Annual report 2005

the future...

annual report

now 2005

the future now

Belgacom

annual report 2005

An evocative title that says a lot about our ambitions. Above all, it conveys the enthusiasm that inspires the Belgacom Group. An energy that guides all our actions, and impels us to improve our performance, not only vis-à -vis our customers and shareholders, but also for our colleagues. But the meaning of this title reaches beyond that: it also reflects the pioneering spirit that has been driving the Belgacom Group for many years. ADSL, Belgacom TV, 3G, Happy Time are all innovative solutions that revolutionized the market and demonstrated the almost unlimited possibilities of the Internet and telephony sector. Building the future in the present: that’s the mission that we strive to fulfill every day.

the future...

annual report

now 2005

the future now

Belgacom

annual report 2005

An evocative title that says a lot about our ambitions. Above all, it conveys the enthusiasm that inspires the Belgacom Group. An energy that guides all our actions, and impels us to improve our performance, not only vis-à -vis our customers and shareholders, but also for our colleagues. But the meaning of this title reaches beyond that: it also reflects the pioneering spirit that has been driving the Belgacom Group for many years. ADSL, Belgacom TV, 3G, Happy Time are all innovative solutions that revolutionized the market and demonstrated the almost unlimited possibilities of the Internet and telephony sector. Building the future in the present: that’s the mission that we strive to fulfill every day.

key figures(1) Year ended 31 December

Group financials 2003

2004

2005

5,454

5,540

5,458

Income Statement (in EUR million) Total revenue before non-recurring items

0

0

238

Total revenue

5,454

5,540

5,696

EBITDA(2) before non-recurring items

2,250

2,394

2,214

EBITDA(2)

1,353

2,353

2,098

Operating income (EBIT)

566

1,611

1,372

Net finance revenue/(costs)

-27

-27

64

Non-recurring revenue

Loss from enterprises accounted for using the equity method

-4

-1

0

Income before taxes and minority interests

534

1,583

1,436

Tax expense

-208

-508

-339

Minority interests

154

152

139

Net income (Group share)

172

922

959

2003

2004

2005

Cash flows from operating activities

296

1,899

1,883

Capital expenditures

-502

-556

-696

17

78

389

Free cash flow(3)

-189

1,421

1,575

Cash flows used in financing activities

-575

-1,658

-1,102

Net increase/(decrease) of cash and cash equivalents

-764

-237

473

As of 31 December

240,807 33,000 customers won back by Belgacom

Belgacom TV customers

55,606

new active customers at Proximus

Cash Flow and Capital Expenditures (in EUR million)

Cash flows from other investing activities

Balance sheet (in EUR million)

Revenue(1) The reported(1) Group revenue decreased by 1.5%. On an adjusted(2) basis, however, the Group revenue was almost flat despite very fierce competition for both Fixed Line and Mobile Communication Segments.

International Carrier Services’ revenue increased by 11%.

Revenue(1) (in EUR million) .%.))

Non-current assets

4,381

3,963

3,808

604

406

884

2,548

2,223

2,221

Minority interests

446

407

370

/))

Liabilities for pensions and other post-employment benefits

840

760

1,010

-))

Net financial position

157

110

534

+))

2003

2004

2005

Basic earnings per share (in EUR)

0.43

2.57

2.78

Diluted earnings per share (in EUR)

0.43

2.57

2.77

399,932,159

358,612,854

345,406,186

Year ended 31 December Data per share

Weighted average number of ordinary shares Dividend per share, gross (in EUR)

0.99

1.38

1.52

Special dividend per share, gross (in EUR)

0.00

0.55

0.00

2003

2004

2005

As of 31 December

12% ICS 51% FLS ),

5,831

Shareholders’ equity

Active mobile customers (in thousands)(5) Minutes transported by International Carrier Services (in billions) Personnel (1) Prepared under IFRS as adapted for use in the European Union.

(2) Earnings Before Interests, Taxes, Depreciation and Amortization.

(3) Cash flow before financing activities.

(4) PSTN + ISDN BA + ISDN PRA + ADSL retail.

(5) Customers who received/made a call or received/sent an SMS over the past three months.

).

Net income (in EUR million) *%)))

2++

2.2

1))

*0+

),

EBITDA(1) The reported EBITDA of the Group decreased by 7.5% while the adjusted(2) EBITDA of the Group decreased by 4.8% to EUR 2,209 million.

)-

).

EBITDA(1) (in EUR million) +%-)) +%+))

EBITDA 2005 by segments(1) (before eliminations)

+%,2+%+.)

+%+*-

47% MCS

+%))) *%1))

1% ICS

*%/)) *%-))

52% FLS

*%+)) *%))) ),

Total retail and wholesale ADSL access channels (in thousands)

)-

)

Operating data Total access channels (in thousands)(4)

37% MCS

.%-.1

-%)))

5,368

Net income (Group share) amounted to EUR 959 million.

.%.-)

-%.))

6,009

Net income

.%-.-

.%)))

Balance sheet total Investments, cash and cash equivalents

Revenue 2005 by segments(1) (before eliminations)

/%)))

5,219

5,252

5,251

Earnings per share

790

1,032

1,268

4,201

4,198

4,253

Earnings per share increased by 8.2% to 2.78 EUR.

6.4

6.9

9.6

17,541

16,933

16,335

)-

).

Earnings per share (in EUR) , +'.0

+'01

+

* )'-, ) ),

)-

).

(1) Before non-recurring items.

(2) Excluding non-recurring items and adjusted for the disposal of consolidated companies in 2005 and 2004 one-time items.

key figures(1) Year ended 31 December

Group financials 2003

2004

2005

5,454

5,540

5,458

Income Statement (in EUR million) Total revenue before non-recurring items

0

0

238

Total revenue

5,454

5,540

5,696

EBITDA(2) before non-recurring items

2,250

2,394

2,214

EBITDA(2)

1,353

2,353

2,098

Operating income (EBIT)

566

1,611

1,372

Net finance revenue/(costs)

-27

-27

64

Non-recurring revenue

Loss from enterprises accounted for using the equity method

-4

-1

0

Income before taxes and minority interests

534

1,583

1,436

Tax expense

-208

-508

-339

Minority interests

154

152

139

Net income (Group share)

172

922

959

2003

2004

2005

Cash flows from operating activities

296

1,899

1,883

Capital expenditures

-502

-556

-696

17

78

389

Free cash flow(3)

-189

1,421

1,575

Cash flows used in financing activities

-575

-1,658

-1,102

Net increase/(decrease) of cash and cash equivalents

-764

-237

473

As of 31 December

240,807 33,000 customers won back by Belgacom

Belgacom TV customers

55,606

new active customers at Proximus

Cash Flow and Capital Expenditures (in EUR million)

Cash flows from other investing activities

Balance sheet (in EUR million)

Revenue(1) The reported(1) Group revenue decreased by 1.5%. On an adjusted(2) basis, however, the Group revenue was almost flat despite very fierce competition for both Fixed Line and Mobile Communication Segments.

International Carrier Services’ revenue increased by 11%.

Revenue(1) (in EUR million) .%.))

Non-current assets

4,381

3,963

3,808

604

406

884

2,548

2,223

2,221

Minority interests

446

407

370

/))

Liabilities for pensions and other post-employment benefits

840

760

1,010

-))

Net financial position

157

110

534

+))

2003

2004

2005

Basic earnings per share (in EUR)

0.43

2.57

2.78

Diluted earnings per share (in EUR)

0.43

2.57

2.77

399,932,159

358,612,854

345,406,186

Year ended 31 December Data per share

Weighted average number of ordinary shares Dividend per share, gross (in EUR)

0.99

1.38

1.52

Special dividend per share, gross (in EUR)

0.00

0.55

0.00

2003

2004

2005

As of 31 December

12% ICS 51% FLS ),

5,831

Shareholders’ equity

Active mobile customers (in thousands)(5) Minutes transported by International Carrier Services (in billions) Personnel (1) Prepared under IFRS as adapted for use in the European Union.

(2) Earnings Before Interests, Taxes, Depreciation and Amortization.

(3) Cash flow before financing activities.

(4) PSTN + ISDN BA + ISDN PRA + ADSL retail.

(5) Customers who received/made a call or received/sent an SMS over the past three months.

).

Net income (in EUR million) *%)))

2++

2.2

1))

*0+

),

EBITDA(1) The reported EBITDA of the Group decreased by 7.5% while the adjusted(2) EBITDA of the Group decreased by 4.8% to EUR 2,209 million.

)-

).

EBITDA(1) (in EUR million) +%-)) +%+))

EBITDA 2005 by segments(1) (before eliminations)

+%,2+%+.)

+%+*-

47% MCS

+%))) *%1))

1% ICS

*%/)) *%-))

52% FLS

*%+)) *%))) ),

Total retail and wholesale ADSL access channels (in thousands)

)-

)

Operating data Total access channels (in thousands)(4)

37% MCS

.%-.1

-%)))

5,368

Net income (Group share) amounted to EUR 959 million.

.%.-)

-%.))

6,009

Net income

.%-.-

.%)))

Balance sheet total Investments, cash and cash equivalents

Revenue 2005 by segments(1) (before eliminations)

/%)))

5,219

5,252

5,251

Earnings per share

790

1,032

1,268

4,201

4,198

4,253

Earnings per share increased by 8.2% to 2.78 EUR.

6.4

6.9

9.6

17,541

16,933

16,335

)-

).

Earnings per share (in EUR) , +'.0

+'01

+

* )'-, ) ),

)-

).

(1) Before non-recurring items.

(2) Excluding non-recurring items and adjusted for the disposal of consolidated companies in 2005 and 2004 one-time items.

contents 02 • the Belgacom Group 06 • highlights 2005 08 • a message from the Chairman 10 • a message from the CEO 12 • business update 14 • Fixed Line Services 18 • Mobile Communications Services 22 • International Carrier Services 24 • Group strategy 28 • human resources 32 • corporate social responsibility 38 • corporate governance and management 50 • shareholder information 56 • financial report 123 • glossary 124 • general information

contents

The Belgacom Group is a

quadruple player

the Belgacom Group Corporate profile The Belgacom Group (Belgacom S.A. and its subsidiaries) is the first telecommunications company in Belgium and a market leader in many fields, particularly in wholesale and retail fixed line services, mobile communications, Internet and broadband data transmission services. At the end of the fiscal year on 31 December 2005, the Group reported a total revenue of EUR 5,696 million and a net operating profit before depreciation and amortization (EBITDA) of EUR 2,098 million; including nonrecurring items. The Group’s activities are divided into three business units.

Fixed Line Services (FLS) These activities of the Belgacom Group are mainly carried out by Belgacom SA. Belgacom offers a full range of voice, data transmission and Internet services over the fixed telephone line for both professional and residential customers. At the end of 2005, Belgacom boasted approximately 5.2 million access channels to its fixed-line network, of which approximately 955,000 were ISDN lines and 977,000 ADSL retail.

As the country’s main Internet Service Provider (ISP), by the end of 2005, Belgacom was providing narrow- and broadband Internet access to over one million subscribers. Belgacom also offers wholesale services to other operators and service providers in Belgium.

Through its sales outlets, resale network, account managers, call centers and website, Belgacom has the widest commercial coverage of all telecom operators in Belgium.

Belgacom is the main connectivity service provider in Belgium, where it offers companies a range of “site-to-site” or “user-tosite” services that can be adapted to specific customer requirements.

Belgacom annual report 2005

To meet the demand of television viewers in Belgium, who clearly wanted a more attractive and broader television offering, Belgacom branched out into the interactive television sector, launching Belgacom TV in late June 2005. By the end of 2005, about 33,000 Belgians subscribed to Belgacom TV.

Mobile Communications Services (MCS) In the Belgacom Group, these activities are carried out by the subsidiary Belgacom Mobile, which is better known by its commercial name, Proximus. 75% owned by the Belgacom Group and 25% by Vodafone, one of the largest mobile operators in the world.

With its brand Proximus and its UglyDuck online offer, Belgacom Mobile is the main provider of mobile communications in Belgium, with 4.25 million active customers and an active market share of 48.4%.

Proximus offers a broad range of mobile communications services to residential and professional customers in Belgium, including traditional voice, data (SMS, MMS), a large range of mobile solutions for companies and roaming services, as well as wholesale data services to third-parties.

Proximus benefits significantly from its strategic cooperation with Vodafone, which it reinforced with a commercial agreement, fostering and formalizing Proximus’ cooperation with Vodafone in the areas such as the development of new products and services, branding, procurement, etc. The “Vodafone live!” multimedia portal in Belgium is a prime example of these joint efforts.

In 2005, Proximus was the first mobile operator in Belgium introducing 3G services for the residential customer.

>

Vision & Mission We believe in a world where the unlimited potential of communication services will create new, unexpected services of uplifting benefit for all. By opening up the amazing universe of communication possibilities, we enable and inspire individuals as well as organizations to achieve their dreams and goals in an ever changing world.

> >

>

International Carrier Services

>

Mobile Communications Services

>

>

> Fixed Lines Services

> International Carrier Services (ICS) These activities of the Belgacom Group are carried out by its subsidiary Belgacom International Carrier Services.

72% Belgacom International Carrier Services is owned by Belgacom SA and 28% by Swisscom Fixnet. This joint venture combines the international wholesale carrier activities of the two entities and is operational since 1Â July 2005.

Belgacom International Carrier Services is not only Swisscom’s and Belgacom’s preferred supplier of international connectivity services, it also provides voice and data capacity and connec-

tivity services to telecommunications operators around the globe. Now the eighth largest voice-traffic operator in the world, the company has become a world leader in the field of signaling services for mobile operators.

Belgacom International Carrier Services is based in Brussels and has branches in Bern, Singapore, New York and Dubai. Belgacom International Carrier Services is widely recognized for its competence and professionalism, for which it won the Total Communication Award of Total Telecom in 2003 and 2005.

the Belgacom Group

the Belgacom brands

Fixed Line Services

Belgacom annual report 2005

International Carrier Services

Mobile Communications Services

the Belgacom Group

Belgacom International Carrier Services is named Best Wholesale Carrier

Belgacom launches the “Happy Time” rate plan

highlights 2005 January • Belgacom sells its stake in Alert Services Holding to Securitas.

February • Belgacom sells Belgacom Directory Services (BDS) to Promedia and continues to cooperate with the latter in this field.

• Belgacom SA and Swisscom Fixnet AG merge their international carrier activities under Belgacom International Carrier Services.

• Philippe Vander Putten is appointed President of the Proximus Board of Directors and Michel Georgis succeeds him in his former position as CEO.

March • Launch of “Belgacom No Limit 1, 2, 3”, a new rate plan which enables customers to make unlimited calls to one, two or three Belgacom fixed-line numbers for a flat monthly rate.

April • Belgacom sells Expercom, its subsidiary specializing in prepaid telephone cards, to IDT Telecom.

• Belgacom sells its stake in Digital Age Design (DAD), a company specializing in interactive solutions, to LB Icon.

May • Skynet iMotion Activities acquires the rights to broadcast Belgian professional football (Divisions 1 and 2) for the next three seasons.

• Proximus launches a new series of marketing and promotional campaigns in the face of tougher competition.

• Belgacom launches the “Happy Time” rate plan, which enables customers to make telephone calls free of charge after 5 p.m. on weekdays and around the clock during weekends and public holidays.

June • The Belgacom Group closes the first phase in its share buy-back program (EUR 100 million).

• Belgacom announces the discontinuance of the paging service, now superseded by more modern technological solutions.

Belgacom annual report 2005

> 11

The Belgacom TV channel devoted to Belgian football

Highlights early 2006 • January - The takeover bid for Telindus is successful.

• January - Belgacom Skynet takes over Extenseo, Belgian market leader of Search Engine Marketing (SEM).

• January - Proximus launches a new payment system via mobile phone.

• January - Belgacom and Skynet expand their online music services with iTunes Music Store.

• February - MTN Group signs an outsourcing agreement with Belgacom International Carrier Services.

• March – Belgacom owns 99.19 % of Telindus’ shares and asks the Brussels Euronext stock market authority to delist the Telindus Group share.

• Belgacom launches Belgacom TV, its interactive television offering provided over the ADSL network.

• Belgacom joins the “Global Fingerprint Sharing Alliance” to combat cybercrime.

July

November

• The Belgacom Group winds up the second phase in its share buy-back program (EUR 100 million).

• Belgacom concludes an innovative social agreement with the unions on reconversion and end-of-career arrangements.

August

• The number of Belgacom TV subscribers reaches the 20,000 mark.

• A first in Belgium: an entire day of D1 football championship games is broadcasted live on 11, the Belgacom TV channel devoted to Belgian football.

• Belgacom announces the subscription fee for “Classic +”, the package of general channels on Belgacom TV: EUR 9.95.

