2005	Plan 2006	Plan 2007	Plan 2008	Plan 2009	Plan 2010	Plan 2011
Option pricing model Grant Date	Binomial 22/03/2004	Black Scholes 25/04/2005	Black Scholes 24/04/2006	Black Scholes 23/04/2007	Black Scholes 21/04/2008	Black Scholes 20/04/2009	Black Scholes 03/05/2010	Black Scholes 09/05/2011
Dividend rights as from grant date	n o	yes	yes	yes	yes	yes	yes	yes
Contractual life of the options	7 years	7 years	7 years	7 years	7 years	7 years	7 years	7 years
Extension of the contractual period during 2009	5 years	5 years	5 years	5 years	5 years	-	-	-

	Plan 2004	Plan 2005	Plan 2006	Plan 2007	Plan 2008	Plan 2009	Plan 2010	Plan 2011
Option pricing model	Binomial	Black Scholes	Black Scholes	Black Scholes	Black Scholes	Black Scholes	Black Scholes	Black Scholes
Grant Date	22/03/2004	25/04/2005	24/04/2006	23/04/2007	21/04/2008	20/04/2009	03/05/2010	09/05/2011
Contractual life of the options	7 years	7 years	7 years	7 years	7 years	7 years	7 years	7 years
Extension of the contractual period during 2009	5 years	5 years	5 years	5 years	5 years	-	-	-
Expected life	5 (to 6) years	6 years	6 years	6 years	6 years	6 years	6 years	6 years
Expected life for the extended options	11 years	11 years	10 years	10 years	10 years	-	-	-
Exercise price (EUR)	24.5	29.92	25.94	32.71	29.14	22.71	26.44	25.02
Expected volatility (compared to peer group volatility)	27,50%	18,00%	21,00%	19,83%	27,00%	38,50%	31,00%	33,00%
Expected dividend pay-out ratio	50% - 60%/ FCF(*)	50% - 60%/ FCF(*)	50% - 60%/ FCF(*)	50% - 60%/ FCF(*)	50% - 60%/ FCF(*)	50% - 60%/ FCF(*)	FCF(*)	FCF(*)
Risk free interest rate	ESAR (2)	ESAR (2)	ESAR (2)	ESAR (2)	ESAR (2)	ESAR (2)	ESAR (2)	ESAR (2)
Fair value of options granted (EUR)	4.29	4.15	4.02	6.25	6.68	6.90		3.47 3.495 - 5.051
Weighted average share price at exercise during the year (EUR):
- 2005	32,96	-	-	-	-	-	-
- 2006	31,87	32,67	31,98	-	-	-	-
- 2007	33,86	33,87	34,13	-	-	-	-
- 2008	27,11	26,80	28,63	-	-	-	-
- 2009	26,07	25,64	26,81	-	-	-	-
- 2010	28,60	28,11	27,54	28,33	29,21	27,83	-
- 2011	27,70	23,55	26,96	0,00	27,22	25,65	-	-
Weighted average remaining contractual life (years)	3	3	5	5	5	4	5	6
(*) FCF: Belgacom commits, as from 2010, to return, in principle, most of the free cash flow		to its shareholders.
(2) ESAR = Euro swap annual rate

The volatility has been estimated based on the actual trading statistics of the share and taking into account alignment to certain peers, comparable in terms of risk profile.

Note 36. Relationship with the auditors

The Group expensed for the Group's auditors during the year 2011 an amount of EUR 1,114,482 for the annual audit mandate fees and EUR 350,864 for non-mandate fees.

This last amount is detailed as follows:
EUR	Auditor	Network of auditor
Other mandatory audit missions	15,330	10,100
Tax advice	0	0
Other missions	28,794	296,640
Total	44,124	306,740

Note 37. Segment reporting

As from 1 January 2008 onwards, the Board of Directors, the Chief Executive Officer and the Belgacom Management Committee managed the operations of Belgacom Group based on the new client-oriented organization structured around the five following reportable operating segments:

