Proximus SA — Annual Report 2011

Mar 16, 2012

REPORT BY THE BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS ON 18 APRIL 2012 ON THE ANNUAL ACCOUNTS OF BELGACOM S.A. UNDER PUBLIC LAW AS AT 31 DECEMBER 2011

Dear Shareholders.

We have the pleasure of reporting on the operations in the 2011 financial year and of submitting, for your approval, the annual accounts closed as of 31 December 2011.

We first discuss the development of Belgacom S.A. under public law ("Belgacom") in 2011 and in early 2012 and then examine the results for the 2011 financial year. We also report on the most important risks and uncertainties, on the use of financial instruments, on the evolution in research and development activities, on the branches. Finally there is the declaration on corporate governance, the report on internal control and risk-management systems, the remuneration report and the notification of a position of conflicting interest.

Development of Belgacom in 2011 and in early 2012

The intangible assets were mainly influenced by the amortization of the goodwill which was constituted in 2010 by the merger by absorption. Given the long life character of the profitability of the totality of the merged companies, this goodwill is amortized over 15 years.

Furthermore, the intangible assets have been impacted by the renewal of some broadcasting rights and by the acquisition of the 4G license.

The financial fixed assets were mainly influenced by the sale of consolidated company engaged in non-core activities of Belgacom, the liguidation of Euremis S.A. and the write off on Telindus Group S.A. and Beldiscom S.A..

During the period June to September, 4,300,975 own shares were bought on the stock exchange for a total market value of € 100.0 million. The bought own shares have a fraction value of € 12.7 million and represent 1.27 % of the issued capital. As a result the unavailable reserve has been adapted. The purchase of own shares fits in with the policy of the company to create additional value for the shareholders. End 2011, Belgacom owns 20,376,314 of its own shares. Those have a fraction value of $\epsilon$ 60.3 million and represent 6.03 % of the issued capital.

The amounts paid out in 2011 for the BeST program and the social agreement 2005 in respect of the work organization (tutorship) decreased the provision for reorganization costs. The provisions were increased due to the refinement of the valuation rules to account for future obligations concerning the post retirement obligations not only for current but also for future beneficiaries, which better reflects the economic reality.

In February 2011, a debenture of $\epsilon$ 500 million with a 7 years term was issued. Belgacom used this money for general exploitation purposes and for the reimbursement of two debentures that expired at the end of November 2011, in particular. A part has prematurely been reimbursed in March 2011.

Early January 2012, Belgacom took over Wireless Technologies S.P.R.L., owning a chain of The Phone House stores in Belgium. Belgacom finalised this acquisition after the transactions was formally approved by the Belgian Competition Council on 23 December 2011 with the respect of a few commitments among which the obligation for Belgacom to divest a number of points of sales of the Phone House. The acquisition of The Phone House Belgium points of sale will enable

Belgacom to increase its proximity to its customers and offer them more tailored, personalized services. This acquisition also makes it possible to better meet the expectations of a constantly changing telecom market and the demand for even more innovative products and services such as smartphones, Mobile Internet and convergent packs.

Right and commitments not accrued in the balance sheet

Belgacom has the right to issue Commercial Paper for a total of $\epsilon$ 1,000 million and Euro Medium Term Notes for a total of € 2,500 million, of which € 1,575 has been issued end 2011.

Results of the 2011 financial year

The increased competition from fixed-line and mobile operators in traditional telephony and the new mobile termination rates and roaming tariffs negatively affected the operating income. The turnover for data services and digital television further increased. These elements made the turnover to decrease by 4.2 % compared to 2010.

The operating charges were mainly influenced by a strict cost control policy and the decrease of the mobile termination rates and roaming tariffs. The total operating charges decreased by 3.4 %.

The operating profit decreased by 3 % from $\epsilon$ 881.4 million to $\epsilon$ 855.0 million.

In 2011, Tango S.A., the Luxemburg telecommunication affiliate, has distributed a dividend of € 530.0 million to Belgacom. Belgacom International Carrier Services S.A. has distributed a dividend of € 37.3 million to Belgacom.

The extraordinary results (extraordinary charges decreased with extraordinary income) primarily originate from the actualisations of the provisions for personnel restructuring plans and the effect of the refinement of the valuation rules for social benefits. Moreover, the extraordinary result was influenced by a gain on the sale of Finbel Re, a write-back of amounts previously written down on Belgacom Skynet S.A. and the write off on Telindus Group S.A and Beldiscom S.A.. The amounts under loss on disposal of fixed assets relate to the liquidation of Euremis S.A. and M-Brussels Invest and the sale of Sahara International Ventures S.A..