• Proximus launches Smile, a new fixed rate package for its subscribers.

• The Belgacom Group presents mid-year results in line with expectations: a 7.1% increase in turnover and a 12.7% rise in EBITDA. • Belgacom winds up the third and final phase in the buy-back of its own shares (EUR 100 million), bringing its total stake to 5.9%.

• The Interbrand study rates Belgacom and Proximus as, respectively, the Number One and Number Two brand in Belgium.

December • Belgacom increases its offer for Telindus (EUR 16.6) in response to a counterbid from France Telecom.

• Belgacom and Telindus reach a conditional agreement on partnership.

• Electronic billing wins over more and more Belgacom customers: on 31 December 2005, there were 254,746 Bill Viewer users and 22,037 Bill Online users.

• Proximus launches UglyDuck, a new online offer based on prepaid calling solutions.

September • Proximus becomes the first mobile operator to offer a social rate.

• Belgacom launches a takeover bid for Telindus, offering EUR 13.50 per share.

• Proximus is the first Belgian mobile operator to launch 3G services for residential customers.

October • Belgacom Skynet wins first prize for its new logo in the TopCom Consumer 2005 competition.

• Belgacom International Carrier Services is named Best Wholesale Carrier in World Communication Awards (WCA).

• Proximus launches “No Limit”, a mobile Internet access package.

highlights 2005

>

More than ever, Belgacom is committed to meeting its customers’ expectations, involving all its employees in its strategy, and earning the trust of its shareholders. This is how we can build the future in the present.

a message from the Chairman As every year, the annual report provides an opportunity to take stock of the results of the past year and reinforce the objectives of the year underway.

The title of last year’s annual report was “The commitment of a leader, the spirit of a challenger.” Over the course of 2005, Belgacom worked hard to achieve its objectives, based on these two contrasting approaches.

Belgacom is evolving in a very competitive environment. But by acting as a leader and challenger at the same time, Belgacom has not only succeeded in thwarting the attacks of its competitors but has also managed to score points and embark on new ground. More than ever, Belgacom is committed to meeting its customers’ expectations, involving all its employees in its strategy, and earning the trust of its shareholders. This is how we can build the future in the present.

Dynamism and leadership In May last year, Belgacom submitted a bid to acquire the broadcasting rights for three seasons of Belgian football (Jupiler League). This event clearly took everyone by surprise: it propelled Belgacom to the forefront of the media scene. But over and beyond the surprise effect, we had to do our fieldwork and make sure that the ball went all the way into the net. The summer months were particularly agitated for Belgacom TV: everything had to be ready for the start of the championship. And everything was ready, thanks to the team spirit of dozens of Belgacom employees, who spared no efforts to make sure that every piece of the puzzle was in place before the deadline. I would also like to express my extreme gratitude, on behalf of the entire Board of Directors, to the technicians, sales people, installers, content managers and journalists who made this possible.

But it was not just in these new domains, television and football, that Belgacom attracted attention. The company adopted the

Belgacom annual report 2005

same approach in its more traditional activities. Our teams surprised everyone by launching innovative rate plans – I am referring to Happy Time for Fixed Lines and UglyDuck for mobile telephony – as well as new services, such as Proximus’3G services.

On the international scene, too, we made progress in terms of leadership: Belgacom International Carrier Services helped to consolidate its sector by concluding a joint venture with Swisscom. By securing a position among the world’s top 10 in this sector, Belgacom International Carrier Services is ideally placed to offer its customers better services.

A constructive social year In parallel to the operational successes achieved in 2005, Belgacom started paving the way for the future by negotiating a framework with the trade unions which will allow the company to embrace the future in a calmer environment. I would like to thank and congratulate our social partners and Belgacom’s management for their efforts and constructive attitude. We succeeded in reaching an agreement on a balanced, innovative plan, which was approved during the meeting of the Joint Labor Committee. The “tutorship” scheme is exemplary: it addresses the needs of a large number of employees to work less at the end of their careers, provides for a period in which more experienced employees can transfer their knowledge to younger employees and, last but not least, it does not in any way burden our country’s social security system.

Creating value The future is before us. That is why, as I mentioned earlier, we want to invest in growth. Belgacom’s managers have the mission to explore and examine certain opportunities, in Belgium and abroad. We will not, however, yield to market pressure: an

acquisition can only be considered an opportunity if it has a reasonable price and creates value for the company. Belgacom’s managers and Board of Directors have always been consistent in this regard. In this context, 2005 ended on a very high note with the announcement of a partnership agreement between Telindus and Belgacom. The alignment of our two companies will no doubt be one of the most important and exciting challenges of 2006.

I would like to commend Belgacom’s management for more than just staying their ground in a year that was marked by some very aggressive attacks by our competitors. Belgacom surprised everyone, on several occasions, with its dynamism and ability to take the stage where it was least expected.

Corporate Governance In the 2005 annual report, we have dedicated a large section to corporate governance. Belgacom indeed fully complies with the requirements of the Lippens Code. Like the Corporate Governance Charter, available on Belgacom’s website since January 2006, the purpose of this section is to offer maximum transparency for all our stakeholders.

Theo Dilissen Chairman of the Board

A company made by its people Every day, with perseverance and dynamism, we have to win customers, whether in fixed or mobile telephony, television, the Internet or internationally. This can be trying, whether we are dealing with residential or corporate customers. We need to provide the best product and best price, of course, but especially the best service. And here, as everyone knows, the human aspect makes the difference. Once again, I would like to underline the important role played by our employees in our strategy as a whole: Belgacom owes its success to the work and dedication of its call center employees, shop sales staff, cable splicers, and technicians, to mention but a few. And I warmly congratulate and thank each and every one of them.

I also want to thank Belgacom’s Board of Directors for the dedication and interest they have shown in all the strategic issues which have been, and continue to be, raised.

a message from the Chairman

a message from the CEO Belgacom is fast evolving in the ICT sector, one of the most turbulent sectors in the global economy. Our determination to transform is not new: from a technology provider we want to evolve into a service-driven company, with an ever increasing focus on customer needs. In this regard, 2005 was a transition year for Belgacom. A year that saw the realization of projects our teams had been working on for months, even years.

Fixed-line activities As regards fixed-line activities, Belgacom identified market developments accurately, and responded to them quickly.

However, in addition to traditional voice telephony and data transmission solutions, such as SMS, e-mail and the Internet, our customers continue to demand new applications. Just think of home automation systems, home networks and all the “teleservices”, but also films on demand, interactive digital television, network games, music downloaded from the Internet, and many more.

There is a common thread running through all these new trends: they respond to the needs of both our residential and corporate customers, and exploit the convergence of voice, data and image.

In other words, our customers are looking for a comprehensive offer. Belgacom can offer them just that: in 2005, we launched Belgacom TV, a project that enabled us to break the de facto monopoly that was slowing down the development of digital television in Belgium. We applied strategies to win the broadband battle. Not to mention the crucial step that we took in the field of content: parallel to the launch of Belgacom TV, we transformed Skynet into a fully-fledged digital media company.

Of course, all these changes do not mean that we no longer focus on our traditional activities. Thanks to creative offers, such as Happy Time, and a dynamic market approach, we were able to improve our position on the voice telephony market, increase

10

Belgacom annual report 2005

our customers’ satisfaction and win back over 240,000 customers.

Our corporate customers, too, expect more quality, more convergence and more solutions. With the launch of NSI (Network and System Integration), our network and systems integration unit, we aimed to become an important player on the ICT market. We came closer to this objective through the acquisition of Telindus, an operation which we conducted in the same spirit of convergence and willingness to respond to our customers’ expectations.

This is an important strategic step which will enable both companies to build constructive commercial synergies in the long term and offer a broader range of services to our customers from the corporate and public sectors. The international footprint of Telindus also enables us to reach out beyond our geographical borders in order to anticipate the needs of our customers in a global economic context. Together, Telindus and Belgacom prove to be a Belgian champion in European information and communication technology.

Mobile activities 2005 was also an important year for our mobile activities.

Although Proximus published excellent operational results, we will have to face tougher competition. As the first quarter of 2005 did not halt the negative trend observed at the end of 2004, we responded immediately through concrete initiatives: Proximus launched new rate offers, such as Smile, and strengthened its customer recruitment and loyalty campaigns by introducing the Market Share Leadership Program. This ability to act fast allowed us to redress the situation: by the end of 2005, the number of active Proximus customers had increased by 55,606, exceeding the 4,250,000 mark.

>

Our various divisions and subsidiaries meet the growing demands of customers and consumers, through a complete range of solutions.

This is the hallmark that unites all Belgacom’s activities: we continuously innovate to meet customers’ expectations.

Proximus continues to play its role as market leader: with its 3G services, whose launch on the residential market also confirmed Proximus’ role as a true pioneer, our customers were able to discover exciting new applications, such as videophony, television on mobile phones and music downloading. I am truly confident that these initial 3G applications and other innovations introduced by Proximus in 2005 will open the door to new trends and persuade users to rethink their communication habits.

Belgacom International Carrier Services Last but not least, 2005 proved to be an exceptional year for Belgacom International Carrier Services (ICS), which strengthened its activities by concluding a partnership at the beginning of the year with Swisscom. And the results were there to prove it: Belgacom ICS acquired major contracts and won international awards in recognition of its achievements.

Belgacom ICS, currently the world’s number eight in this sector in terms of voice traffic volume, aims to pursue this profitable strategy. Serving over 400 customers worldwide, Belgacom ICS is now one of the main capacity and data service providers, serving fixed-line, mobile and other service providers around the world.

And our objective consists of pursuing the consolidation strategy and developing our range of services for mobile operators.

“The future… now” To many, “triple play” is a future strategy. At Belgacom it is a reality today. As we continue to anticipate market needs, we are even on the verge of becoming a “quadruple play” operator.

Our various divisions and subsidiaries effectively meet the growing demands of customers and consumers, through a complete range of solutions. This is the hallmark that unites all Belgacom’s activities: we continuously innovate to meet customers’ expectations. Not only will this joint effort allow us to remain competitive, it is the cornerstone of our future. This single vision ensures that Belgacom will continue to be a winner in the telecommunications revolution.

Didier Bellens President & CEO

a message from the CEO

11

entertaining

Because life is not just about work, the Belgacom Group also sees itself as an entertainment provider. On your television set, computer or GSM, you can choose films on demand, live sports broadcasts, video games, news, music, TV programs, etc.

12

business update 14 • Fixed Line Services 18 • Mobile Communications Services 22 • International Carrier Services

13

Belgacom captures new business while keeping focus on its existing business

Fixed Line Services (FLS) The telecom market evolution as a whole

The competitive model in evolution

Ongoing growth of residential customers becoming mobile only as threat for fixed line services.

Competition on Belgacom’s domestic market is heating up.

Driven by the ongoing convergence between all kinds of services, telecom and even media market players needed to change their strategy in terms of product and service offerings.

2002

2003

2004

2005

Population (in thousands) 10,310 10,356 10,396 10,479 Households (in thousands)

4,325 4,361 4,402 4,437

Market share of Households (in %) No Phone/Mobile Only

24%

25%

26%

28%

Fixed Telephony

76%

75%

74%

72%

Belgacom

72%

70%

67%

64%

4%

5%

7%

8%

Cable and OLO

Fixed Voice as revenue driver under high pressure, but FLS to catch up its market share on traffic volume.

Total Fixed Line Voice Market (in EUR millions)

2002

2003

2004

2005

Voice Access Revenues

963

957

931

901

Voice Traffic Revenues

990

908

802

707

Total FLS Voice Revenues 1,953 1,865 1,733 1,608 FLS Retail Voice Market share (on value)(1) - 77.8% 78.1% 77.6% FLS Retail Voice Traffic Market share (on own network) 82.7% 74.5% 67.9% 71.4% Although overall Broadband market growth is slowing down, FLS nevertheless continues to defend its position as market leader.

Total Broadband Market FLS Retail ADSL

2002

2003

2004

2005

50%

53%

52%

52%

Other DSL 10%

9% 13% 15%

Cable

40%

38%

35%

33%

FLS Retail DSL Flanders

43%

45%

44%

44%

(Telenet) Cable Flanders

57%

55%

56%

56%

(1) Source – Gartner: Reviewed historical data until 2003.

14

Belgacom annual report 2005

Within the consumer market, growth remains a key challenge.

• The pressure on revenues from traditional voice, data and Internet services is kept high as Fixed and Mobile operators launched aggressively priced multiple service bundles, flat fee and “free’ pricing schemes. Cable operators in Belgium, more specific in the north of the country, continue to pose a competitive threat in the voice and broadband market. The battle for the customer is fought by means of new and cheap offers, increased bandwidths and heavy promotions.

• Stimulated by the ongoing convergence of services such as telecom and media via digital TV, voice and data via VoIP offerings and fixed and mobile, market players are extending their scope to other adjacent domains. This trend is moving telecom operators towards triple or quadruple play offerings that merge Fixed Voice, Internet, TV, and Mobile services. While keeping the customer for his access, whether it’s a switched, a broadband or even a mobile access, the upselling of new services such as digital TV or videoconferencing started to generate new market value.

Driven by new and more aggressive competition in the professional market, it is clear that it is necessary to focus more extensively on new potential customer segments and new services.

• Through joint and bundled product offers, customized ICT packages or even separate affiliates, operators are increasing their focus to the small and medium business market.

• Business and corporate customers are increasingly requesting integrated IT and communication solutions and are looking for providers who can offer and integrate as many components of such solutions as possible. In addition, the market is witnessing a growing demand for the outsourcing of information and communications technology services, driven by a need for cost efficiency and an increasing focus by corporate customers on

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Highlights • The competition on the fixed line market evolved due to new entrants, new pricing schemes, substitution of existing business and convergence leading to triple and quadruple play.

• In May 2005, Belgacom launched Happy Time, allowing customers to call for free during off-peak hours and at a flat rate during peak-hours.

• Belgacom managed to protect its core business resulting in some major turnarounds: voice access line loss back on the level of the second half 2004, voice traffic market share increased with more than 3pp and 241 thousand customers won back.

• Belgacom acquires the exclusive broadcasting rights for the Belgian and Italian Football league championships.

• End of June 2005, Belgacom TV was successfully launched and counts 33,000 subscribers at the end of 2005.

• Belgacom’s acquisition of Telindus was a success and will lead to positive commercial synergies.

(1) On own network.

their core business. Competitors continue to leverage their international network and ICT capabilities to multinationals.

• An ongoing evolution towards voice and data convergence is being noted. IP, IT and even mobile solutions are changing the market. New types of competitors are emerging: telecom operators that are partnering with integrators, and VoIP players.

Belgacom captures new business while keeping focus on its existing business Identifying and responding to current market evolutions is one of the key objectives of the Belgacom strategy. The launch of Belgacom TV in June 2005, the ongoing service developments in the Network and System Integrator domain, the partnership with Telindus and the transformation of Skynet from exclusively an ISP operator to a fully fledged digital media provider are just some examples of the actions taken by Belgacom to ensure that its strategic vision is implemented in its daily operations.

Belgacom continued to take aggressive actions and confirmed its leading position within Belgium’s fixed telecommunication services markets for both the consumer and enterprise sector.

Attacking the market for new services is necessary to reassure its leading position in the future.

Meanwhile, Belgacom also protected its core business as it remained a full-service provider of a very wide range of voice, data and Internet services, with offerings meeting the requirements of any retail or wholesale customer segment within Belgium.

Belgacom maintained its leading position in the Belgian market by continuing to simplify its product and service offerings, via attractive voice offerings and via value added services on broadband access lines. Driven by its current content strategy, Belgacom created an important factor that differentiates it from the competition.

A well considered market approach and clear focus resulted in some major turnarounds by the end of 2005.

The launch of Happy Time Attractive voice product offers improved the position in the voice market compared to the first half of 2005. A decreasing loss of voice access lines (-54,619 equilines in the second half of 2005 against -95,269 equilines in the first half) and an increasing traffic market share on our own network (+2.8pp compared to end June 2005) are just some of the results.

The launch of Belgacom TV Given the current evolution in digital TV, Belgacom took the opportunity to position itself as a new player on the “iDTV market”. Starting from zero, a “high value” product offer was developed and launched on 28 June 2005. Guided by specific customer demand for an attractive range of channels, on demand TV, interactive television services, an electronic program guide, etc., Belgacom continuously develops interesting offers. These offers resulted in 33,000 Belgacom TV customers at the end of 2005.

As with Internet services, the TV market is differentiated by its exclusive content which is a major driver for potential customers.

Through successful bidding, Belgacom via Skynet iMotion Activities gained the coveted exclusive broadcasting rights for the Belgian and Italian Football League championships.