• The Consumer Business Unit (CBU) sells voice products and services, internet and television, both on fixed and mobile networks, to residential clients, mainly on the Belgian market;
• The Enterprise Business Unit (EBU) sells ICT services and products to professional clients, whether they are independent workers, smaller firms or major companies. These ICT solutions, including telephone services, are marketed mainly under the Belgacom, Proximus and Telindus brands, on both the Belgian and international markets;
• The Service Delivery Engine & Wholesale (SDE&W) centralizes all the network and IT services and costs (excluding costs related to customer operations and to the service delivery of ICT solutions), provides services to CBU and EBU and sells these services to other telecom and cable operators;
• International Carrier Services (ICS) is responsible for international carrier activities;
• Staff and Support (S&S) brings together all the horizontal functions (human resources, finance, legal, strategy and corporate communication), internal services and real estate supporting the Group's activities.

No operating segments have been aggregated to form the above reportable operating segments.

The Group monitored the operating results of its reportable operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance was evaluated on the following basis:

• The operating income before depreciation and amortization and before non-recurring income and expenses; and
• The capital expenditures.

Group financing (including finance expenses and finance income) and income taxes were managed on a group basis and are not allocated to operating segments.

The accounting policies of the operating segments are the same as the significant accounting policies of the Group. Segment results are therefore measured on a similar basis as the operating result in the consolidated financial statements.

Intercompany transactions between legal entities of the Group are invoiced on an arm's length basis.

Annual report | Belgacom | 48

				Year ended 31 December 2010
(EUR million)	Consumer Business Unit	Enterprise Business Unit	Service Delivery Engine & Wholesale	Staff & Support	International Carrier Services	Inter segment eliminations	Total
Net revenue Other operating income Intersegment income TOTAL SEGMENT INCOME	2,337 2 0 1 1 2,368	2,401 6 1 4 2,421	267 3 7 1 342	6 1 9 1 0 3 5	1,541 2 6 6 1,610	- - -172 -172	6,552 5 1 0 6,603
Costs of materials and services related to revenue Personnel expenses and pensions Other operating expenses	-678 -325 -291	-685 -375 -149	-46 -203 -202	1 -165 -192	-1,383 -39 -58	150 0 2 2	-2,642 -1,107 -870
TOTAL OPERATING EXPENSES before depreciation & amortization	-1,295	-1,210	-451	-355	-1,480	171	-4,619
TOTAL SEGMENT RESULT (1)	1,073	1,212	-109	-320	129	- 1	1,984
Non-recurring income Non-recurring expenses	1			7	436		436 8
OPERATING INCOME / (LOSS) before depreciation & amortization	1,074	1,212	-109	-314	566	- 1	2,428
Depreciation and amortization	-153	-19	-480	-76	-82	1	-809
OPERATING INCOME / (LOSS)	920	1,192	-588	-389	484	0	1,619
Net finance costs							-102
INCOME BEFORE TAXES							1,517
Tax expense							-233
NET INCOME							1,283
Non-controlling interests Net income (Group share)							1 7 1,266

(1) Operating income before depreciation and amortization and before non-recurring income and expenses

				Year ended 31 December 2010
(EUR million)	Consumer Business Unit	Enterprise Business Unit	Service Delivery Engine & Wholesale	Staff & Support	International Carrier Services	Inter segment eliminations	Total
Capital expenditure	132	2 0	492	6 2	2 7	-	734
				Year ended 31 December 2011
(EUR million)	Consumer Business Unit	Enterprise Business Unit	Service Delivery Engine & Wholesale	Staff & Support	International Carrier Services	Inter segment eliminations	Total
Net revenue	2,262	2,333	252	7	1,506	-	6,361
Other operating income	2 0	7	2	1 4	1	-	4 5
Intersegment income TOTAL SEGMENT INCOME	6 2,288	9 2,349	6 4 318	2 6 4 7	5 4 1,562	-159 -159	0 6,406
Costs of materials and services related to revenue	-624	-639	-36	-1	-1,338	121	-2,517
Personnel expenses and pensions Other operating expenses	-340 -299	-381 -144	-199 -175	-160 -215	-37 -65	0 3 8	-1,117 -860
TOTAL OPERATING EXPENSES before depreciation & amortization	-1,263	-1,164	-410	-375	-1,440	158	-4,494
TOTAL SEGMENT RESULT (1)	1,025	1,185	-92	-328	122	- 1	1,912
Non-recurring income Non-recurring expenses	- 0	- -18	- -	1 1 -7	- -1	- -	1 1 -26
OPERATING INCOME / (LOSS) before depreciation & amortization	1,025	1,167	-92	-324	121	- 1	1,897
Depreciation and amortization	-139	-17	-446	-74	-80	1	-756
OPERATING INCOME / (LOSS)	887	1,150	-538	-398	4 1	- 0	1,141
Net finance costs Share of loss on associates							-106 0
INCOME BEFORE TAXES							1,035
Tax expense							-262
NET INCOME							773
Non-controlling interests Net income (Group share)							1 7 756