The profit for the 2011 financial year amounts to $\epsilon$ 628.4 million, compared to $\epsilon$ 323.8 million in 2010.

Appropriation account

After the processing of untaxed reserves, the profit available for distribution amounts to € 628,994 thousand. We propose the following appropriation (in $€$ thousands):

Profit of the period available for appropriation	628,994
Net transfers from the reserves	107,729
Profit to be distributed	736,723
Return on capital (dividends)	694,382
Other allocations (personnel)	42,341

On 9 December 2011 an interim dividend of $\epsilon$ 158,811 thousand has been paid.

Most important risk and uncertainties

An overview of the most important risk and uncertainties can be found under points 2.1 and 3.1 of annex $3₁$

Furthermore, the notes to the annual accounts contain further information regarding the most important on-going claims and judicial procedures.

Use of financial instruments

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

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

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

Belgacom is therefore exposed to counterparty risks relative to potential failure by counterparty on derivatives. In general, Belgacom does not require collateral or other security from counterparties as these are highly rated financial institutions. In one case, a collateral (margin call) of € 32 million was obtained from a bank to contain the counterparty risk within the Group policy limits.

Evolution in research and development activities

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

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

In 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 $\Delta$ Internet Protocol (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 $\circ$ 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 $\circ$ to ensure the best Quality of Service

• Belgacom has a continuous focus on the "Green" aspect. With "Green ICT" and "ICT $\circ$ 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 $\circ$ been implemented on the 3G network, all this to further improve customer experience.
• By implementing FON, Belgacom enlarged significantly the possibility, for its $\circ$ customers, 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 $\Omega$ user interface and new possibilities to record TV programs. It has become possible to watch TV on multiple screens: apart from one or more TV screens, 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 $\circ$ being analysed and developed to further increase its potential. New profiles 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 $\circ$ services), Belgacom has taken multiple initiatives in developing new services - i.e. Belgacom launched the possibility to pay parking by scanning QR (Quick Response) codes.
• Belgacom is developing a Cloud infrastructure offering on-demand integrated business $\circ$ services, and an open Application Programming Interface (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 to generate 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.

Branches

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

Corporate governance statement

Belgacom governance model

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

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

Designation applicable Code on Corporate Governance

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

Departure from the 2009 Belgian Corporate Governance Code

Belgacom complies with the principles and provisions of the 2009 Belgian Corporate Governance Code, except provisions 4.6 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.

Composition and functioning of the governing bodies and their committees in 2011

Board of Directors:

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

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

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

Changes in the composition of the Board of Directors

The mandate of Mr. Georges Jacobs came to an end on 13 April 2011 as he reached the age limit of 70 years. The General Shareholders Meeting of 2011 has appointed Mr. Pierre Demuelenaere as member of the Board of Directors.

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

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

* As Chairman until 2012

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

Name	Age	Position	term
Jozef Cornu	67	Independent director	$2009 - 2015$
Pierre Demuelenaere	53	Independent director	$2011 - 2017$
Guido J.M. Demuynck	61	Independent director	$2007 - 2013$
Pierre-Alain De Smedt	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	$2004 - 2016$

Functioning of the Board of Directors

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

Committees of the Board of Directors

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

Mr. Pierre-Alain De Smedt (Chairman), Messrs. Guido J.M. Demuynck (as of 1 March 2011), Michel Moll, Oren G. Shaffer and Paul Van de Perre are the members of the Audit and Compliance Committee.

Mr. Theo Dilissen (Chairman), Messrs. Jozef Cornu (as of 1 March 2011), Pierre-Alain de Smedt (as of 1 March 2011), Ms. Martine Durez and Ms. Lutgart Van den Berghe are the members of the Nomination and Remuneration Committee.