With this new service offer, the focus remains on the goal to win the Broadband battle: attracting and retaining customers on the Belgacom DSL network to win long-term majority share in the broadband market.

NSI, increasing its role in the ICT market In 2003 Belgacom launched its own Network and System Integration Unit to complement its access and connectivity offerings and to ensure a closer connection between the IT and communication markets. The advantage of offering the same type of Voice and/or Data solutions via different approaches – project-based or product-based - depending on the customer requirements, resulted in 2005 in a double-digit growth of the NSI revenues (+22%).

In line with its strategy to become an important ICT market player, Belgacom made a bid on Telindus at the end of 2005. This new partnership will enable Belgacom to offer a broader range of services to its corporate and public sector customers and to grow beyond its traditional geographical boundaries.

Skynet - the transformation from ISP to fully fledged digital media company Developing new businesses also showed its results in the domain of the Internet and Webservices. The evolution of Skynet from purely an ISP (Internet Service Provider) to a digital media company resulted in an extended scope towards interactive digital content & services. This change of scope was accompanied by a change in logo and design, and resulted in a market leader position in fields such as web- and portal services, digital TV and direct media. Skynet’s focus in 2005 was on growing its

business update

15

33,000 Broadband Market share (in %) Belgium *))

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mass media (skynet.be portal and justforyou direct marketing) and reaching different customers segments (kids, gamers, French speaking customers, blog users, ADSL users, etc.). The improvement in quality and its increasing level of differentiation has led to important results.

Via the market of interactive advertising, Skynet has concluded national and international contracts, such as with Thomas Cook, eBay, Google, SNBA.

Services need to be sold and promoted Within sales, reaching a maximum of the market potential is a key objective. A continuous optimal mix of different sales channels enabled Belgacom to reach full customer coverage.

Combining exclusive deals, optimizing the use of direct and indirect channels, bringing value in business partnerships, resulted in the fact that Belgacom’ sales channel network is still perceived as one of its major strengths.

Through continuous promotions and specific marketing campaigns, Belgacom was able to protect and exploit existing and new customer segments. Being closer to the customer brings greater benefits and value and this resulted in a higher than expected customer satisfaction level.

Belgacoms’ ongoing focus on winback has led to a result of 240,807 customers won back being an improvement of 82% versus last year (132 thousand).

Overall, these market, product and service changes have been operationally successful thanks to an ongoing push for automation of installation and repair activities and via the implementation of Web-based solutions.

Operations and processes

The key challenge for Fixed Line Services in 2005 was to launch Belgacom TV, making sure that high quality was maintained throughout. Thanks to developing the requisite expertise internally, and following clear and well-defined processes, the Belgacom TV launch was very successful in all its aspects e.g. the broadcasting quality of live football games, installation at the customers’ premises, etc.

As mentioned before, customer satisfaction has exceeded expectations. Thanks to structural process enhancements driven by customer feedback and a continuous focus on quality improvement, professional customers showed a high level of satisfaction.

Technology and innovation Creating value for customers through continuous technological evolutions In order to prepare the network of the future, Belgacom launched the Broadway project bringing fibre to the street-cabinet and the roll-out of the VDSL platform. With 5,203 Remote Optical Platforms installed at the end of 2005, the project is fully on track. On top of the fibre and VDSL investments, Belgacom started in the second half of 2005 the rollout of ADSL2+ in order to improve the quality and accessibility of Belgacom TV services for Belgian households, thereby reaching the planned IDTV coverage of 62% of Belgian households.

In 2005, Belgacom invested EUR 194.8 million for TV services. On top of that, Belgacom invested also EUR 87.4 million for infrastructure related to the Broadway project.

National wholesale market

Regulatory landscape

Belgacom is the principal national wholesale service provider in Belgium and has a product portfolio that includes voice and data connectivity as well as capacity and infrastructure services.

Of the slightly more than 100 wholesale customers, 20 are interconnected with Belgacom.

New Regulatory landscape

National wholesale revenues increased by 8.4% in 2005.

The consolidation on this market is ongoing and will continue over the coming years. Belgacom’s market share in a growing wholesale market remained stable at an estimated 70%.

The company’s primary focus is on delivering competitive, high– quality services, maintaining a responsive wholesale organization and making intensive use of e-tools.

16

Belgacom annual report 2005

The Belgian law implementing the new European regulatory framework entered into force on 30 June 2005. This law lays down the rules that will govern electronic communications in Belgium over the coming years. It also sets up a legal framework for the obligations imposed on market players with significant market power, universal service obligations and end-user protections.

240,807 customers won back in 2005

Belgacom reference offers Traffic Because Belgacom is an operator with significant market power, its interconnection rates are regulated and fixed in a reference offer (BRIO). Regarding BRIO 2005, the BIPT has decided to require Belgacom to reduce its interconnection rates by approximately 4.5% versus the BRIO 2004 rates. In 2005, the interconnection rates of operators who do not have significant market power were not subject to the same obligations as Belgacom’s rates. As a result, in January, Belgacom had to implement a 500% increase of the Versatel call termination rates. Belgacom has appealed the BIPT decision allowing this increase.

Access Belgacom rates for local loop unbundling and bitstream access are also regulated. The BIPT has slightly reduced the line rental rates compared to 2004 (1.5% to 3%).

Belgacom Retail services Some of Belgacom’s retail tariffs and in particular the Happy Time offer have been under scrutiny by the regulatory and competition authorities.

To support Belgacom’s media activities (TV and VoD), the required authorizations were obtained with the competent regulators.

In November, the BIPT has decided to include the ADSL2+ technology in Belgacom’s regulated bitstream offer. Its use for broadcasting services, however, has been excluded by the BIPT. Additional consumer protection related measures, introduced via the new e-communications law, are under development.

Collective agreement in respect of the work organization In 2005 a new collective agreement was approved by Belgacom, after intensive and constructive negotiations with the unions.

Through this agreement, 362 employees who could not be redeployed internally, left the company as of 31 December 2005: statutory employees became immediately inactive, until they officially retire at age 60; contractual employees were dismissed.

The agreement also included an innovative end-of-career program (tutorship), allowing the most senior and experienced employees to gradually decrease their working schedule, and transmitting their experience and knowledge to younger

employees. 2,792 employees, or 84% of the target population, signed up irrevocably for the program.

Outlook

In this continuously changing market driven by triple play solutions, IP migrations, digital services and ongoing convergence, Fixed Line Services is constantly creating a new position for itself.

The outlook for 2006 financials reflects the same trend as in 2005 for the core products and services. Therefore a revenue decline of up to 3% on the core business is expected. Despite, the ongoing shift within the core business from switched to DSL and IP based services, Fixed Line Services will work hard to keep the EBITDA margin of the core business flat over 2006 compared to 2005.

In addition to its core business, Belgacom continues to invest in projects that will produce long term growth and create additional shareholder value.

To generate future growth, it is necessary to keep focus on new business on top of traditional business.

• As with any new major product introduction, Belgacom TV will not be EBITDA break-even in the first year, but will start to have a positive contribution to EBITDA in the 2007 to 2008 time frame.

Belgacom estimates that in 2006 Belgacom TV will have a negative EBITDA impact of about EUR 30 to 40 million, targeting over 100,000 customers by the end of 2006 with an average monthly ARPU of about EUR 13.

• Through a business combination with Telindus, Belgacom will be able to offer a better combined service to a broader range of customers. The combination of Telindus with the existing NSI business of Fixed Line Services is expected to create net positive commercial synergies. The management of Telindus expects to continue the current growth trend in the coming years and to continue to improve the profitability.

With one of its key objectives being to develop a stable or even growing customer base, be it residential or professional, Belgacom will continue to implement its strategy to evolve from a productoriented to a customer-based approach and from mass marketing to targeted marketing. In so doing, Belgacom will strengthen even more its customer knowledge and ownership.

Changing markets and new services lead to new or adapted regulation. In October 2005, the BIPT has issued for national consultation its draft decision on four of the eighteen markets identified at EU level as susceptible to ex-ante regulation (retail access markets, local loop unbundling and wholesale bitstream).

At this point, Belgacom cannot make estimates as to the timing or the effects such decisions may have on its business.

business update

17

Smile

Simple pricing plans for everyone

Mobile Communications Services (MCS) Market and competition evolution In 2005, an increasing number of service providers/resellers (more than 20 by the end of 2005) were active on the Belgian market. Moreover, 2005 saw an intensification of the competition in an almost mature market. This rise in competition has led to an increase in price awareness.

In this context, the negative trend observed in the last quarter of 2004 did not end in the first quarter of 2005, despite the first initiatives taken. As a consequence, a program to invest in market share was launched in the second quarter.

Thanks to the Market Share Leadership Program which objective is to confirm Proximus’ position as the preferred mobile operator in Belgium, across all segments, Proximus has managed to stop and reverse the negative trend as of end of the second quarter.

The strategy of stepping up the retention and acquisition initiatives continued to be successful during the second half of 2005.

In December 2005, the active penetration rate of Belgium’s mobile telephony reached an estimated 84.1% (compared with 81.5% at the end of 2004), with an estimated 8.79 million users.

Market penetration is clearly slowing down while the total card penetration reached 9.46 million cards (active and inactive) by end of 2005, representing 90.4% of the population. At the end of 2005, Proximus was still the leader in the market share of active customers(1) with 48.4%. In 2005 net service revenue decreased by 2.3% compared with 2004 and the EBITDA margin fell to 47.7%. However, the strategy will secure long-term profitability.

Belgacom Mobile has opted for a clear long-term strategy of defending its market share by strengthening its customeroriented approach. Additional initiatives to reach this target were started as of April 2005. To support this focus on its market share, Proximus was willing to give up some of its margin and revenue. The initiatives had a positive effect: the erosion of the

(1) An active customer is defined as a customer who has made or received at least one call or has sent or received at least one SMS message in the last three months.

18

Belgacom annual report 2005

Proximus market share was limited and the number of active customers since the second quarter is again increasing.

The Market Share Leadership Program was designed to create more value for Proximus customers. This has led to a significant decrease of churn, down to 16.6% at the end of 2005 compared with 18.3% at the end of 2004. Proximus continues to target new customers via new segmented tariff plans and acquisition offers.

Innovation in products and services Residential customers Simple pricing plans for everyone In August 2005, Belgacom Mobile launched UglyDuck, its new online offer to better address price-conscious segments, and introduced a new tariff structure for postpaid customers, called Smile. Smile is a bundle with free minutes included. Customers have the choice between several amounts and type of minutes included (on-net or off-net). It answers the need for simplicity and transparency expressed by the customers, and allows the customers to manage their budget easily.

I n September 2005, Belgacom Mobile was also the first mobile operator to present the Social Tariff Option, a free option allowing existing and new postpaid customers who are entitled to benefit from a social rate to save EUR 12 on their monthly bill.

A social rate for prepaid customers was also launched in November for people who receive minimum income assistance.

In November, “Top3” was launched, a new tariff option available for prepaid and Freestyle customers, allowing a 20% reduction on calls to three chosen numbers.

Innovation with 3G services for the residential market During the second half of 2005, Proximus introduced the first ever 3G services for the residential market in Belgium. At the beginning of 2006, Proximus was still the only operator on the Belgian market to offer 3G services for the residential customers.

This future proof technology allows Proximus customers to download their favorite music on their mobile, to experience video calling and to enjoy mobile TV with a constantly

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Highlights • The Market Share Leadership program results in a remarkable turnaround: Belgacom mobile adds more than 55 thousand active customers, decreases the churn to 16.6% and slowed down the market share erosion significantly.

• A social tariff has been introduced for as well postpaid as prepaid customers receiving a minimum income assistance.

• New and simple pricing plans were launched for the residential market: “Smile” for postpaid customers, “UglyDuck” and “Top3” for prepaid customers.

• The Business segment too enjoyed new tariff offers (Business package light and Mobile Internet no limit) and new services (complete range of wireless solutions, budget manager).

• After addressing the professional market in 2004, Proximus is also the first mobile operator in Belgium to offer 3G services to residential customers.

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increasing number of channels (10 channels at the launch of 3G services and already 15 by the end of 2005).

Business customers Increased mobility Among the many products and services launched in 2005, Proximus has introduced a complete range of wireless e-mail solutions, hosted or not, for different types of handsets (BlackBerry, PDA or Smartphone). This was supported by the introduction of Eurodata tariffs.

Quality and reliability In June, Proximus has announced the introduction of Service Level Agreements, which enables companies to evaluate the quality of service objectively. This is a European premiere in the mobile telecom sector and customers’ reactions have been very positive and promising.

Simplicity and predictability Proximus launched Proximus Budget Manager to allow companies to manage and optimize their mobile telephony costs.

New tariff offers were also introduced Business Package answers the needs of the business customers: an easy and cheap tariff plan that includes calling minutes.

In the second half of 2005, the Business Package offer was enriched with Business Package Light which is a tariff designed for the SME with single card users.

Besides Business Package bundles, Proximus also introduced Mobile Internet No Limit. It is a data offer of 1GB for a monthly flat fee of EUR 55. The flat fee is the preferred tariff scheme for heavy internet users who want to be able to predict the cost.

High-quality customers portfolio Proximus still has a very high-quality customers portfolio and in 2005 it even improved its percentage of active customers to 97.9% compared with 97.1% in 2004.

In absolute figures, at the end of 2005 the number of active Proximus customers was 4,253,432 compared with 4,197,826 at

the end of 2004 (improving by 1pp the ratio of 42% postpaid subscribers and 58% prepaid Pay&Go users). This represents an increase of 55,606 active customers over the last 12 months.

At the end of 2005, the blended ARPU was EUR 41.20 for the active customer portfolio compared with EUR 41.00 at the end of 2004 (+ 0.5%). This represents an average of EUR 71.9 for a postpaid customer (compared with EUR 71.6 at the end of 2004) and EUR 19.9 for a prepaid customer (compared with EUR 19.6 at the end of 2004). The blended net ARPU at the end of 2005 was EUR 38.7 compared with EUR 39.5 a year ago. The Proximus ARPU is the highest on the Belgian market.

A top-class network Covering more than 99% of the population, the Proximus GSM/ GPRS network was deployed on more than 3,400 antenna sites at the end of 2005. The cutting-edge technologies that have been set up, along with careful maintenance, ensure first-rate quality and reliability. In terms of minimization of service disruptions, Proximus is among the best performers of the Vodafone Group.

In 2004, Proximus was the first mobile operator to start 3G services in Belgium, allowing business customers to use the UMTS (3G) laptop datacard (the Vodafone Mobile Connect Card) in more than 200 Belgian cities and municipalities. In the second half of 2005, Proximus innovated again by introducing 3G services for the residential market and allowing its customers to enjoy Mobile TV, Music Download and Video calling services. At the moment, Proximus is still the only operator to offer such services for the residential customers. The 3G network covered more than 60% of the population at the end of 2005, which is far above 3G legal deployment obligations. Proximus is convinced that the innovation brought by 3G services will open the door to new possibilities and change user habits for consumers.

Proximus leads the Belgian market in terms of worldwide reach.

Postpaid customers can use their mobile phones via the GSM network in 187 countries thanks to voice roaming agreements with 375 operators. For prepaid customers, Proximus has voice roaming agreements with 89 operators in 63 countries. Proximus

business update

19

>

80%

3G and innovation Proximus continues to confirm its leadership position as innovator. Following its launch of 3G services for business users in May 2004, Proximus was the first mobile operator to launch 3G services for the general public. Since 15 September 2005, it has been offering video-calling services, music download and online television on mobile phones.

also has GPRS roaming agreements with 164 operators in 82 countries and 3G roaming agreements with 41 operators in 30 countries.

Regulatory landscape Significant market power regulation

3G coverage by the end of 2006

Additional consumer protection related measures, introduced via the new e-communications law, are being developed.

In 2006, a number of spectrum related files are expected to be completed (e.g. the extension modalities of the 2G license, which expires in 2010, and access to additional frequencies for mobile broadcasting).

Because of its status of operator with significant market power, Proximus’ mobile termination rates are regulated. In 2001, the BIPT imposed a gradual decrease of these rates. The last reduction (7%) occurred in November 2004. There was no further reduction in 2005.

The evolution of the regulation regarding audiovisual services at EU level may imply additional obligations to be fulfilled to support the development of the mobile media offer.

Belgium remains one of the EU countries with the highest degree of asymmetry (between 25% and 50%) regarding mobile termination rates between the various operators.

Proximus has opted for a long-term strategy, which enabled the market share erosion to slow down in 2005. We will continue to work in this direction in 2006. This means that we will develop a segmented offer of products and services, based on the understanding of our customers’ lifestyle, behavior and needs.

In the context of the market analysis that it has to perform under the new regulatory framework, the BIPT has developed a generic cost model to determine the future mobile termination rates.