(1) Operating income before depreciation and amortization and before non-recurring income and expenses

Year ended 31 December 2011
(EUR million)	Consumer Business Unit	Enterprise Business Unit	Service Delivery Engine & Wholesale	Staff & Support	International Carrier Services	Inter segment eliminations	Total
Capital expenditure	134	18	552	51	22	0	777

In respect of geographical areas, the Group realized EUR 4,405 million net revenue in Belgium in 2010 and EUR 4,187 million in 2011 based on the country of the customer. The net revenue realized in other countries amounted to EUR 2,147 million in 2010 and EUR 2,174 in 2011. More than 90% of the segment assets are located in Belgium.

Note 38. Recent IFRS pronouncements

The Group does not early adopt the standards or interpretations that are not yet effective at 31 December 2011. This means that the Group did not apply the following standards or interpretations that are applicable for the Group as from 1 January 2012 or later:

• Amendments to standards:
• o IAS 12 ("Income Taxes: Deferred Tax: recovery of Underlying Assets"),
• o IFRS 7 ("Financial Instruments: Disclosures Transfers of Financial Assets"),
• o IAS 1 ("Presentation of Financial Statements" concerning the Presentation of Items of Other Comprehensive Income),
• o Amendments to IAS 27 ("Separate Financial Statements") and IAS 28 ("Investments in Associates and Joint Ventures"),
• Newly issued standards:
• o IFRS 9 ("Financial Instruments"),
• o IFRS 10 ("Consolidated Financial Statements") that supersedes part of IAS 27 ("Separate Financial Statements") and SIC-12 ("Consolidated – Special Purpose Entities"),
• o IFRS 11 ("Joint Arrangements") that supersedes part of IAS 31 ("Interests in Joint Ventures") and SIC-13 ("Jointly Controlled Entities – Non Monetary Contributions by Venturers"),
• o IFRS 12 ("Disclosure of Interests in Other Entities"),
• o IFRS 13 ("Fair Value Measurement"),
• Revised standards:
• o IAS 19 ("Employee Benefits"),

The Group will investigate the possible impacts of the application of these new standards and interpretations on the Group's financial statements in the course of 2012. The IAS 19 Revised will involve amongst others the immediate recognition of the actuarial gains and losses through Other Comprehensive Income.

Note 39. Post balance sheet events

In April 2011, Belgacom concluded an agreement to acquire the company that owns the chain of The Phone House Belgium stores for an amount of EUR 22 million. On 2nd of January 2012 Belgacom finalised this acquisition after the transaction was formally approved by the Belgian Competition Council on 23 December 2011 with the respect of a few commitments including the obligation for Belgacom to divest a number of points of sales.

Auditor's report

Extract from the Belgian GAAP non-consolidated financial statements of Belgacom SA under public law

Income Statement	52
Balance Sheet after Appropriation	54
Appropriation Statement	56

The financial information presented in this caption is an extract of the non-consolidated financial statements of Belgacom SA under public law as approved by the General Assembly on 18 April 2012 and as communicated to the National Bank of Belgium (in Dutch and French) in the month following the General Assembly. These financial statements were prepared in conformity with the accounting and reporting laws and regulations applicable in Belgium ("Belgian GAAP"). The Joint Auditors of Belgacom SA de droit public/Belgacom NV van publiek recht have issued an unqualified opinion with respect to such non-consolidated financial statements.

A full set of the financial statements and statutory management report of Belgacom SA under Public Law is available in the "Investor corner" section of the Belgacom Group website (www.belgacom.com) as soon as they will be filed at the National Bank of Belgium.