Mr. Theo Dilissen (Chairman), Mr. Didier Bellens, and Messrs. Jozef Cornu, Guido J.M. Demuynck, Michel Moll (as of 1 March 2011) and Ms. Carine Doutrelepont (as of 1 March 2011) are currently the members of the Strategic and Business Development Committee

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

Activity report and remuneration of members of the governing bodies

The remuneration and compensation of the directors has been decided by the General Meeting of 2004. The calculation of this compensation has not changed in 2011: an annual fixed compensation of € 50,000 for the Chairman of the Board of Directors and of € 25,000 for the other members of the Board of Directors, with the exception of the President & CEO, is foreseen. All members of the Board of Directors, with the exception of the President & CEO, have the right to an attendance fee of $\epsilon$ 5,000 per attended meeting of the Board of Directors as well as to an allowance of $\epsilon$ 2,000 per vear to cover communications costs. Finally attendance fees of $\epsilon$ 2,500 per meeting have been foreseen for each member, with the exception of the President & CEO, per attended meeting of an advising committee to the Board of Directors. For the Chairmen, these attendance fees are doubled. For the Chairman of the Board of Directors, the allowance for communications costs is also doubled.

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

In 2011 Belgacom organized 7 Board of Directors meetings (Board), 7 meetings of the Audit and Compliance Committee (ACC), 6 meetings of the Nomination and Remuneration Committee (NRC) and 2 meetings of the Strategic and Business Development Committee (SBDC).

Name	Board (total 7)	ACC (total 7)	NRC (total 6)	SBDC (total 2)	Total Remuneration
Theo DILISSEN	7/7		6/6	2/2	164,000€
Didier BELLENS	7/7			2/2	0€
Jozef CORNU (3)	7/7		5/5	2/2	79,500€
Pierre DEMUELENAERE (1)	4/6				39,708€
Guido J.M. DEMUYNCK (3)	7/7	5/6		2/2	79,500 €
Pierre-Alain DE SMEDT (3)	7/7	6/7	5/5		104,500€
Carine DOUTRELEPONT (3)	6/7			2/2	62,000€
Martine DUREZ	7/7		6/6		77,000€
Georges JACOBS (2)	1/1		1/1		16,792€
Mimi LAMOTE	7/7				62,000€
Michel MOLL (3)	7/7	7/7		2/2	84,500€
Oren G. SHAFFER	7/7	7/7			82,000 €
Michèle SIOEN	6/7				57,000€
Lutgart VAN den BERGHE	7/7		6/6		77,000€
Paul VAN de PERRE	7/7	7/7			79,500€

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

$(1)$ 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).

In its meeting of February 24, 2011, the Board adopted a "related party transactions policy" which governs all transactions or other contractual relationships between the company and its board members. Belgacom has contractual relationships and is also a vendor for telephony,

Internet and/or ICT services for many of the companies in which Board members have an executive or non-executive mandate. 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 30,250 $\epsilon$ in 2011.

Evaluation of the Board

Given the fact that the Board of Directors performed a self-evaluation in 2010, no evaluation was organized in 2011.

Management

The members of the Belgacom Management Committee, other than the President & CEO, are Mr. R. Stewart, S. Alcott, M. Georgis, Bart Van den Meersche and Bruno Chauvat.

Mr. Grégoire Dallemagne left the company on 6 April 2011. Mrs. Astrid De Lathauwer left the company on 15 September 2011.

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

Report on internal control and risk-management systems

See annex 3.

Remuneration report

In annex 4, the remuneration report can be found.

Position of conflicting interest

Mr. Didier Bellens declared, during the Board of Directors of 24 February 2011 to have a conflict of interest in connection with the employee incentive plans, item of the agenda of this Board meeting. In accordance with article 523 of the Belgian Companies Code, the minutes of this meeting are included in annex 5.

Members of the Joint Auditors

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

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

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

Auditor responsible for certification of the consolidated accounts of Belgacom Group

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

In conclusion

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

We would request that you grant a special discharge to Mr. Georges Jacobs whose mandate ended on 13 April 2011.

Yours truly,

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

$\frac{1}{2}$

Didier⁴BELLENS President & CEO

Michel Moll Director

Annex 1: Activity report of the Nomination and Remuneration Committee for 2011 Annex 2: List of members of the Belgacom Management Committee and members of the company's staff that hold offices in companies, groups and bodies in which Belgacom has holdings and is involved

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

Annex 4: Remuneration report of 2011

Annex 5: Position of conflicting interest in connection with the employee incentive plans (minutes of the meeting of the Board of Directors of 24 February 2011)

Annex 1

Activity Report of the Nomination & Remuneration Committee

Year 2011

In 2011, the Nomination & Remuneration Committee had 6 meetings.