Other regulatory highlights Proximus was the first mobile operator to allow its customers the possibility to benefit from the social tariff discounts in line with the new e-communications law.

To support its 3G media offer, the required authorizations were obtained from the competent regulators.

It serves to note that in 2005, the European Court of Justice ruled that Belgian local authorities’ taxes on masts used for mobile communications antennas do not breach European legislation.

Regulatory outlook for 2006 The BIPT is expected to announce the results of its analysis of the three mobile markets identified, at EU level, as susceptible to ex ante regulation. At this stage, the timing and effect of these analyses is unknown but further decreases of the mobile termination rates, for the three mobile operators, can be expected as a result of the BIPT analysis. Increased pressure on international roaming tariffs and possibly on the introduction of MVNOs can also be expected.

20

Belgacom annual report 2005

Outlook

Market leadership is about retaining our position as the preferred mobile operator in Belgium, across all customer segments. We will therefore strengthen existing customer loyalty by offering to our customers the best value for money, day after day. Carefully prepared loyalty and retention initiatives will contribute to manage the churn rate. In order to face aggressiveness of our competitors, we will also perform mass and targeted campaigns, and continue to invest in our brand, already considered as being a strong and trusted brand. In the latest Interbrand study, Proximus is the second most valuable brand on the Belgian market, after Belgacom.

Based on our portfolio of products and services, our network and our customer service, we will further build a superior offer for our customers, for example through the servicing management program, by enhancing the customer’s experience every time he/ she comes in contact with Proximus; and through additional investment in our 3G network to reach 80% coverage by the end of 2006. By mid 2006, Proximus will upgrade its UMTS network with the HSDPA technology. It will offer even higher bandwidth for data transmission and thus enable new types of business applications.

+55,606 active customers

These developments in data transmission possibilities will help Belgacom Mobile to secure long-term revenues. Today, voice communication is still the main source of revenues, but it is under strong pressure from fierce competition. In 2006, we will continue to study and identify new business opportunities.

While facing the increasing pressure on its revenues, Belgacom Mobile will also continue to control its costs. In 2005, an operational excellence program was launched. It will help Belgacom Mobile to further optimize its cost structure, by identifying the areas where it can improve its efficiency, by eliminating activities without added value, by identifying opportunities for enhancement and by defining and implementing new savings initiatives.

To keep up in an ever changing environment, the continuous development of our employees is an integral part of Belgacom Mobile’ strategy. It will help us to deliver products and services to our customers in an entrepreneurial spirit. This is supported by 2 programs: a Competency Management Program and a Culture and Change Management Program.

In 2006, Belgacom Mobile expects the same market trends to prevail as in the second half of 2005 which means it will continue to apply its Market Leadership program. The continuation of the leadership program and the announced reduction of the mobile termination rates will cause revenues to decline about 3 percent.

However, competition has recently started a number of very aggressive pricing actions. If Belgacom Mobile has to respond to these actions to defend its market share this could lead to a further decline of up to 2 percent in Belgacom Mobile total revenues in 2006.

As in the second half of 2005, the pressure on the EBITDA margin will continue, but Belgacom Mobile expects to limit the decline through cost control to a level of 46%.

business update

21

Belgacom International Carrier Services is the th largest wholesale carrier worldwide

8

International Carrier Services (ICS) Belgacom International Carrier Services participates in the consolidation of the international carrier market The international carrier services market has suffered from overcapacity. A consolidation process is clearly needed, as only the largest players can benefit from economies of scale as price pressure remains, in spite of market growth. Belgacom’s strategy is to stimulate and participate in this evolution.

Belgacom has spun off on 1 January 2005 all its international carrier activities including its related foreign subsidiaries into a wholly-owned subsidiary, Belgacom International Carrier Services SA. The next milestone in the consolidation strategy implementation was achieved with the agreement between Belgacom SA and Swisscom Fixnet AG to combine Belgacom International Carrier Services and Swisscom ICS, a division of Swisscom Fixnet.

The joint venture has been effective since 1 July 2005, with shared control based on the respective shareholding, 72% for Belgacom SA and 28% for Swisscom Fixnet.

As a result of this transaction, Belgacom International Carrier Services is now the 8th largest wholesale carrier worldwide based on voice volumes. Belgacom International Carrier Services is also a leading supplier of data and capacity services to mobile, fixed and other service providers worldwide. Belgacom International Carrier Services is the preferred provider of international connectivity services to both the Swisscom and Belgacom group companies.

Belgacom International Carrier Services serves more than 400 customers, of which over 150 are mobile operators, through sales offices in Brussels, Bern, Dubai, Singapore and New York utilising a global network which extends to Africa, Asia, Europe, Middle East and the USA, connected to more than 70 points of presence in 39 cities of 23 countries.

Market Trends The world has 2 billion mobile subscribers and their numbers are increasing by 20% p.a., mainly in Asia, Africa and the Middle East. In contrast the global 1.2 billion fixed line subscribers are growing by only 3% p.a. By 2007, 50% of voice traffic will be originated from mobile networks, therefore being an important driver of growth in the international carrier services market.

As third generation technologies give the mobile subscriber access to broadband, mobile content is set to become a rapidly growing source of revenue. In the short term, increased competition in the voice and data products offered to mobile operators is generating price pressure in the international carrier market.

The combined impact of complexity from new services and price pressure suggests that mobile operators will increasingly seek to outsource carrier support as a necessary but ancillary service.

VoIP-originated international traffic, i.e. originated through a retail “voice over broadband” offer and terminated on the switched telephone network is estimated to represent only a limited share of global traffic at this stage. However, this traffic will grow exponentially. Therefore, the “voice over broadband” service providers are set to become an important customer segment for wholesale carriers.

Business achievements in 2005 The strategy to capitalise on the growth of the mobile customer segment through a tailored, high-quality product offering is successfully implemented. The number of mobile customers exceeded 150 at year-end 2005. ICS’ voice traffic to mobile destinations grew from 3.3 billion minutes in 2004 to 4.6 billion in 2005. This 42% volume increase is partly due to the Swiss activities included as of the second half of the year. Belgacom International Carrier Services is a leading supplier to the world’s largest mobile groups and an important player in the mobile data market (SMS, MMS, GRX, signalling).

Following the transaction with Swisscom, Belgacom International Carrier Services has launched a post-merger integration program to ensure the timely and full realisation of

22

Belgacom annual report 2005

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Highlights • 1 January 2005, Belgacom spun off its international carrier activities into a wholly-owned subsidiary “Belgacom International Carrier Services”.

• The joint-venture combining Belgacom International Carrier Services and Swisscom ICS is effective since 1 July 2005.

• Belgacom International Carrier Services volumes are up 38% compared to 2004.

• Traffic to mobile destinations grew from 3.3 to 4.6 billion minutes, an increase of 42%.

• Belgacom International Carrier Services elected “Best Wholesale Carrier” in 2005 by industry experts and trade press.

volume increase of ICS voice traffic to mobile destinations

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(1) BICS figures at 100%.

the synergies of the deal. At year-end 2005 the programme had completed all milestones to plan.

As an example of the opportunities for outsourcing from holding companies with multiple operating companies, an important contract with MTN, an African mobile group has been signed, whereby the group’s operating companies will send the majority of their outgoing traffic to Belgacom International Carrier Services.

Belgacom International Carrier Services will also be promoted as the main provider for terminating international traffic on MTN networks.

Product and service development In the voice product portfolio, the focus is on increasing routing flexibility and on providing advanced quality monitoring.

Belgacom International Carrier Services has started connecting VoIP customers, initially via a third party VoIP gateway, while deploying its own VoIP platform to be operational in 2006.

Outlook Belgacom International Carrier Services will continue its efforts to successfully implement the post merger integration, which is due to be completed in 2006.

Belgacom International Carrier Services will market a professional insourcing proposal to mobile and fixed operators and actively target the new segment of retail “voice over broadband” providers with a connectivity offering.

Further growth of the mobile business will be achieved through enhancement of the mobile data product portfolio including a roaming product portfolio.

In terms of service delivery, Belgacom International Carrier Services will introduce IP and an NGN based architecture in its core network and upgrade its Pan-European network with a future-proof solution that will also provide cost savings.

For the award-winning Global Mobile VillageTM product portfolio, monitoring and reporting and traffic control capabilities have all been enhanced. In preparation for the 3G evolution, Belgacom International Carrier Services is deeply involved in the GSMA IMS (IP multimedia subsystem) hubbing trial. IMS networks can support services like instant messaging, gaming and push-to-talk.

Strategy Belgacom International Carrier Services’ strategy is articulated around three axes. The first axis is to become market leader through further consolidation and insourcing partnerships.

Belgacom International Carrier Services will leverage the Swisscom reference with potential partner operators in Europe, and propose outsourcing to operators in Asia, the Middle East and Africa. The second strategic axis centres on an all-IP capability in infrastructure and services. Finally, Belgacom International Carrier Services will investigate organic and inorganic opportunities to expand the service offering to mobile operators, building on the Belgacom brand, reach and extensive customer portfolio in this segment.

business update

23

challenging Since a company has to progress to survive, the spirit of enterprise and the ability to take on new challenges are embedded in the everyday work of the Belgacom Group teams. In a sector where competition is increasing by the day, these qualities are the best weapons we possess to ensure our growth.

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Group strategy As the backbone of the Group, the strategy must provide the various entities with the impetus that is necessary to achieve their objectives. At Belgacom, strategy is defined in a long-term context and revolves around three areas: operational excellence, maintaining market leadership for our core activities, and the pursuit of new development opportunities.

Mapping out the future Bold objectives The strategy of the Belgacom Group includes bold objectives again this year, right in line with customer expectations.

This strategy can be summed up in four letters: BELG. B for “Become Best in Class”. This means maintaining our Number One position on the Belgian market and ranking among the most efficient operators in Europe. To achieve this objective, three principles must be followed: E for “Excel”, meaning that we must make excellence a priority:

• in the way we manage costs, human resources, and technical know-how; • in synergizing activities within the Group; • in our customer interactions.

L for “Lead”, meaning that we must continuously strive for a number one position, i.e.: • maintain our leadership position in Belgium in the area of voice telephony, by launching new products and services; • play a pivotal role in the triple-play market by promoting our network, ADSL and Belgacom TV; • continue to build customer intimacy by offering a range of innovative products.

G for “Grow”, a crucial priority. We must: • expand in the data and e-services markets; • pursue international growth through our carrier subsidiary; • extend our activities beyond Belgium, in both fixed-line and mobile telephony markets.

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Convergence: the first step to simplification The current trend to launch “multi play” packages (combining fixed/mobile/Internet/content) will intensify and develop into true convergence packages. In this context, the regulatory authorities still have a very strong impact on market dynamics, and on the shape of the Belgian telecommunications landscape.

EXCEL: Making excellence a priority In the current telecommunications market, efficiency must remain a priority, which is why the Belgacom Group aims to develop synergies between its various entities. More and more customers want mobile telephony to make their telephone calls, and stable, efficient broadband connections for entertainment and “home-working.”

The Belgacom Group has set up major development programs for its fixed-line activities, aimed at offering its customers innovative, high-added-value services. Belgacom TV, for residential customers, is the first accomplishment in this area.

In the area of human resources, the subject of workforce management was discussed in close cooperation with the trade unions. These discussions have led to an innovative social policy agreement, including a concrete solution to the reconversion question and a creative end-of-career proposal.

LEAD: Leadership as a principle Since the liberalization of the telecommunications market, the Belgacom Group has worked continuously to defend its leadership position on the Belgian market and to maintain the trust of its customers.

Under pressure from both newcomers and existing players, the voice-over-fixed-line market is changing rapidly. Belgacom, not satisfied with a simple win-back approach, wanted to innovate and give the market a strong signal by offering the Happy Time rate program, which enables customers to call free of charge during off-peak hours. The tremendous success of this offer says much about market response and Belgacom’s trustworthiness in this very demanding environment.

Broadband is also essential for the future of the Group. In this area, Belgacom’s objective is to invest in the network in order to increase both coverage and capacity, as well as to position itself in new markets such as triple play and voice over IP. The Group continues to envisage the development of new offers while remaining attentive to its customers’ needs.

In this context, the customer of course remains at the center of our priorities. The Group therefore worked on its image in its main customer segments, enhancing it considerably.

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Belgacom annual report 2005

Belgacom will focus on generating new revenue in the area of IT and digital services

Proximus, for its part, has set up a number of “servicing management” programs aimed at increasing its level of service, and the Market Share Leadership Program to maintain its market share.

The initial results are very encouraging. Already the Belgian market leader in mobile telephony, Proximus wants to assert its position in the 3G market, too.

Belgacom International Carrier Services will be offering its customers innovative solutions, and moving up the mobiletelephony-service value chain by offering new, value-added services.

GROW: Growth as a crucial priority The third principle relates to the search for new growth areas, and reflects the Group’s aim to develop and branch out into new fields.

The Fixed Line Services division is focusing on three main initiatives: • the convergence of voice and data services; • the development of Voice over IP solutions; • the reinforcement of the ICT range, following the new partnership with Telindus.

Proximus will take care to safeguard its long-term revenue, and continue to concentrate on its data services range, which has major growth potential in the domestic market.

Belgacom International Carrier Services will continue to develop their activities, while keeping a close eye on international expansion opportunities. The merger on 1 July last year between Belgacom’s subsidiary and the international carrier unit of Swisscom, marks the beginning of a new stage of development, and opens a window of opportunities, such as the insourcing of international traffic flows from operators willing to focus on their core domestic activities and looking to outsource their international traffic termination to a specialist in this field.

With regard to international growth, the Group has examined a number of initiatives very closely. So far, it has retained two main lines of development: • pursue mobile opportunities in emerging countries and • participate to broadband consolidation in neighbouring countries.

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Seizing growth opportunities Seeking new areas of growth and anticipating the public’s expectations are among Belgacom’s primary objectives.

Which is why our teams launched Belgacom TV on 28 June 2005, the first digital television offer on the Belgian market.

After barely six months on the market, Belgacom TV has effectively ended the cable television distribution monopoly, and now boasts over 33,000 customers.

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Partnership with Telindus

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“Best-in-class”, our objective

The partnership with Telindus is an important strategic step that will enable positive marketing synergies, for both Belgacom and Telindus. Telindus’ international position will also give us an international foothold, and enable us to anticipate and meet the international needs of our customers.

Together, Telindus and Belgacom will become a Belgian champion in the European ICT sector.

Business prospects The fixed-line market has seen the emergence of flat-rate, and even free calling plans.

Eager to anticipate and meet customer expectations as effectively as possible, Belgacom launched the Happy Time rate program last May, with an eye to maximizing fixed line value and limiting its erosion. In the near future, we will reinforce our range of Belgacom TV offers. The Belgacom Group will also continue to expand its broadband business, progressively launching new types of products such as VoIP (Voice over IP).

Following a revenue decrease in its traditional line of business, Belgacom will focus on generating new revenue in the area of IT (network integration) and digital services (digitization, e-health).

As far as cost is concerned, the Group will make additional efforts to achieve maximum efficiency and to keep its staff optimally aligned with its changing activities.

The mobile telephony market will see an increase in flat rates and bundle offers, which will change market dynamics.

Proximus will seek to reduce the loss of market share and to create net customer figures through: • continuing its Market Share Leadership Program; • building superior offers; • promoting mobile data services.

> > >

Excel • Excellence in resources management • E xcellence in synergy within the group • E xcellence in customer operations

Lead • Leader in the voice market • L eader in the triple-play market • L eader in customer intimacy

Grow • Growth in data and e-services • Growth in BICS • Growth in our core businesses abroad

Group strategy

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pioneering

To dare to leave the beaten path‌ we need to cultivate curiosity and innovation, whether it is in the area of human resources management, the development of new products, or the generation of growth.

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human resources In a telecommunications sector that is constantly changing, the Belgacom Group’s human resources team aims to mobilize, enhance and develop the skills of each employee. This is vital for the proper functioning of the company.

A passion for excellence Excellence is achieved through a passion for perfection, and is built on a desire to exploit it to the full. That is why Belgacom wishes to attain excellence. It strengthens our resolve, stimulates our creativity, encourages us in our endeavours and develops our talents.

The secret of our success? Determined, persevering staff in an open, honest and results-oriented company, which promotes recognition. A highly professional environment in which each individual is aware of the importance of his/her contribution.

Belgacom Corporate University Developing skills is of great strategic importance and allows a company to carry out its objectives in the short and long term. In 2005, 92% of the Belgacom Group employees followed at least one training course. The average number of hours per employee was 32 hours in 2005.