Income statement

(in EUR million - year ended 31 December)	2010	2011
I. Operating income	4,763	4,605
A. Turnover B. Increase (+); Decrease (-) in stocks of finished goods, work and contracts in progress	4,450 0	4,262 1
C. Own construction capitalised D. Other operating income	253 6 0	288 5 4
II. Operating charges	3,881	3,750
A. Raw materials, consumables and goods for resale 1. Purchases 2. Increase (-); Decrease (+) in stocks B. Services and other goods C. Remuneration, social security costs and pensions D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets	451 456 -5 1,545 926 902	461 470 -9 1,477 923 894
E. Increase (+); Decrease (-) in amounts written off stocks, contracts in progress and trade debtor F. Increase (+); Decrease(-) in provisions for liabilities and charge	8 9	-2 -29
G.Other operating charges	3 8	2 6
III. Operating profit	881	855
IV. Financial income	3 4	586
A. Income from financial fixed assets B. Income from current assets C. Other financial income	2 2 1 1 2	567 9 1 0
V. Financial Charges	446	460
A. Interest and other debt charges B. Increase (+); Decrease(-) in amounts written off current assets other than mentioned under II.E. C. Other financial charges	419 0 2 7	442 1 1 8
VI. Profit on ordinary activities before taxes	470	980

(in EUR million - year ended 31 December)	2010	2011
VI. Profit on ordinary activities before taxes	470	980
VII. Exceptionnel income	136	6 5
B. Adjustments to amounts written off financial fixed assets	125	9
D. Gain on disposal of fixed assets	6	5 6
E. Other exceptionnel income	5	1
VIII. Extraordinary charges	152	199
B. Amounts written off financial fixed assets	2	9 1
C. Provisions for extraordinary liabilities and charges	-106	-20
(increase+, decrease -)
D. Loss on disposal of fixed assets E. Other extraordinary charges	120 135	6 122
IX. Profit for the period before taxes	454	847
X. Income taxes	130	219
A. Income taxes	137	219
B. Adjustment of income taxes and write-back of tax provisions	7	0
XI. Profit for the period	324	628
XII. Transfer from untaxed reserve	1	1
XIII. Profit for the period available for appropriation 324

Balance sheet after appropriation

(in EUR million - as of 31 December)	2010	2011
ASSETS
FIXED ASSETS	14,868	14,582
II. Intangible assets	4,984	4,693
III. Tangible assets	1,897	1,997
A. Land and buildings B. Plant, machinery and equipment C. Furniture and vehicles D. Other tangible assets	226 1,575 3 6 6 0	218 1,680 4 6 5 3
IV. Financial assets	7,986	7,892
A. Affiliated enterprises 1. Participating interests B. Other enterprises linked by participating interests 1. Participating interests C. Other financial assets 1. Shares 2. Amounts receivable and cash guarantees	7,958 7,958 3 3 2 5 2 4 2	7,858 7,858 9 9 2 5 2 4 2
CURRENT ASSETS	1,431	1,463
V. Amounts receivable after more than one year	1	2
B. Other amounts receivable	1	2
VI. Inventories and contracts in progress	8 9	100
A. Inventories 1. Raw materials and consumables 2. Goods purchased for resale B. Contracts in progress	7 2 2 6 4 6 1 7	8 2 3 0 5 1 1 8
VII. Amounts receivable within one year	871	794
A. Trade debtors B. Other amounts receivable	834 3 7	774 2 0
VIII. Investments	426	518
A. Own shares B. Other investments and deposits	416 1 0	501 1 7
IX. Cash at bank and in hand	5	4
X. Deferred charges and accrued income	3 8	4 5
Total assets	16,298	16,045