The composition of the Nomination & Remuneration Committee has changed compared to 2010 in order to comply with the prescriptions of the law of 6 April 2010, aiming at strengthening the corporate governance in stock quoted companies and State owned companies, obliging to have a majority of independent members. Mr. Theo Dilissen (chairman) and Mrs. Martine Durez are the members appointed by the reference shareholder, Mr. Jozef Cornu, Mr. Pierre-Alain De Smedt and Mrs. Lutgart Van den Berghe are the independent members of the Nomination & Remuneration Committee.

Activities in 2011

1. Nomination & remuneration of the Board of Directors

The Committee organized the search for a new independent Board member. The Committee presented a short list and recommended Mr. Demuelenaere to the Board to be nominated by the General Shareholders meeting.

2. Nomination & remuneration of the Belgacom Management Committee $(BMC)$

The Committee advised the Board with respect to the dismissal of Mr. Dallemagne as Executive Vice President Strategy and the appointment of Mr. Chauvat as Executive Vice President Content & Strategy.

The Committee advised the Board on the dismissal of Mrs. De Lathauwer as Executive Vice President HR.

The Committee advised the Board in connection with the organization of the Belgacom Management Committee (BMC), the appointment of Mr. Georgis as Executive Vice President HR and the appointment of Mr. Alcott as Executive Vice President CBU.

The Committee prepared for the Board the evaluation of the President & CEO and the members of the BMC.

3. Remuneration Plans

The Committee studied the impact of applicable legislation on the pension plans for Belgacom employees.

The Committee further advised the Board in connection with:

$\Box$ the salary increase budget for 2011;

• □ the key performance indicators for the performance year 2012;
• □ the Long Term and Short Term Incentive Plans for CEO, BMC, TGR (Top Group Resources) and a limited number of non-TGRs;
• □ the review of remuneration policies for BMC and TGR members;
• the salary increase budget for 2012.

4. Policy on Personnel

The Committee closely followed up the HR strategy and plan for 2011, especially the social stability and the negotiations with the Unions, the competencies and performance, the employee satisfaction and the remuneration and cost control.

The Committee took note of the assessment of the BMC and the TGR's.

The Committee discussed the situation of statutory employees at BICS.

The Committee analyzed the attrition rate within the TGR segment.

The Committee took note of an overview of mobbing files at Belgacom and analyzed the compliancy of the Belgacom policy on this matter with the relevant legislation.

5. Corporate Governance

The Committee examined the demand from the Banking Commission to confirm that all so-called independent members still qualify as such.

The Committee examined the corporate governance aspects of the indictment of the President & CEO by the examining magistrate of Mons related to the sale of a building by ConnectImmo in 2005.

The Committee prepared the remuneration report for presentation to the General Shareholders meeting.

The Committee further advised the Board in connection with:

• □ the Corporate Governance section of the Annual report
• □ the establishment of a "Related Party transactions policy"
• the update of the Corporate Governance Charter, the Charter of the Board and of the Committees

Theo Dilissen Chairman of the Nomination & Remuneration Committee

Annex 2

PARTICIPATIONS - BELGACOM (mandate not remunerated)

PARTICIPATIONS	MEMBERS on 31/12/2011
BELGACOM BRIDGING ICT S.A.	J-M. Courtoy R. Tilmans B. Van Den Meersche P. Wauters
INTERNATIONAL BELGACOM GROUP SERVICES S.A.	R. Stewart G. Geerkens G. Kerremans P. Neyt
CARRIER BELGACOM INTERNATIONAL SERVICES (BICS) S.A.	S. Alcott D. Bellens M. Gatta D. Lybaert R. Stewart
BELGACOM OPAL S.A.	D. Lybaert O. Moumal J. Robeyns
BELGACOM SKYNET S.A.	M. Boddez J-C. De Keyser E. Van Landeghem
BELGACOM FINANCE S.A.	G. Kerremans L. Kervyn de Meerendré V. Mehta O. Moumal
BELGACOM DEVELOPMENT S.A.	G. Kerremans
BELDISCOM S.A.	S. Franklin M. Georgis G. Van den Abeele
CONNECTIMMO S.A.	J. Joos O. Moumal P. Neyt S. Van Casteren
MOBILE-FOR S.A.	G. Geerkens F. Lhostte K. Vervaet