Internal satisfaction For the third consecutive year, an internal satisfaction survey was organized for the whole Belgacom Group. More than half of all employees took part. Three aspects were evaluated: Job motivation, involvement in the organization, and level of satisfaction regarding a series of points in the field of human resources. The results remained stable in relation to the previous year: 84% of Belgacom employees said they were satisfied,

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Belgacom TV Belgacom has created new prospects for the company, our employees and our partners by launching new initiatives on the digital television market. This requires sharpening the knowledge and skills of its employees and management. For the launch of Belgacom TV, it was vital to train employees in the appropriate, proactive and professional manner. At least 700 sales staff were thus trained to sell Belgacom TV, and more than 1,000 employees received a technical training. More general training courses on this subject were also given to employees via e-learning.

employee satisfaction in 2005

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compared with 89% Belgacom International Carrier Services employees. The level of satisfaction rises to 93% among Proximus employees.

liberalized market and contains innovative measures for responding to relevant social issues.

Work-life balance

Belgacom has a tradition of retraining and internal mobility, which enables employees without a position or whose positions are at risk to find employment through specialized departments known as Job Centers. In 2005, 105 persons found a new job. In the new collective agreement, Belgacom renewed its commitment to continue to find internal solutions for employees who have not yet found a new position.

Belgacom makes numerous initiatives available to its employees to help them maintain a work-life balance, e.g. children’s outings, home care for sick children, numerous health care benefits, leisure activities and all kinds of social welfare benefits.

Belgacom also enables teleworking, so that employees who wish to do so can work in offices close to their home at least two days a week. This is a great way of solving mobility problems.

Belgacom currently makes 15 satellite offices available to its staff.

A closer look at the Belgacom Group In 2005, the Belgacom Group secured the 14th place among the world’s Top 100 “Best Performers”. This ranking was developed

by Petercam at the request of Vacature based on the following criteria: listing on the stock exchange, benefits and return on equity.

The Corporate Research Foundation conducted a written and oral survey of companies based on five human resources criteria: basic and peripheral conditions of employment, training courses, internal promotion, working climate and company culture.

Based on the results of this survey, Proximus is one of the best companies to work in.

Fixed Line Services: the shift to an organization that can respond to customer needs In 2005, the structure of the seven divisions of the “Fixed Line Services” Business Unit was adapted to enable Belgacom to face the competitive challenges of a rapidly developing technological sector. The focus was on clear customer relations, an integrated marketing approach and the alignment of all sales channels.

Innovative social policy agreement In 2005, Belgacom approved the collective agreement in respect of the work organization. This new agreement was the product of intense and constructive negotiations with the trade unions. It constitutes an important stage in Belgacom’s adjustment to the

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Belgacom annual report 2005

Assisting employees whose positions are threatened

For two years, Belgacom has also been offering employees without work the possibility of working for the federal government. This year, 260 employees took the plunge and began working for the various federal administrations and municipalities.

Belgacom reached an agreement with the unions whereby 362 employees who had not yet found a new job would leave the company on 31 December 2005. The Belgacom Redeployment Center will offer these persons outplacement opportunities.

Tutorship and the end-of-career debate Managing the end-of-career stage has also been a main concern.

Once again, Belgacom was able to come up with an innovative and satisfactory solution: tutorship. This allows the most experien­­ced, senior employees to rearrange their work schedule and assist in the training of younger employees. In total, some 2,792 employees (i.e. 84% of the target group) have agreed to take part in this program. This implies an impact on the activities of 2,461 FTEs (full-time equivalents) for a total cost of EUR 355 million between now and 2013.

Tutorship also provides Belgacom with a solution to the problem of the unusual age pyramid resulting from previous social plans.

Disabled employees Since 1 January 2006, employees recruited under the social reintegration plan or who are 66% disabled have been allocated a special administrative status. This provides them with additional protection in case of restructuring and enables them to adapt their job content to their specific situation.

> Learning penetration within the Group (in %) *)) 1)

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75 years, that calls for a celebration!

The national telegraph and telephone company (RTT) was founded on 19 July 1930. What was once a state-run company was transformed into a modern enterprise, with a listing on the stock exchange, and a continuous offer of new technological innovations. To celebrate this evolution, Belgacom decided to join the closing festivities of the celebration of 175 years of Belgium’s independence. On 26 November 2005, a huge party attracted thousands of active and retired employees and their families.

The program: children’s entertainment, music, Belgacom product demonstrations, not to mention an unforgettable thank you speech by Didier Bellens, followed by the presentation of an enormous birthday cake.

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Internal communication Our internal communication department makes a positive contribution to the company’s results: Belgacom believes in clear, transparent information for all its employees. A better understanding of the environment in which the company operates enables them to perform their tasks better. It also gives them a better grasp of the changes that are essential for coping with the competition.

In 2005, therefore, the company’s internal communication strategy was explained to over a thousand executive staff, who passed this information on to their teams. They were given a presentation, and e-learning courses were offered to all employees. Didier Bellens commented on the mid-year results in a video available on the intranet.

A special effort was made to target the information and make it as relevant as possible for everyone. In 2005, the intranet developed a personalized homepage, making it possible for each division to present the information they consider most useful and relevant for their employees.

Another highlight of 2005 was Belgacom’s 75th anniversary in the world of telecommunications. A huge party was organized to mark this occasion.

Proximus: staff development and a focus on results

(1,200 people). This will give Proximus the skills that it needs to face future challenges in the long term. And this new system gives an extra impetus to the individual development of employees.

Belgacom International Carrier Services On 1 January, Belgacom’s International Carrier Services (ICS) department became an independent company: Belgacom International Carrier Services. Employees could choose whether they wanted to follow the activity and work for this new company, which became a subsidiary of Belgacom. 227 of the company’s 287 employees chose to join Belgacom International Carrier Services.

On 1 July, Belgacom International Carrier Services formed a joint venture with Swisscom. Belgacom International Carrier Services consequently opened an office in Bern, and has nine employees working there. Its office in Dubai has also increased its headcount from 2 to 4.

In total 50 new employees were hired in 2005.

Belgacom International Carrier Services, once again selected Best Wholesale Carrier in the world by the World Carrier Association, is an industrious company which operates on a global market and attaches great importance to diversity (over 20 different nationalities are represented by less than 300 employees).

Mobility is one of the strengths of Proximus, and gives it the ability to adapt rapidly to new situations. This mobility is the product of well-prepared, targeted investments in employees and managers, and a constructive social dialog.

This policy also booked results in 2005: the Market Share Leadership Program required targeted modifications of objectives as well as targeted collaboration in the short term. The internal organization of the residential division (CMD) was reviewed according to new, more segmented market requirements. At the same time, product development and network support were optimized.

Proximus also works closely with the Belgacom Group in the development of skills management. The implementation of this program, starting in early 2005 and involving 120 senior managers, was extended and expanded to middle management

human resources

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caring It takes more than the creation of financial value to make a company prosperous and anchored in the future.

Our daily activities are therefore guided by the need to provide the men and the women of the Belgacom Group with the best working conditions, to take into account the impact of our activities on society, and to assume our social responsibility.

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corporate social responsibility The Belgacom Group holds that social responsibility should be embedded in a company’s daily activities and be transparent at all levels. For this reason, the Belgacom Group has developed a socially responsible approach to ensure that it is fully anchored in society.

This approach applies to everything we do, and to all our employees.

Putting values into practice For many years now, the Belgacom Group has been integrating the social dimension into its corporate activities. Corporate Social Responsibility (CSR), as it is known, covers all corporate activities which have an impact on the world, whether in the environmental, social or business sphere. This applies to our customers, partners and employees as well as society as a whole.

Although various initiatives have been carried out these past few years within the various entities or subsidiaries, 2005 marked a

turning point in this area, with the creation of a working group within the Belgacom Group and the appointment of a Group CSR Director, who reports directly to the CEO. Concretely, the main task of this working group is to carry out an assessment of the situation within the Group. A report will be published on this assessment during the second half of 2006. In a second phase, the assessment will be compared with “best practices’ and other indicators used for analyzing the telecom sector. Based on this analysis, an overall strategy will be proposed to Belgacom’s Management Committee by the end of 2006. Moreover, in order to raise awareness among Group employees, training courses on corporate social responsibility will be organized at the Belgacom Corporate University during the course of 2006.

Below is an initial inventory of the various campaigns carried out during the course of last year.

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A benefit for the environment Thanks to electronic billing, Belgacom allows its residential and corporate customers to save several million printed pages per year. The Bill Online service, created in April 2004, boasted 22,037 residential customers on 31 December 2005. And the corporate market has not been left behind.

Every year, 200,000 bills are electronically sent to our corporate partners, which means 38 tons of saved paper.

At the core of daily activities The Belgacom Group wants to give as many people and organizations as possible access to the world of communications, information and entertainment, and to improve their quality of life.

In our business pursuits Proximus became aware several years ago of the importance of incorporating corporate social responsibility into its activities, and took a lead in this area through a number of initiatives which are described in more detail in their reports CSR 2004 and 2005. In late 2005, Proximus’ Management Committee decided to support a CSR strategic plan based on the application of principles such as sustainable development and social responsibility at the core of work processes and products and services.

For example, a policy on how to integrate new antennas into a landscape, or the introduction of a social rate. This document will serve as a reference for the preparation of our overall strategy for the entire Belgacom Group.

As regards its products and services, Belgacom puts its social commitment into practice not only through its social rates and the universal service, but also by developing health projects: • We are collaborating with the Saint-Luc hospital on the implementation of a Medical Care Continuity project, which aims to develop home health-care services for the elderly via a high-speed telephone line.

• In cooperation with the Red Cross and the Young Economic Chambers, Belgacom has set up a structure that allows children who are hospitalized for long periods of time to maintain contact with their family and friends through a video telephony system. The objective of this project is, of course, to improve the morale of long-term hospitalized children in a concrete and immediate way.

Not to mention projects aimed at reducing the digital gap, such as: • The distribution of 204 computers to youth assistance centers, in cooperation with the Ministry of Health, Childhood and Youth Aid (French-speaking Community).

• In cooperation with the non-profit organization Piazza dell’Arte, Skynet has transformed a public transport bus into a mobile computer center. The objective of this project is to provide brief Internet familiarization sessions to people who risk lagging behind in the digital age.

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Belgacom annual report 2005

The environment: a daily commitment “Within the framework of our corporate social responsibility, we are committed to support sustainable development by continuously providing products and services that have significant environmental, social and economic benefits, and by making special efforts to reduce as much as possible any negative impact that our professional activities may have”.

As early as 1996, Belgacom signed the Environmental Charter of the European Telecommunications Network Operators’ Association (ETNO). A commitment that was renewed and enhanced in 2005 with the signing of ETNO’s Sustainability Charter, which we work to fulfill in our daily activities.

In 2005, among its many initiatives, the Belgacom Group set up a project aimed at reducing the costs of electricity, heating, cleaning and maintenance in certain buildings. No less than 600 sites were analyzed, resulting in optimum usage of space and energy savings.

Energy As a communications company, Belgacom consumes huge quantities of energy and fuel oil, not only to maintain its network but also to heat up its buildings, etc. It has nevertheless managed to reduce its energy consumption: Electricity 2004: 325 GWh 2005: 331 GWh, a great reduction considering the increase in DSL networks Fuel oil 2004: 5,437,198 l 2005: 5,281,381 l Fuel (automobile) diesel & benzine 2004: 13,553,906 l 2005: 12,925,590 l

Mobility In the past, Belgacom has always chosen to locate its administrative buildings near large railway stations. This approach has its rewards. About 60% of Belgacom staff choose to come to work by train, and about 20% by bus or subway.

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Preserving our heritage Since 2001, Proximus has been using a technique which makes it possible to install antennas under roofs.

This technique makes use of radio-transparent material and consists in replacing the former roof with these materials, which allows the GSM networks to function properly.

This solution makes the installations more visually attractive, with the added advantage of renovating damaged or old roofing.

The Investment Recovery Center plays a key role in Belgacom’s processing of waste. The center is responsible for exporting old telephones (rejects or unsold items) to second-hand markets outside Europe.

Waste In 2005, the Group produced 18,974 tons of waste in total, including 10,073 tons of construction waste (mainly from excavation work), 4,891 tons of residual waste and 1,814 tons of paper. In 2004 and 2003, the Group produced 20,549 and 22,304 tons of waste respectively. This means that the amount of waste has decreased by about 8% per year.

In addition to waste reduction, considerable efforts were made to recycle old equipment. Specifically, this concerns: computers and peripheral equipment, telecom equipment, ink cartridges, tools and office furniture.

Reusable metal and other raw materials can be given a new lease of life and sold as recyclable electronic scrap, as well as copper and metal waste.

There are many reasons for adopting and promoting a concrete environmental program: meeting customer expectations, reducing waste and saving energy, minimizing future liabilities resulting from contaminated soil, etc.

Among our staff Since its formation, the Belgacom Group has always endeavoured to act in the interests of both the Group and its employees. In 2005, a creative and interesting solution was found to manage the end-of-career phase of Belgacom (FLS) staff, which was in the interest of all parties. The details of this plan can be consulted in the human resources section.

Many other initiatives were also taken, such as the introduction of a new code of conduct for employees of the entire Group.

resulted in a significant reduction in the number of unoccupied desks.

Instilling a sense of solidarity among our staff The Belgacom Group also enables all its employees to demonstrate their social responsibility through various company initiatives. Whether it is through the “Helping Hand” project at Belgacom or the Proximus Foundation, employees who are actively involved in charity organizations can receive assistance in the form of funds or equipment.

Some 33 projects were selected and received support from our mobile subsidiary in 2005. This support was not limited to financial assistance, for employees whose projects were selected were also granted 13 to 16 days of paid leave to carry out their projects.

Diversity: the basis for sustainable development We believe that the diversity of our staff constitutes the basis for sustainable development and will enable our company to realize its full potential. That is why we have adopted a Diversity Charter, which has the following key objectives: • To train and raise awareness among managers and employees who are involved in recruitment, training and career management about the challenges of non-discrimination and diversity.

• To respect and promote the application of the non–discrimination principle in all its forms and in all stages of human resources management.

• To aim to hire men and women, at all levels, whose backgrounds reflect the diversity of Belgian society.

• To foster dialog within the company about the development and implementation of the diversity policy.

This was done to help employees adopt a responsible attitude in their daily work and to harmonize practices within the Group.

We also want to offer our employees a flexible working environment which will allow each of them to fully develop their skills.

Of course, Belgacom also takes into account the essential worklife balance, which is one of the keys to our success.

The company has contributed to this work-life balance by developing teleworking for employees, who can work at home or in a Belgacom building closer to their homes than their regular work place. Another example is the “Dynamic Office” project, based on desk sharing for certain employees, particularly those who are constantly on the move, such as sales staff. This has

corporate social responsibility

35

The Helping Hand program, launched in 2003, has already provided financial or material support to 754 projects

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Blogs and education Our teams have set up an e-learning pilot project, which includes 30 schools, 60 teachers and several hundreds of secondary school students. In this project, students and teachers learn how to create and communicate with blogs (which are simple websites with regularly updated content where readers can add comments).

The Belgacom Group, aware of its role as a socially responsible company is fully committed to helping the disadvantaged in our society. It was the first operator to offer a social rate for fixed and mobile telephony, in accordance with the law of 13 June 2005.

Training citizens of the world In addition to the numerous training courses offered throughout the year by Belgacom Corporate University, Belgacom decided to invest specifically in CSR training for future managers, in cooperation with various Belgian colleges and universities. With our support, the Solvay Business School created various chairs, as well as an international research center devoted to the study and promotion of good practices in business management and sustainable development.

The company also offers longer “management trainee” courses.

The aim is to provide young graduates who succeed in this course with jobs in our own company.

Within the framework of the Elan program, 75 employees took a 26 day training course on the many aspects of a splicer’s work.

As a socially responsible company devoted to the well-being of its employees, Belgacom offers various programs to prevent backache or to help people stop smoking, as well as a number of courses on first aid and fighting fires.

Safety: an essential element The Belgacom Group pays special attention to the safety of its staff in all its buildings, construction sites, etc. The medium-term objective is still, of course, to minimize accidents at work.

2003

2004

2005

Frequency 13.7 12.8 11.5 This index is based on the annual number of accidents multiplied by a million and divided by the number of hours of service performed in a year.

36

Belgacom annual report 2005

The Belgacom Group’s concern for the safety of its staff also extends to its providers. The latter are all required to have a VCA certificate (the safety, health and environment checklist imposed on all contracting companies), to ensure that they respect strict safety standards.

And beyond this… our social commitment As regards social commitment, Belgacom and its subsidiaries maintained commitment to various associations devoted to helping the most deprived members of society.

The Helping Hand program, launched in 2003, has already provided financial or material support (with maximum grants of EUR 5,000 per project) to 754 projects proposed by people outside Belgacom.