(in EUR million - as of 31 December)	2010	2011
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY	2,003	1,894
I. Capital	1,000	1,000
IV. Reserves	1,002	894
A. Legal reseve	100	100
B. Reserve not available for distribution	455	591
1. In respect of own shares held	455	591
C. Untaxed Reserves	1 4	1 3
D. Reserves available for distribution	433	190
VI. Investment grants	1	1
PROVISION AND DEFERRED TAXATION	725	675
VII.A. Provisions for liabilities and charges	720	671
4. Other liabilities and charges	720	671
B. Deferred taxation	5	5
LIABILITIES	13,571	13,476
VIII. Amounts payable after more than one year	9,700	10,183
A. Financial debts
	9,630	10,127
2. Unsubordinated debentures	1,267	1,768
4. Credit institutions	7,904	8,359
5. Other loans	459	0
B. Trade creditors	7 0	5 6
1. Suppliers	7 0	5 6
IX. Amounts payable within one year	3,677	3,085
A. Current portion of amounts payable after more than 1 year	852	5 3
B. Financial debts	1,329	1,401
1. Credit institutions	1,327	1,367
2. Other loans	2	3 4
C. Trade creditors	565	605
1. Suppliers	565	605
D. Advances received on contracts in progress	1 0	1 3
E. Taxes, remuneration and social security	347	426
1. Taxes	162	248
2. Remuneration and social security	185	178
F. Other amounts payable	574	586
X. Accrued charges and deferred income	194	208

Appropriation Statement

(in EUR million - year ended 31 December)	2010	2011
A. PROFIT (LOSS) TO BE APPROPRIATED	324	629
B. TRANSFERS FROM CAPITAL AND RESERVES	409	118
D. TRANSFERS TO CAPITAL AND RESERVES	7	1 0
F. DISTRIBUTION OF PROFIT	726	737

Key Financial events

2004

• Belgacom IPO
• Extensive launch Broadway project (Fibre & VDSL)

2006

• Acquisition of Telindus Group
• Sale of stake in Neuf Cégétel
• Launch of EUR 1.65 billion bond
• Acquisition of Vodafone's 25% share in Proximus
• ICS outsourcing deal with MTN

2008

• Telindus International
• Acquisition of Scarlet, Tango and Mobile-for
• Exclusive broadcasting rights for Belgian

^{2010 2011}

• Integration of Belgacom and some of its subsidiaries in one legal entity – impacting segments but neutral on Group level
• BICS fully consolidated following acquisition of control, effective as from 1 January 2010
• Belgacom concludes strategic partnerships with OnLive (gaming), Jinni (search engine) and In3Dept systems (3D-gesture recognition)

2005

• Launch Belgacom TV
• Exclusive broadcasting rights for Belgian soccer
• Disposal of shares in Eutelsat
• Belgacom ICS concludes Joint Venture with Swisscom ICS, proportionally consolidated
• Belgacom sells Belgacom Directory Services, Expercom and liquidated Infosources

2007

• Remaining stake in Mobistar (acquired via Telindus group transaction) sold
• Divesture of all non-core presences of Acquisition of Dutch storage specialist ISIT

2009

• soccer BICS and MTN combine their International Carrier Services

• Activity of WIN SA sold

• Telindus France acquires Eudasys

• Divesture Telindus Spain
• Belgacom acquires 4G-license
• Belgacom issues new 7-year senior unsecured institutional bond for EUR 500 million
• Successful early bond buyback operation, followed by redemption in cash of remaining balance of the November 2011 EUR 775 million notes