PARTICIPATIES	LEDEN op 31/12/2011
SCARLET S.A. (Nederland)	S. Alcott D. Bellens M. Gatta M. Georgis D. Rouma R. Stewart
TANGO S.A.	D. Bellens B. Chauvat M. Georgis G. Hoffmann L. Kervyn de Meerendré O. Moumal B. Van Den Meersche
TELINDUS GROUP S.A.	C. de Dorlodot R. Stewart B. Van Den Meersche B. Watteeuw
TUNZ.COM	G. Geerkens
BGC «VENTURE» PARTICIPATIONS Pefa-Com (B) Explio (B)	D. Lybaert

N° 0202.239.951

Annex₃

Report on internal control and risk-management systems

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

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

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

Belgacom considers the timely delivery to all its internal and external stakeholders of complete, reliable and relevant financial information in conformity with International Financial Reporting Standards (IFRS) and with other additional Belgian disclosure reguirements 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 "licentiate" in commercial and financial sciences. He occupied during his career several functions as CFO, CEO and COO. Amongst his non-executive functions he is also member of the Audit Committee of Avis Europe.

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

1.2. Ethics

The Board of Directors has approved a Corporate Governance Charter and a Code of Conduct "The way we do responsible business". All employees must perform their daily activities and their business objectives according to the strictest ethical standards and principles, using the Group values (Respect, Can do and Passion) as quiding 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 Periodically, and at moment of an update, an appropriate and updates if necessary. 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 In addition, the Corporate Accounting department regularly the Belgacom intranet-sites. 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. They also provides the support to the other affiliates For this centralized support, the organization is structured according to the major (financial) processes. These major processes include capital expenditures and assets, inventories, contracts in progress & revenue recognition, financial accounting, operational expenditures, provisions & litigations, payroll, post-employment benefits and taxes. This centralized support organized around specific processes and IFRS standards allows for in depth accounting expertise and ensures compliance with group guidelines.

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

1.5. Skills & expertise

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

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

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 on-going 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 Group 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.

As a telecom company, Belgacom operates in a dynamic Changing business model: 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 per unit

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 on 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-toend 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 behaviour among competitors. A new market entrant or radical price competition could cost Belgacom market share and revenues. For instance, a rapid transposition of a 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 "Move-to-all-IP", which could be subject to delayed implementation and consequently delayed savings from the out phasing 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 timeliness and reliability of the financial reporting could be 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 up, in a short timeframe, additional administrative processes 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 mitigating factors and control measures

Belgacom mitigating 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. Risks 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 ERM 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 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 the area of evolving standards (both local GAAP and IFRS). Changes are identified, and the impact on the Belgacom financial reporting is proactively analyzed.

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

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

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 Statements have been defined. During the monthly, quarterly, half-yearly and annual financial statement closing processes, there is a continuous monitoring on the different steps. In addition, different controls are performed to ensure quality and compliance with internal and external requirements and quidelines.

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 analyzed and confirmed. Specific attention is given to reasonableness tests, where financial information is being analyzed 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 Belgacom and most of its affiliates are kept on large integrated IT systems. Operational processes are often integrated in the same system (e.g. supply chain management, payroll). For the billing systems, which are not integrated, adequate interfaces and a monitoring system have been developed. For the consolidation purposes, a specific consolidation tool is used.

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

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 budgetactual and forecast-actual analysis. Validation requires (absences of) variances to be analyzed 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 Group's operations. The independence of Internal Audit is ensured via its direct reporting line to the Chairman of the A&CC. Audit assignments performed may have a specific financial processes scope but will also assess the effectiveness and efficiency of the operations and the compliance towards the applicable laws or rules.
• The A&CC reviews the quarterly interim reporting and the specific accounting methods. The main disputes and risks facing the Group are considered; the recommendations of internal audit are followed-up; the compliance within the Group with the Code of Conduct and Dealing Code is regularly discussed.
• Except for some very small foreign affiliates, all legal entities of the Belgacom Group are subject to an external audit. In general, this audit includes an assessment of the internal control, and leads to an opinion on the statutory financials and on the (half-yearly and annual) financials reported to Belgacom for consolidation. In case the external audit reveals a weakness or identifies opportunities to further improve the internal control, recommendations are made to management. These recommendations, the related action plan and implementation status are at least annually reported to the A&CC.