Belgacom will continue to support Child Focus (the European Federation for Missing and Sexually Exploited Children) through financial aid as well as vital logistical infrastructure.

We also support other funds, such as Special Olympics Belgium and the United Fund For Belgium. The former is devoted to helping disabled people overcome their disabilities by practicing a sport at the highest level. The latter collects and redistributes the funds raised by companies and charity institutions active in Belgium.

In the field of art and culture, we will continue to support the Queen Elisabeth International Music Competition of Belgium, La Monnaie Opera House, the Royal Opera of Namur and the Klara Festival. We also support the Queen Elisabeth College of Music by offering three Belgian students a scholarship for piano, violin and singing studies.

Thanks to the Magic Desktop and KidCity websites, children are able to discover the numerous educational and entertainment benefits of the Internet, while surfing in a secure environment, shielded from inappropriate content.

We should also point out our support for the audio-visual sector via the tax shelter program set up by the Belgian government.

Concretely, the Belgacom Group, through its subsidiary ConnectImmo, provided financial support to three projects in 2005, namely: • “Crusade in Jeans”, a historical adventure based on the successful novel of the same name by Thea Beckman.

• “Broadway dans la tête”, a musical comedy by the director of “Ma vie en rose”, our fellow countryman Alain Berliner.

• “Chamelle”, an existential drama set in the desert, an art house film by Belgian director Marion Hänsel.

These three films will be released in 2006.

The Group also supports scientific and educational activities, such as: • the Solvay Business School’s Corporate Social Responsibility research center and Knowledge Space - a huge virtual library; • the Network for Training Entrepreneurship, which teaches young disadvantaged people to play an active role in society through entrepreneurial activities; • the Erasmus Foundation, through a Belgacom research scholarship which enables a young doctor to fully dedicate himself or herself to a biomedical research project; • the Queen Paola Foundation, which, with the goal of helping young people reintegrate into society, organizes awards such as the Queen Paola prize to reward the most innovative teachers in this area; • the International Polar Foundation (IPF), established in Brussels to inform the public about polar research and its important contribution to understanding climate change.

For its part, the Proximus Foundation also continues to support associations.

corporate social responsibility

37

educating

Through its e-learning programs, Belgacom wants both its customers and employees to benefit from advanced training without having to travel far. With the help of a computer and broadband connection, Belgacom is breaking the knowledge boundaries.

38

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corporate governance and management Corporate governance aims to define a set of rules and beha­ viours according to which companies are properly managed and controlled, the result being increased transparency. It is a system of checks and balances between the shareholders, the Board of Directors and management. Belgacom is committed to be compliant with the legal, regulatory and best practice elements and more specifically to best practices of Belgium’s Corporate Governance Code. Additionally it has continued to reinforce its internal compliance program.

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 first instance governed by the Law of 21 March 1991 on autonomous publicsector 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; • 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 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, apart from a number of specific responsibilities attributed to it by the 1991 law, assists the Chief Executive Officer in the exercise of his duties.

39

Current Board of Directors Director Term Name Age Position since expires

Director Term Name Age Position since expires

Theo DILISSEN(1)

52 Chairman of the Board

2004

2009

Maurice LIPPENS(2)

62

Director

Didier BELLENS

50

2003

2009

Michel MOLL

57

Director 1994

2006

Johny CORNILLIE(1)

54

Director 1994

2006

Oren G. SHAFFER(2)

63

Director

2004

2006

39

Director 1996

2006

Robert TOLLET(1)

59

Director

2003

2009

Pierre-Alain DE SMEDT

61

Director

2004

2010

Norbert VAN BROEKHOVEN(1) 59

Director 1994

2006

Carine DOUTRELEPONT

45

Director

2004

2006

Lutgart VAN den BERGHE

53

Director

2004

2010

Martine DUREZ(1)

55

Director 1994

2006

Paul VAN de PERRE(1)

52

Director 1994

2006

Philip HAMPTON

51

Director

2004

2010

Philippe VAN de VYVERE

52

Director

2006

Georges JACOBS(2)

65

Director

2004

2006

(1)

Didier DE BUYST(1) (2)

(2)

(2)

President and CEO

(1)

(2)

(2)

2004

2004

(1) Appointed by the Belgian State (2) Appointed by the shareholders’ meeting and independent

Board of Directors As provided for in the 1991 Law, the Board of Directors is composed of: • Directors appointed by the Belgian State pro rata to its shareholding; the aggregate number of directors being determined by the shareholders’ meeting; • Directors appointed by a separate vote among the other shareholders, for the remaining seats.

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 shall meet every year in four regularly scheduled meetings. The Board of Directors must also evaluate the strategic long-term plan in an extra meeting per year.

In principle, the Board’s decisions are made by a simple majority of the directors present or represented. 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 having significant representation of non-executive, independent directors within the meaning of Article 524, § 4 of the Belgian Company Code.

Committees of the Board of Directors The Board of Directors adopted formal charters for its Committees. The Board of Directors has updated these charters at its meeting of 15 December 2005.

Audit and Compliance Committee The Audit and Compliance Committee (ACC) consists of five nonexecutive directors, the majority of whom must be independent.

Pursuant to 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 quality and integrity of the statutory and the consolidated annual accounts and the financial statements of the Company; • the relationship with the Company’s statutory auditors;

40

Belgacom annual report 2005

• the Company’s internal audit function; • the Company’s compliance with legal and regulatory requirements; and • compliance within the Company with the Company’s Code of Conduct and the Dealing Code.

In its meeting of 15 December 2005, the Board of Directors decided that the Audit and Compliance Committee will also evaluate the risk framework and the methodology of risk assessment. The Audit and Compliance Committee will also assist and advise the Board of Directors in its oversight of the quality and integrity of the quarterly reporting. The oversight of the compliance of the Company with the policy on gender equal opportunity treatment and sexual harassment now belongs directly to the Board of Directors.

The Audit and Compliance Committee meets at least once every quarter.

Mr. Philip Hampton (Chairman), Messrs. Pierre-Alain De Smedt, 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 four directors. Pursuant to its charter, this committee is chaired by the Chairman of the Board of Directors, who is an ex-officio member. One member is chosen among the directors appointed by the Belgian State. Two members must be appointed among the independent directors.

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 and Chief Executive Officer and appointment by the President and Chief Executive Officer of the members of the Management Committee; • the remuneration of the members of the Board of Directors and the Board Committees; • the remuneration of the President and Chief Executive Officer and members of the Management Committee; the review on an annual basis of the remuneration philosophy and strategy of all personnel and specifically the compensation packages of top senior management; • the oversight of the decisions of the President and Chief Executive Officer with respect to the appointment, the dismissal and the compensation of management, in order to

2006

allow the Board of Directors, when it chooses to do so, to exercise its overall supervising duties; • corporate governance issues.

Messrs. Johny Cornillie and Oren G. Shaffer attend the meetings of the Strategic and Business Development Committee as observers.

In its session of 15 December 2005, the Board of Directors decided that the Nomination and Remuneration Committee will also assist and advise the Board of Directors regarding the appointment of the Secretary General.

Changes in the composition of the Board of Directors

In this same session the Board of Directors also decided that the Nomination and Remuneration Committee meets at least four times annually. The first meeting intends to review the perfor­ mance, budgets for payout of bonus and merits, long term incentive plans and short term incentive plans. At that meeting also an annual review of the philosophy and strategy of the remuneration will be discussed. In a second meeting the Nomination and Remuneration Committee will fix the perfor­ mance measurement targets of the President & Chief Executive Officer and the members of the Management Committee through KPI’s. On top of these meetings the Committee will organize a meeting on Human Resources and a meeting on Corporate Governance.

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

Strategic and Business Development Committee The Strategic and Business Development Committee (SBC) consists of five directors. Pursuant to its charter, the President and 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 member is chosen among the directors appointed by the Belgian State. Two members must be appointed from among the independent directors.

The Strategic and Business Development Committee’s role is to assist and advise the Board of Directors on matters concerning the Company’s general policy and strategy, as well as on major issues regarding its strategic development.

The Strategic and Business Development Committee meets at least two times annually.

Mr. Theo Dilissen (Chairman), Mr. Didier Bellens, Ms. Carla Cico (until April 2005) and Messrs. Maurice Lippens and Robert Tollet are the members of the Strategic and Business Development Committee.

In April 2005, Ms. Carla Cico resigned for professional reasons as member of the Board of Directors and as member of the Strategic and Business Development Committee.

Directors’ remuneration 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 2005: 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, is foreseen. All members of the Board of Directors, with the exception of the President & CEO, have the right to an atten­ dance fee of EUR 5,000 per attended meeting of the Board of Directors. Finally attendance fees of EUR 2,500 have been foreseen for each member, with the exception of the President & CEO, of an advising committee to the Board of Directors. For the Chairman these attendance fees are 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.

Transactions between the company and its board members and executive managers A general policy on conflicts of interest is applicable within the company. It prohibits the possession of financial interests that may affect one’s personal judgment or professional tasks to the detriment of the Belgacom Group.

Dealing Code In its meeting of 15 December 2005 the Board of Directors approved a change in the closed periods, due to the introduction of quarterly reporting: as from 2006 there is a closed period of 1 month preceding the announcement of interim results (quarterly and mid-year) and a closed period of 2 months before the announcement of the annual results.

Evaluation of Belgacom’s Board of Directors In 2005, on the Chairman’s initiative, the Board of Directors has evaluated the scope of its activities, its composition and func(following on page 44)

corporate governance and management

41

Members of the Board of Directors

1

3

5

7

9

2

4

6

8

10

Theo Dilissen (1). Theo Dilissen was appointed as Chairman of the Board of Directors of Belgacom in October 2004. 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).

In September 2005, he was appointed as President and CEO of Aviapartner. He studied Sociology and holds a Master in Business Administration.

Didier Bellens (2). Didier Bellens was appointed as President and Chief Executive Officer and Director of Belgacom in March 2003.

Mr. Bellens started his career at Deloitte Haskin & Sells. He was financial director of the Groupe Bruxelles Lambert until 1985 before taking up the position of Deputy General Manager of the Pargesa Holding, responsible for management of holdings, mergers and acquisitions. In 1992 he returned to the Groupe Bruxelles Lambert as Managing Director, position that he occupied until 2000. In this capacity he was responsible for strategic participations in companies such as Royale Belge, BBL and CLT. He played an instrumental role in the merger of AXA with Royale Belge, the change in ownership of BBL and the merger of CLT and UFA. Between 2000 and 2003 he acted as Chief Executive Officer of RTL Group where he managed the company with an emphasis on international development. He concluded the merger with Pearson Television and the IPO of RTL Group.

Didier Bellens is Chairman of the Board of Directors of BICS. He is member of the Board of Directors of Proximus, AXA Belgium, VOKA-Flanders’ Chamber of Commerce and Industry, and the Foundation Erasme. He is member of the Management Committee of the FEB-Federation of Enterprises in Belgium.

Previously, he served as member of the Board of Directors of, amongst others, IMERYS in Paris, the Banque Bruxelles Lambert, M6 in Paris and the Banque Internationale in Luxembourg.

Mr. Bellens holds a degree in Economics and Business Administration from the University of Brussels (ULB).

Johny Cornillie (3). Johny Cornillie was appointed to the Board in December 1994. He is a former chief of the private office of the minister-president of the government of Flanders. Until 1997 he was CEO of Van Gansewinkel group and until 2002 chairman of SEGHERS better technology group. He is currently a director of CVBA Arcofin and NV Auxipar and advisor of international companies PSA-HNN and Van Gansewinkel Group. Mr. Cornillie graduated as an engineer in applied economics from the University of Leuven.

Didier De Buyst (4). Didier De Buyst was appointed director in March 1996. Mr. De Buyst began his career in the nuclear sector.

He was CEO of Inter-Eco Group, an engineering and consultancy office, from 1993 to 2003. He was also a Member of the Board of the Federaal Agentschap voor Nucleaire Controle (Federal

42

Agency for Nuclear Monitoring) between 1997 and 2003 and Chairman of the Audit Committee between 2002 and 2003.

He is now mediator/arbitrator for (inter)national industrial disputes of a technological nature and is also a part-time professor at the Department of Architecture of the Universiteit Hogescholen Limburg. Mr. De Buyst is a civil engineer (with a Master in Engineering), has a doctorate in engineering (PhD in Engineering obtained in 1993) from the University of Gent and he holds several degrees from the Vlerick Leuven Gent Management School. Mr. De Buyst acts also as a guest lecturer in strategic management for the MBA students of the Vlerick Leuven Gent Management School.

Pierre-Alain De Smedt (5). Pierre-Alain De Smedt was appointed director in March 2004. Mr. De Smedt was appointed Executive Vice President of Renault in 1999 till end of 2004.

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 member of the Board of Deceuninck Plastics Group and also of Compagnie Nationale à Portefeuille. He is a graduate in engineering and economics from the University of Brussels (ULB).

Carine Doutrelepont (6). Carine Doutrelepont was appointed director in March 2004. Ms. Doutrelepont is a partner at the Belgian law firm of Uyttendaele, Gérard & Doutrelepont and is specialized in information technology, intellectual property, media law and competition matters. She is a member of the Belgian Competition Authority. She is also lawyer at the Brussels Bar. She holds a PhD in law from the University of Brussels (ULB) where she currently holds tenure as a Professor of Media Law, Intellectual Property Law, Electronic Commerce Law and European Audiovisual Law. She is also Director of the Information and Communication Law Centre of the ULB. Martine Durez (7). Martine Durez was appointed director in December 1994. Ms. Durez is the Chief Financial and Accounting Officer at La Poste. Ms. Durez was Professor of Financial Management and Analysis at the University of Mons-Hainaut.

She has also served as a member of the High Council of Corporate Auditors and the Committee of Accounting Standard and as a special emissary at the Cabinet for Communication and State Companies. She serves as a regent of the National Bank of Belgium. Ms. Durez graduated as a Commercial Engineer and holds a degree in Applied Economics from the University of Brussels (ULB).

Philip Hampton (8). Philip Hampton was appointed director in March 2004. He spent the first ten years of his career at Lazard Brothers in London, New York and Paris. He then took up the positions of Finance Director for British Steel plc, British Gas plc

11

13

15

12

14

16

and British Telecommunications Group plc and for Lloyds TSB Group plc. He is currently Chairman of J. Sainsbury plc.

Mr. Hampton is a Chartered Accountant and holds an MBA from INSEAD, Fontainebleau.

Georges Jacobs (9). Baron Georges Jacobs was appointed director in March 2004. Mr. Jacobs is Chairman of the Board of Directors of UCB. He commenced his career as an economist at the International Monetary Fund (USA). Later, he joined the UCB Group and was appointed as a Director and CEO of UCB in 1987 until 1 January 2005, when he became Chairman of the Board.

Furthermore, Baron Jacobs is member and Chairman of the Board of Delhaize, and a member of the Board of Bekaert and SN Brussels Airlines. He holds a law degree and a degree in economics, as well as a Master of Arts in Economics from the University of California, Berkeley.

Maurice Lippens (10). Count Maurice Lippens was appointed director in March 2004. Mr. Lippens is co-founder of Fortis, created in 1990 and the first European cross-border banking and insurance group. He served as the executive Chairman of Fortis until 2000 and since then he is the non-executive Chairman of the Board of Directors. He is a member of the Board of several companies including Suez-Tractebel, Groupe Bruxelles Lambert and Total. He holds a law degree from the University of Brussels (ULB) as well as an MBA from Harvard Business School.

Michel Moll (11). Michel Moll was appointed director in December 1994. He is Chairman of the Board of Directors of the limited company BATS (Belgian Advanced Technology Systems), specialized in Security Electronics, at 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. He serves as a nonexecutive director in industrial and financial companies such as Société Nationale de Construction Aérospatiale and the Belgian Corporation for International Investment (SBI). He is also a Censor of the National Bank of Belgium. Mr Moll graduated as Engineer in applied economics from the business school of the University of Louvain (UCL).

Oren G. Shaffer (12). Oren G. Shaffer was appointed director in April 2004. He is Vice Chairman and Chief Financial Officer of Qwest Communications International Inc. Formerly, Mr. Shaffer was President and Chief Operating Officer of Sorrento Networks and from 1994 to 2000 he was Chief Financial Officer of Ameritech. He was a member of the Board of Directors at Belgacom from 1996 to 2000. He is a member of the Board of several companies including Japan Equity Fund, Singapore Fund, Thai Capital and Unova. He holds a Bachelor of Science in business administration from The University of California at

17

Berkeley and a Master of Science in management from The Massachusetts Institute of Technology.