Financial Key Figures

Full Year
Income Statement (EUR million)	2004	2005	2006	2007	2008	2009	2010	2011
Total income before non-recurring items	5,540	5,458	6,100	6,065	5,978	5,990	6,603	6,406
Non-recurring income	0	238	0	0	8	74	436	11
Total income	5,540	5,696	6,100	6,065	5,986	6,065	7,040	6,417
EBITDA(1) before non-recurring items	2,394	2,214	2,149	2,077	1,990	1,955	1,984	1,912
EBITDA(1)	2,353	2,098	2,149	2,031	1,905	1,967	2,428	1,897
Depreciation and amortization	-742	-726	-802	-774	-743	-706	-809	-756
Operating income (EBIT)	1,611	1,372	1,347	1,256	1,161	1,261	1,619	1,141
Net finance income / (costs)	-27	64	104	1	-109	-117	-102	-106
Income before taxes	1,584	1,436	1,451	1,258	1,053	1,144	1,517	1,035
Tax expense	-508	-339	-358	-300	-254	-241	-233	-262
Non-controlling interests	152	139	121	0	-1	-1	17	17
Net income (Group share)	922	959	973	958	800	904	1,266	756
Full Year
Cash flows and Capital
Expenditures (EUR million)	2004	2005	2006	2007	2008	2009	2010	2011
Cash flows from operating activities	1,899	1,883	1,643	1,581	1,552	1,406	1,666	1,551
Cash paid for acquisitions of intangible assets and property, plant and equipment	-556	-696	-676	-625	-764	-597	-734	-757
Cash flows from / (used in) other investing activities	78	389	-2,279	255	-380	-12	48	-7
Free cash flow(2)	1,421	1,575	-1,313	1,210	409	797	980	788
Cash flows from / (used in) financing	-1,658	-1,102	751	-720	-570	-1,030	-728	-1,051
activities Net increase / (decrease) of cash and cash equivalents	-237	473	-562	490	-161	-233	252	-264
As of 31 December
Balance sheet (EUR million)	2004	2005	2006	2007	2008	2009	2010	2011
Balance sheet total	5,368	5,831	7,300	7,325	7,782	7,450	8,511	8,312
Non-current assets	3,963	3,808	5,504	5,072	5,564	5,505	6,185	6,217
Investments, cash and cash equivalents	406	884	327	785	618	408	627	356
Shareholders' equity	2,223	2,221	2,391	2,520	2,271	2,521	3,108	3,078
Non-controlling interests	407	370	8	6	5	7	235	225
Liabilities for pensions, other post-employ ment benefits and termination benefits	760	1,010	886	831	777	677	565	479
Net financial position	110	534	-1,636	-1,167	-1,835	-1,716	-1,451	-1,479
Full Year
Belgacom share - key figures	2004	2005	2006	2007	2008	2009	2010	2011
Basic earnings per share (EUR)	2.57	2.78	2.87	2.87	2.45	2.82	3.94	2.36
Weighted average number of ordinary shares(3)	358,612,854	345,406,186	338,621,113	334,017,553	326,179,820	320,475,553	321,138,048	319,963,423
Share buyback (EUR million)	0	300	200	78	352	0	0	100
Full Year
Data on employees	2004	2005	2006	2007	2008	2009	2010	2011
Number of employees	16,933	16,335	18,180	17,833	17,371	16,804	16,308	15,788
(full-time equivalents)
Average number of employees over the period	17,108	16,388	18,163	17,920	17,465	16,878	16,270	15,699
Total income before non-recurring items per employee (EUR)	323,847	333,034	335,869	338,441	342,291	354,917	405,859	408,046
Total income per employee (EUR)	323,847	347,577	335,869	338,441	342,746	359,322	432,685	408,760
EBITDA(1) before non-recurring items per employee (EUR)	139,945	135,103	118,294	115,883	113,934	115,849	121,953	121,764
EBITDA(1) per employee (EUR)	139,945	135,103	118,294	113,320	109,058	116,551	149,247	120,834
Full Year
Ratio's	2004	2005	2006	2007	2008	2009	2010	2011
Return on Equity(4)	42.6%	43.1%	40.7%	38.8%	37.5%	35.6%	30.9%	24.9%
Gross margin(5)	73.6%	71.5%	67.1%	66.8%	67.0%	65.2%	60.0%	60.7%
Net debt / EBITDA before non-recurring items	0.0	-0.2	0.8	0.6	0.9	0.9	0.7	0.8

1. Earnings Before Interests, Taxes, Depreciation and Amortization.

2. Cash flow before financing activities. 3. i.e. excluding Treasury shares

3. The gross margin is adjusted to exclude non-recurring income.

^4. The net income and the Shareholders' equity are adjusted to exclude the non-recurring income /expenses and the related tax impacts.

Key figures

6.4 revenue EUR billion

29.8% EBITDA margin

12.1%

of revenue invested

Capex (in EUR million)

Free Cash Flow (in EUR million)

788 free cash flow EUR million

2011 EBITDA contribution per BU (in EUR million) 1,185 EBU -92 SDE&W -328 S&S 122 bics 1,025 CBU

Discover the online version of this annual report at annualreport.belgacom.com