Annex 4

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 performance-based remuneration such as bonuses or long-term share-related incentive programs, nor do they receive benefits linked to pension plans.

Overview of Director's Remuneration

The individual Director remuneration for the fiscal year 2011, based on their activities and attendance at Board and Committee meetings is presented in the table below.

Name	Board	ACC	NRC	SBDC	Total
	(total 7)	(total 7)	(total 6)	(total 2)	Remuneration
Theo DILISSEN	7/7		6/6	2/2	164,000€
Didier BELLENS	7/7			2/2	$0 \in$
Jozef CORNU (3)	7/7		5/5	2/2	79,500€
Pierre DEMUELENAERE (1)	4/6				39,708€
Guido J.M. DEMUYNCK (3)	7/7	5/6		2/2	79,500€
Pierre-Alain DE SMEDT (3)	7/7	6/7	5/5		104,500€
Carine DOUTRELEPONT (3)	6/7			2/2	62,000 €
Martine DUREZ	7/7		6/6		77,000 €
Georges JACOBS (2)	1/1		1/1		16,792€
Mimi LAMOTE	7/7				62,000€
Michel MOLL (3)	7/7	7/7		2/2	84,500€
Oren G. SHAFFER	7/7	7/7			82,000€
Michèle SIOEN	6/7				57,000€
Lutgart VAN den BERGHE	7/7		6/6		77,000€
Paul VAN de PERRE	7/7	7/7			79,500€

Activities report and attendance at Board and Committee meetings

⁽¹⁾ Appointed on 13 April 2011

Total Remuneration: telecom advantage included

$(2)$ 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).

ACC: Audit and Compliance Committee; NRC: Nomination and Remuneration Committee; SBDC: Strategic and Business Development Committee

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 public-service 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 employment status of some of its workforce, and introduced new elements that harmonised policies between civil servants and contractual employees.

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

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 below (figure 1).

Figure: Relative importance of the various components of remuneration (KPI's 100% at target).

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 share-based variable remuneration in order to obtain 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 non-financial indicators, at both Group and Business Unit level. The achievement of these KPI's are followed-up and communicated regularly. The results are based on audited financial figures and non-financial indicators measured by internal and external agencies specialised in market and customer intelligence, of which the processes are audited on a regular basis.

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

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

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

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.

Basic Remuneration (in KEUR)

Short term variable remuneration

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

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

The short term variable remuneration includes the actual bonus paid in the reported year 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, changes in the composition of the management team.

Long term Share-based variable remuneration

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

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

• The vesting schedule 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 below.

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

		Didier BELLENS	Scott ALCOTT	Bruno CHAUVAT	Grégoire DALLE- MAGNE	Astrid DE LATHAU- WER	Michel GEORGIS	Ray STEWART	Bart VAN DEN MEERSCHE
from previous years:	on January 1st, 2011, Stock options remaining	425.266	146.001	a,	111.623	139.405	136.321	242.452
Stock options	Number	111.319	39.897	۰	$\mathbf{0}$	42.244	56.325	77.447	55.000
granted during reported year	Exercise price (in EUR)	25,015€	25,015€	$\overline{\phantom{a}}$	25,015€	25,015€	25,015€	25,015€	25,015€
Stock options	Number	٠	15.000	٠	9.625	23.316		26.787
exercised during reported year	Year of grant of options exercised		2005		2009	2006		2005
Stock options lapsed during reported year	Number
	Year of grant of options lapsed
	TOTAL	536.585	170.898	٠	101.998	158.333	192.646	293.112	55.000

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

Long term share-based variable remuneration (in KEUR)

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

Remuneration	President & CEO		Other members of the Management Committee
	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

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

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.

Annex 5

Minutes of the meeting of the Board of Directors of 24 February 2011

Chairman's debriefing on Board Committees

President & CEO

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

In accordance with article 523 of the Belgian Companies Code, the President & CEO, Mr. Didier Bellens, declares to have a conflict of interest in connection with the Employee Incentive Plans item of the agenda of the present Board meeting and more especially on the determination of the Short & Long Term Incentives granted to him under the Plan 2010.

Mr. D. Bellens requests the Board to take note of his statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2011.

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

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

After discussion and upon recommendation of the Nomination & Remuneration Committee, the Board decides to grant an amount of 711,652 $\epsilon$ on the short term incentives and an amount of 474,329 € for the long term incentives to the President & CEO.

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