Robert Tollet (13). Robert Tollet was appointed director in October 2003. Mr. Tollet is the chairman of the board of directors of the Société Fédérale de Participations, a public sector holding company and serves on the board of Credibe. He is also the Chairman of the Central Council for the Economy. Mr. Tollet holds a degree in Economics and a degree in Economic Analysis and Policy from the University of Brussels (ULB).

Norbert Van Broekhoven (14). Norbert Van Broekhoven was appointed director in December 1994. He was CEO of Van Broekhoven’s Algemene Ondernemingen NV. He is currently CEO of Actima NV and director and advisor of several Belgian companies. Mr. Van Broekhoven graduated as a civil engineer from the University of Leuven.

Lutgart Van den Berghe (15). Lutgart Van den Berghe was appointed director in March 2004. Ms. Van den Berghe holds a PhD in economics from Gent University where she is an extraordinary professor. As Executive Director, she heads the Competence Centre Entrepreneurship, Governance and Strategy at the Vlerick Leuven Gent Management School as well as the Belgian Governance Institute. She lecturers on Corporate Governance and serves as a non-executive director in a number of listed and non-listed multinational companies such as Electrabel, CSM (The Netherlands), SHV Holding (The Netherlands) and Solvay BV (The Netherlands).

Paul Van de Perre (16). Paul Van de Perre was appointed director in December 1994. He is the co-founder of GIMV (Venture Capital Firm) and was formerly a director of Sidmar (Arcelor).

He is currently CFO and director of MethaPharma (nutraceuticals) and Greenbridge (incubator). Mr. Van de Perre is CEO of 5 Financial Solutions, a division of Praxis in Management (corporate finance) and CEO of Amandine Fund (Venture Capital Firm).

Mr. Van de Perre holds an MBA and Master in Economics and is a certified accountant (IAB).

Philippe Van de Vyvere (17). Philippe Van de Vyvere was appointed director in March 2004. Mr. Van de Vyvere is the founder, CEO and Chairman of Sea-Invest, Europe’s largest bulk and fruit transshipment company. He is currently a nonexecutive board member for ING Belgium and Immobel.

Mr. Van de Vyvere holds a degree in Economics.

43

Activity Report and Attendance at Board and Committee meetings

Name

Board ACC NRC SBC Total (total 9) (total 4) (total 8) (total 6) Remuneration

Theo DILISSEN

9/9

8/8

6/6

Didier BELLENS

9/9

6/6

NR

2

2

EUR 22,875

Carla CICO (resignation 04/2005)

EUR 214,000

Name

Board ACC NRC SBC Total (total 9) (total 4) (total 8) (total 6) Remuneration

Georges JACOBS

8/9

8/8

Maurice LIPPENS

8/9

Michel MOLL

9/9

4/4 3/4

9/9

EUR 72,000

Oren G. SHAFFER

9/9

Didier DE BUYST

9/9

EUR 72,000

Robert TOLLET

7/9

Pierre-Alain DE SMEDT

7/9

EUR 72,000

Norbert VAN BROEKHOVEN 8/9

Carine DOUTRELEPONT

8/9

EUR 67,000

Lutgart VAN den BERGHE

9/9

Martine DUREZ

9/9

EUR 89,500

Paul VAN de PERRE

9/9

Philip HAMPTON

8/9

EUR 87,000

Philippe VAN de VYVERE

7/9

7/8

4/4

tioning, as well as its interaction with the executive management. The results were presented to the Board of Directors, which in 2006 will focus on a number of action points, such as reviewing the role and composition of the Strategy and Business Development Committee and improving the information flow to the Board.

Management President and Chief Executive Officer The President and Chief Executive Officer is entrusted with the day-to-day management and reports to the Board of Directors.

In addition, pursuant to 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 and Chief Executive Officer with the exception of: • the approval of the Management Contract with the Belgian State and changes thereto; • the establishment of the business plan and general policy of the company; • the supervision of the President and 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 and Chief Executive Officer.

The composition and, with the exception of certain specific powers entrusted to the Management Committee by the 1991 Law, the powers of the Management Committee are determined by the President and Chief Executive Officer.

The President and Chief Executive Officer is appointed by the Belgian State by Royal Decree deliberated in the Council of Ministers for a renewable six-year term. The President and Chief Executive Officer and the Chairman of the Board of Directors must come from different language groups. The President and Chief Executive Officer may only be removed from office by Royal Decree deliberated in the Council of Ministers. Pursuant to the 1991 Law and the Company’s Articles of Association, the President and Chief Executive Officer is a member of the Board of Directors.

44

Belgacom annual report 2005

6/6

EUR 82,000 EUR 82,000

Johny CORNILLIE

4/4

EUR 87,000

EUR 79,500 5/6

EUR 74,500 EUR 67,000

8/8

EUR 92,000

4/4

EUR 82,000 EUR 62,000

The current President and Chief Executive Officer is Mr. Didier Bellens.

Compensation and key contractual terms Compensation of the President & Chief Executive Officer The remuneration strategy of Belgacom Group is based on a market oriented pay-for-performance system. Every year the operational implementation of this strategy is presented to the Nomination and Remuneration Committee.

The compensation of the President & Chief Executive Officer is governed through the Board of Directors, with the Nomination and Remuneration Committee as advisory body.

The amount of remuneration and other benefits granted directly or indirectly to the President & Chief Executive Officer, by Belgacom or by any other undertaking belonging to the Belgacom Group is: (Benefit based on gross or net remuneration, depending on the type of benefit, employer social contribution not included) (in EUR)

2005

Short-term employee benefits (1)

Post-employment benefits Equity benefits(2) Consisting in: Employee Stock Options Plan

1,500,959 299,845 394,911 394,911 (86,225 options)

Discounted Share Purchase Plan

Main contractual terms The President & Chief Executive Officer has a six year fixed term contract starting as from March 1, 2003. If the employer terminates the contract prematurely, except for serious misconduct, a severance pay of 3 times annual gross salary(3) will be due.

The President & Chief Executive Officer is bound to a noncompetition clause of 12 months prohibition to work for any other mobile or fixed licensed operator active on the Belgian market. The President & Chief Executive Officer will receive an amount equal to one year salary as compensation.

(1) Basic annual salary + variable remuneration.

(2) The President & CEO owns in total 303,925 shares of the company.

He bought these shares under the discounted share plan of 2004.

(3) B asic annual salary + variable remuneration + post-employment benefits.

0

Management Committee The Management Committee’s role, apart from exercising the specific powers entrusted by the 1991 Law to the Management Committee, is to assist the President and 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 and Chief Executive Officer will prevail.

The Management Committee generally meets on a weekly basis.

Pursuant to the 1991 Law and the Articles of Association, the President and Chief Executive Officer serves as a member of the Management Committee, which he chairs. There must be the same number of French-speaking members and Dutch-speaking members on the Management Committee, the President and Chief Executive Officer excepted in case of an uneven number.

Members who are neither French-speaking nor Dutch-speaking shall not be taken into account for the calculation of this linguistic parity requirement.

The current members of the Management Committee, in addition to the President and Chief Executive Officer, are as follows: Name Scott ALCOTT

Bridget P. COSGRAVE

Age 39 44

Position Chief Operating Officer, Fixed Line Services Chief Executive Officer, International Carrier Services

Astrid DE LATHAUWER Michel GEORGIS(1)

42 Chief Human Resources Officer 52 Chief Executive Officer, Mobile Communications Services

William MOSSERAY

41

Chief Strategy Officer

Ray STEWART

56

Chief Financial Officer

Compensation of the other members of the Management Committee The remuneration strategy of Belgacom Group is based on a market oriented pay-for-performance system. Every year the operational implementation of this strategy is presented to the Nomination and Remuneration Committee.

The compensation of the other members of the Management Committee is governed through the Board of Directors, with the Nomination and Remuneration Committee as advisory body.

The amount of remuneration and other benefits granted directly or indirectly to the members of the Belgacom Management Committee, other than the President & Chief Executive Officer,

by Belgacom or by any other undertaking belonging to the Belgacom Group is: (Benefit based on gross or net remuneration, depending on the type of benefit, employer social contribution not included) (in EUR)

2005

Short-term employee benefits Post-employment benefits

2,998,916 733,847 0

Termination benefits

In 2005, the other members of the Management Committee received together EUR 1,164,071 equity benefits, consisting in 254,164 options. On an individual basis, following options were granted: (in options)

2005

Scott Alcott 15,000 Bridget P. Cosgrave

20,599

Astrid De Lathauwer 17,135 Michel Georgis 12,240 William Mosseray 14,669 Ray Stewart

26,787

Philippe Vander Putten 147,734 Total

254,164

Main contractual terms For the other members of the Belgacom Management Committee the termination clauses foreseen in conventions and employment contracts differ, with a maximum exposure of 24 months gross salary. In case of no specific clause the Belgian laws prevail.

The other members of the Belgacom Management Committee who are bound to a non-competition clause of 12 months prohibition to work for any other mobile or fixed licensed operator active on the Belgian market, will receive an amount equal to 6 months salary as compensation.

(1) Michel Georgis replaced Philippe Vander Putten as CEO of Mobile Communications Services on 1 May 2005 (following on page 48)

corporate governance and management

45

1

3

2

4

Members of the Belgacom Management Committee Didier Bellens (1). Didier Bellens was appointed as President and Chief Executive Officer and Director of Belgacom in March 2003.

Mr. Bellens started his career at Deloitte Haskin & Sells. He was financial director of the Groupe Bruxelles Lambert until 1985 before taking up the position of Deputy General Manager of the Pargesa Holding, responsible for management of holdings, mergers and acquisitions. In 1992 he returned to the Groupe Bruxelles Lambert as Managing Director, position that he occupied until 2000. In this capacity he was responsible for strategic participations in companies such as Royale Belge, BBL and CLT. He played an instrumental role in the merger of AXA with Royale Belge, the change in ownership of BBL and the merger of CLT and UFA. Between 2000 and 2003 he acted as Chief Executive Officer of RTL Group where he managed the company with an emphasis on international development. He concluded the merger with Pearson Television and the IPO of RTL Group.

Didier Bellens is Chairman of the Board of Directors of BICS. He is member of the Board of Directors of Proximus, AXA Belgium, VOKA-Flanders’ Chamber of Commerce and Industry, and the Foundation Erasme. He is member of the Management Committee of the FEB-Federation of Enterprises in Belgium.

Previously, he served as member of the Board of Directors of, amongst others, IMERYS in Paris, the Banque Bruxelles Lambert, M6 in Paris and the Banque Internationale in Luxembourg.

Mr. Bellens holds a degree in Economics and Business Administration from the University of Brussels (ULB).

Scott Alcott (2). Scott Alcott is Chief Operating Officer of Belgacom’s Fixed Line Services since July 2004. Previously,

46

Mr. Alcott had served as Belgacom’s Chief Strategy Officer, Chief Information and Technology Officer and as General Manager of Marketing and Product Management and a Director of Skynet, and a director of Belgacom’s Multimedia Venture Capital Fund.

In 1995, Mr. Alcott joined Ameritech (now SBC) as Director Marketing & Product Management – Long Distance Division, and later as Director New Product Development/Packaging.

Mr. Alcott holds a B.S. in Economics from the Wharton School at the University of Pennsylvania.

Bridget P. Cosgrave (3). Bridget P. Cosgrave has served as CEO and previously President of the International Carrier Services of Belgacom since 2001. She joined the Board of Directors of Belgacom Mobile in 2004. In 1996, she was elected and served her full term until 2001 as the Deputy Director General of the European Telecommunications Standards Institute (ETSI).

From 1993 to 1996, Ms. Cosgrave was a Project Director at BT Plc. Ms. Cosgrave has a B.A. (Hons.) from Queen’s University at Kingston, Canada and an MBA from the London Business School.

Astrid De Lathauwer (4). Astrid De Lathauwer has served as Chief Human Resources Officer for Belgacom since 2002.

Ms. De Lathauwer joined Belgacom in 2000 and previously held the positions of Top Group Resources & Talent Director and HR Director of Belgacom. Prior to joining Belgacom, Ms. De Lathauwer worked in marketing and human resources with AT&T and Monsanto. Ms. De Lathauwer holds a degree in History of Art from the University of Ghent and a degree in International Politics and Diplomatic Sciences from the University of Leuven.

5

7

6

8

Ronald Everaert(1) (5). Ronald Everaert joined the board of directors of Telindus Group in 1994 and became Chairman in April 2002. On August 27, 2003 he accepted the responsibility as President and CEO of Telindus. Since February 2006 he is also member of Belgacom Management Committee. Until early 2003, Ronald Everaert held a position as President and CEO at Mercator NV, a leading financial and insurance company. Prior to that he was Managing Director at A. Johnson & Co NV, the Benelux daughter of a Swedish specialty steel manufacturer. He started his career as account-officer at the Chase Manhattan Bank.

Ronald Everaert holds a Masters in Public Administration from Ghent University (B) as well as an MBA from the Vlerick Management School (B). He is a fellow of management programs at IFL (Stockholm), AIM (Switzerland) and North Western University (Chicago). He is also Chairman of the Chamber of Commerce of the province of East Flanders (B) and ViceChairman of the VEV (Vlaams Economisch Verbond).

Michel Georgis (6). Since May 2005, Michel Georgis occupies the post of CEO of Proximus. Prior to this position, he was Chief Operations Officer at Proximus, where he has been working since 2000. Mr Georgis started his career at Coca-Cola Belgium. In 1991 he joined Interbrew, where he filled different positions before becoming Sales & Marketing Director Central & Eastern Europe.

Mr Georgis holds a Master’s degree in Applied Economics from the university of Leuven.

as Chief Restructuring and Change Officer since 2002.

Mr. Mosseray joined Belgacom in 1993 as Executive Advisor to the CEO, a position he occupied until 1996 when he left for the USA to join Ameritech, the leading telecom operator in the Midwest region and Belgacom’s main private shareholder.

Mr. Mosseray returned to Belgacom in 1997 and successively served as General Manager for the Special Business Division, Head of Corporate Strategy & Development and Chief Human Resources Officer. He obtained a law degree from the KULeuven and a tax law degree from ICHEC. Mr. Mosseray also holds an MBA from the Vlerick Leuven Ghent Management School and recently completed the Stanford Executive Program at the Stanford Business School in California.

Ray Stewart (8). Ray Stewart has served as the Chief Financial and Administration Officer of Belgacom since 1997. Mr. Stewart was employed by SBC, but became an employee of Belgacom on 1 April 2004. Prior to Belgacom, from 1994 until 1997 he was the Chief Financial Officer for Matav which is the incumbent Telephone Company for 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.

William Mosseray (7). William Mosseray was appointed Belgacom Chief Strategy Officer in July 2004, after having served (1) Since February 2006.

47

Board of Auditors The Board of Auditors of the company is composed of the following persons: • ERNST & YOUNG Réviseurs d’Entreprises S.C.C./ Bedrijfsrevisoren B.C.V., represented by Ludo Swolfs, also Chairman of the Board of Auditors; • Romain LESAGE, Member of the Court of Auditors, Commissaire; • Pierre RION, Member of the Court of Auditors, Commissaire; • CALLENS, GUEVAR, VAN IMPE & Co S.C.C./B.C.V., represented by Herman VAN IMPE, Commissaire.

Ernst & Young is 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 Ernst & Young, entrusted with the audit of the non-consolidated financial statements of the parent company.

Mr. Lesage’s mandate will expire on 30 June 2008, the mandates of Mr. Rion, Ernst & Young, and Callens, Guévar, Van Impe & Co. will expire at the annual General Shareholders Meeting in 2010.

Additional fees paid to the statutory 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 2005 financial year to two auditors, members of the Joint Auditors: Ernst & Young Réviseurs d’entreprises S.C.C. and Callens, Guevar, Van Impe & Co. S.C.C. The overview of the subject and the remuneration linked to exceptional services or special assignments executed by the auditors within Belgacom S.A. under public law or a Belgian enterprise affiliated to Belgacom S.A. under public law in the sense of article 11 or a foreign affiliate is as follows: • to Ernst & Young Réviseurs d’entreprises: - by Belgacom S.A. under public law: EUR 859,059 for acquisitions due diligence assignments, EUR 170,381 for other control assignments and EUR 248 for other assignments; - by affiliated entreprises in Belgium: EUR 118,000 for special legal control assignments, EUR 9,500 for other control assignments and EUR 372 for other assignments; • to other members of the Ernst & Young network: - by Belgacom S.A. under public law: EUR 413 for other assignments; - by foreign affiliated entreprises: EUR 30,665 for other control assignments and EUR 69,128 for other assignments;

48

Belgacom annual report 2005

• to Callens, Guevar, Van Impe & Co.: EUR 3,250 for other control assignments in Belgacom S.A. under public law.

Government Commissioner The State has appointed Mr. Roger De Borger as Government Commissioner in order to supervise, in conformity with the 1991 law, the management of Belgacom from an administrative point of view.

Departure from the Belgian Corporate Governance Code Belgacom complies with the principles and provisions of the Belgian Corporate Governance Code, except provision 8.9.

Since this provision is not relevant to Belgacom, given its current shareholder structure, the Articles of Association do not provide for shareholders representing 5% of the capital to submit proposals to the Annual General Meeting. Under the Articles of Association, shareholders must represent at least one-fifth of the company’s share capital to be entitled to do so.

Compliance The background of compliance at Belgacom End 2004, Belgacom decided to set up a Group Compliance Office in order to ensure that the activities of Belgacom - and of all its staff members – are carried out in line with the increasingly complex set of rules and legislations applicable to its activities.

The Office coordinates further compliance activities within the Belgacom Group.

In 2005, Belgacom made considerable progress in the field of compliance. A Group Compliance Program covering 10 domains was developed and specific compliance plans were designed for each domain, describing the available documentary sources, the communication initiatives, the training plans, the concerned processes and possible reporting activities.

Organization of the compliance activities An important factor for a successful compliance management is the unqualified support and involvement of senior management.

To achieve this, the Compliance Office relies on various instances.

First of all, Belgacom has appointed a Head of Compliance Services, reporting directly to the Chairman of the Audit & Compliance Committee (ACC). The Charter of the ACC stipulates

that the ACC is responsible for assisting and advising the Board of Directors in its oversight of the Company’s compliance with legal and regulatory requirements and of compliance within the Company with the Company’s Code of Conduct.

Furthermore, at operational level, there is the Belgacom Group Compliance Council. This Council is both a decision-making body and an advisory body for the Compliance Office. It is chaired by the Head of Compliance Services and is composed of the different Compliance Managers of the main subsidiaries and a number of representatives from key group functions such as Internal Audit, Risk Management, Internal Communications, Human Resources and Internal Services.

The Compliance Program At operational level, the Compliance Office has three main responsibilities: (i) to clarify the rules, (ii) to provide the tools for compliance and (iii) to ensure that there is consistency within the Belgacom group.

yearly by the Domain Owner. Each plan has 5 sections: Rules, Communication, Training, Internal Control and Processes, and Reporting.

Other activities Besides coordinating the compliance activities and initiatives as established in the various compliance plans, the Compliance Office is also offering a helpdesk service.

One important effort in 2005 consisted in updating the Belgacom Group Code of Conduct which has reached all Belgacom Group employees through a company-wide communication campaign in January 2006.

It is Belgacom’s strong belief that the Compliance Office’s systematic and structured approach and efforts are strengthening Belgacom’s leadership role in today’s challenging, complex and demanding telecommunications sector.

In order to prioritize the company’s compliance efforts, 10 different compliance domains have been defined based on Belgacom’s specific activities and operational environment.

Compliance efforts in each of these domains are supported by a “Domain Owner”, an expert in the domain. The 10 domains are: Code of Conduct Regulatory compliance Risk management

Corporate governance Accounting practices Competition law

Chinese walls

Privacy

Environment

Dealing Code

A compliance structure has been developed at group level and in each of the main subsidiaries, led by the respective Compliance Managers. The Compliance Manager defines the way compliance is handled for his/her subsidiary, in consultation with the Domain Owners and within the framework provided for by the Group Compliance Office.

A specific compliance plan has been developed for each domain, in consultation with the Domain Owner and the Compliance Office. These plans consolidate the existing initiatives and contain new activities with specific deadlines. Such compliance plan can apply to the whole group or to specific parts of the organization only. The implementation of the different plans is followed up by the Compliance Office and the plans are updated

corporate governance and management

49

integrating

The Belgacom Group provides total solutions to its customers, whether it is through the interconnection of its fixed and mobile networks, the development of offers combining connectivity and exclusive content, the integration of ICT services and products in a single solution, or the pooling of staff talent.

50

shareholder information 2005 was the first full year on the stock market for the Belgacom share, and it proved to be an eventful and challenging year.

Belgacom has not been spared from the pressure weighing on the telecom market as a whole. The increasing concern of investors about the general trend in the telecom sector, i.e. a declining fixed-line market and a very competitive mobile market, was reflected in many telecom share prices.

Belgacom shares on the stock market Stock market:

First Market of Euronext Brussels

Ticker:

BELG

ISIN:

BE0003810273

National SVM code:

3810.27

Bloomberg code:

BELG BB

Reuters code:

BCOM

Investor Relations The mission of the Investor Relations department (IVR) is to provide Belgacom’s current and potential shareholders with the best possible communication. Through a transparent and consistent dialog with investors and financial analysts, Belgacom strives for a fair share value.

An important objective of this department is to make Belgacom’s senior management more accessible to the international investment community. A primary goal is to ensure a two-way communication, where Belgacom’s management can clarify the company’s results, strategies and decisions, and where shareholders and analysts can voice the concerns and perceptions of the market.

Twice a year, following the full-year and half-year results, Belgacom organizes a road show, covering the most important money centers of Europe and the United States. In between road

51

+10% normal dividend increase in 2005

shows, a wide variety of investors and analysts had the opportunity to talk to senior management in one-on-one meetings or conference calls. In addition, Belgacom participated in three major international investment conferences.

of its subsidiaries. However, in the case of warrants, such a restriction or withdrawal may not be done primarily to benefit specific persons, other than employees of Belgacom or one of its subsidiaries.

Belgacom also approaches retail shareholders by participating in the yearly VFB (Vlaamse Federatie van Beleggingsclubs en Beleggers) event.

The Articles of Association have also explicitly granted the Board of Directors authority to proceed with a capital increase in any form, as well as power to withdraw or restrict the pre-emption rights of the existing shareholders in that regard in the event of a public tender offer for the securities of the company.

Institutional as well as retail shareholders can always count on the support of the Investor Relations team. The website (www. belgacom.be/investor) is an integral part of the communication channel to the investment world. The “Investor Corner” contains printable versions of published reports, presentations and webcasts of conferences, scripts of conference calls and much more.

Share capital At the end of December 2005, the capital amounted to EUR 1 billion (fully paid up), represented by 361,775,135 shares, with no nominal value and all having the same rights, provided such rights are not suspended or cancelled. The share capital has not changed over the past four years.

Authorized capital Under Belgian company law, Belgacom may increase or decrease its share capital by decision of the General Shareholders Meeting, taken with a majority of 75% of the votes cast, at a meeting where at least 50% of the share capital of the Company is present or represented.

On 19 February 2004, the General Shareholders Meeting authorized the Board of Directors to increase the share capital, once or several times, by an amount not exceeding EUR 200 million (Article 5 of the Belgacom Articles of Association). The authorization includes the power to issue convertible bonds and warrants. The consideration may take any form, including contributions in cash or in kind, incorporation of reserves or issue premiums. The authorization to the Board of Directors was granted for a renewable period of five years. When using its power to issue additional capital, the Board of Directors may, by a majority of two-thirds of the votes cast, restrict or withdraw the pre-emption rights of the existing shareholders. This may also be done to the benefit of one or more specific persons, whether or not such persons are employees of Belgacom or one

52

Belgacom annual report 2005

Without such specific authorization in the Articles of Association, the powers granted to the Board of Directors to increase the capital would be suspended by law as soon as Belgacom received notice from the Banking, Finance and Insurance Commission of a public tender offer for the securities of the company. This specific authorization has been granted to the Board of Directors for a renewable period of three years, effective upon closing of the IPO (March 2004). The powers of authorized capital are limited by law in the case of a public tender offer: the issue is capped at ten percent of the shares in existence prior to the capital increase and the issue price may not be lower than the price of the tender offer.

In addition, pursuant to the 1991 Law, all issues of shares, convertible bonds or warrants are subject to prior approval by the Belgian State (by Royal Decree deliberated in the Council of Ministers). No such issues may be made to persons other than public authorities if, as a result of the issue, the public authorities’ direct participation in the share capital at the time of the issue no longer exceeds 50% of the share capital.

Belgacom ownership structure Transparency rules and shareholder notifications In accordance with the Belgian transparency law, shareholdings amounting to at least 5% (or a multiple of 5%) of the total share capital must be disclosed to both the CBFA and the company itself.

Pursuant to the Belgacom Articles of Association, notification of shareholdings must be given each time the holding exceeds or falls below 3%.

Ownership structure - end December 2005

Belgian government 50.0% +1 share Personnel 0.6% Belgacom 5.9% Free float 43.5%

During 2005, following events have triggered the notification procedure: Date of event triggering Shareholder notification procedure Name 21 June 2005 17 August 2005

Shareholding Number of percentage in shares held the notification

AXA SA 10,159,182(1) Belgacom SA

2.8%

21,380,565

5.9%

(2)

Number of shares and potential voting rights

341,871,062

Ownership structure

31 December 2004

31 December 2005

Belgian government 180,887,569 50.0% 180,887,569 50.0% Belgacom (own shares) 11,075,964

3.1%

21,380,565

5.9%

Personnel (DSPP) 1,842,026

0.5% 1,981,224

0.6%

Free Float 167,969,576 46.4% 157,525,777 43.5% Total

361,775,135 100.0%

Announcement date

million EUR

Number of shares

Average share price

14 June 2005 100

3,522,392

28.39

7 July 2005 100

3,603,455

27.75

17 August 2005 100

3,487,387

28.67

10,613,234

28.27

Total

Number of outstanding shares (effective voting rights attached to shares representing the capital) 340,394,570 Future, potential or not, voting rights resulting from rights and commitments at the conversion into or the subscription for shares to be issued - Options 1,476,492 Total shares with effective or potential voting rights

Belgacom kept the market informed about the status of the share buy-back through press releases for each tranche of EUR 100 million.

361,775,135 100.0%

Changes in the share capital and number of shares On 24 February 2005, the Board of Directors approved a share buy-back program for a maximum amount of EUR 300 million and for a share price not more than 5% above the highest and 10% below the lowest closing price in the thirty-day trading period preceding the transaction. The program was launched on 12 May 2005 and was completed on 17 August 2005. In total, Belgacom bought back 10,613,234 shares at a rounded average price of EUR 28.27.

(1) Compared to 13,218,524 shares or 3.41% on 22 March 2004.

(2) + 10,304,601: Share buy-back for total amount of EUR 300 million.

300

Under Belgian law, companies are prohibited from owning more than 10% of their outstanding share capital.

The current level of treasury shares is the result of the following movements: • Before the IPO in March 2004, Belgacom owned 12,380,950 ordinary shares in treasury.

• It was decided to cancel all of the 12,380,950 shares so as not to pass the threshold of 10% of outstanding shares when launching the IPO. • Concurrently with the IPO, Belgacom bought 38,761,905 shares from the existing shareholder ADSB Telecommunications BV. • In March 2004, Belgacom sold 1,842,026 treasury shares to its employees.

• On 26 August 2004, the Board of Directors decided to cancel 70% of the remaining 36,919,879 treasury shares, i.e. 25,843,915 shares.

• During the first half of 2005, 169,435 options were exercised at EUR 24.5. Belgacom also sold 139,198 shares to senior management.

• On 17 August, Belgacom completed the EUR 300 million share buy-back, increasing the total of treasury shares by 10,613,234.

The voting rights of the treasury shares are suspended by law.

The dividend rights of the treasury shares acquired in 2003 and 2004 are suspended, whereas the dividend rights for shares acquired in 2005 are cancelled.

Share price evolution The Belgacom share listed on the Euronext Brussels Stock Exchange experienced a challenging year. The Belgacom share price was under considerable pressure in the first half of 2005 but managed to remain fairly stable over the second half of 2005.

shareholder information

53

Belgacom share compared to BEL20 index and Euro STOXX volume (in thousands) *

price (in EUR) +

,

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The Belgacom share, however, underperformed the Telecom sector and the BEL20 (see graph).

On the first trading day of 2005, the Belgacom share price closed at EUR 32.77. After some ups and downs, the share price peaked at EUR 33.62 in expectation of the dividend. Closing at EUR 26.94 on 6 June 2005, the share reached its all-time low. The closing price on the last trading day of 2005 was EUR 27.55.

**(**

++

Belgacom share price Bel 20 Stoxx Telco Belgacom share volume

,)(*+

Belgacom share information The Belgacom share has been included in a total of 53 indexes, amongst which the BEL20 (20 main Belgian caps) and the major European/telecom indexes. The table below shows the main indicators on the Belgacom share performance.

2004

Events that had an impact on the Belgacom share price in 2005 (see graph): 1 M id-January:

press articles circulate Belgacom’s possible interest in Cesky Telekom. The market is worried, resulting in a negative share price impact.

2 E nd of February: the market reacts enthusiastically to the announcement of the 2004 results (EUR 922 million net income or EUR 2.57 earnings per share) and to the promised shareholder return (EUR 700 million for both normal and extraordinary dividend, EUR 300 million share buy-back).

3 The share price goes ex-dividend on 18 April 2005 and inevitably drops 7.8% to EUR 29.95.

4 E arly May: Belgacom wins the Belgian soccer broadcasting rights, a crucial step forward for the Belgacom TV offer.

5 End of May: Belgacom Mobile announces a significant reinforcement of the customer strategy in order to slow down the mobile market share erosion. The estimated impact on revenues and EBITDA margin surprises the market and leads to a significant share price drop of almost 9%.

6 Mid-June: Belgacom announces that talks with Versatel are over. The market is relieved. The share price goes up 2.7%.

7 E nd of June: launch of Belgacom TV. 8 E nd of July: press release about Belgacom football channel “Channel 11”.

9 End of August: Belgacom announces half-year results in line with market expectations.

10 End of October: Belgacom confirms its offer on Telindus.

11 Mid-December: Belgacom increases the offer price on Telindus.

54

Belgacom annual report 2005

2005

(22 March - 31 Dec)

(1 Jan - 31 Dec)

Closing price last trading day of the year

31.80

27.55

Year high

32.49

33.62

Year low Annual trading volume (number of shares) Average trading volume per day (number of shares) Market capitalization 31 Dec. (in EUR billion)

24.34

26.94

191,111,739

217,819,245

941,437

847,546

11.15

9.38

Earnings per share (in EUR)

2.57

2.78

Diluted earnings per share (in EUR)

2.57

2.77

Closing prices (in EUR)

Key figures

Dividend per share, gross (in EUR) 1.38 1.52 Extraordinary dividend per share (in EUR)

0.55

-

Price/Earnings ratio 31 December 12.36

9.93

Shareholder remuneration Return to shareholders On 23 February 2006, the Belgacom Board of Directors decided to propose at the Annual General Shareholders Meeting on 12 April 2006 a normal dividend of EUR 1.52 per share, which represents an increase of 10.1% compared to last year and a pay-out ratio of 55.68%. The dividends will be payable from 18 April 2006 on.

For bearer shares, it will be paid at the branches of the following paying agents: Petercam SA, ING Belgium, Fortis Bank, KBC Bank and Dexia Bank.

Dividend per share (in EUR) +'. *'-,

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EUR 2.78

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earnings per share in 2005

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Normal dividend Extra dividend

For shares held through a share account, the bank or broker automatically handles the dividend payment.

For registered shares, Belgacom will pay directly the shareholders in its register.

In order to transform their shares into bearer or registered securities, the shareholders should contact their financial institution who will liaise with Petercam SA, Brussels.

Dividend policy There are no changes in the dividend policy whereby Belgacom intends to declare and distribute an annual dividend of 50% to 60% of its annual net income. This amount may be adjusted to reflect one-time gains or losses, and the amount of dividends declared may vary from year to year. In determining the amount of any annual dividends to propose to the shareholders, the Board of Directors will take into account the dividend payment practices of other European telecommunications operators.

>

As a listed company, Belgacom seeks to ensure an all time transparent and consistent communication flow. A task that proved to be more difficult than one might expect. Supervised and inspired by the BFIC (Banking, Finance and Insurance Commission), Belgacom strives for a continuous improvement in providing price sensitive information to the market in equal ways. The company considers the trust of shareholders as a top priority and will do everything in its power to keep that confidence.

An enhancement in the communication process is the launch of a quarterly reporting, starting as of 2006. This will provide the market with an update on facts and figures on the dates as indicted in the financial calendar.

The amount of any annual dividends and the determination of whether to pay dividends in any year may be affected by a number of factors, including the Group’s business prospects, cash requirements, financial performance, the condition of the market and the general economic climate, and other factors, including tax and other regulatory considerations.

Financial Calendar From 2006 on, Belgacom will report on a quarterly basis, on the dates as indicated below.

24 February 2006

Announcement of annual results 2005

12 April 2006

Annual General Shareholders meeting

19 May 2006

Announcement of first quarter results 2006

25 August 2006 10 November 2006

Announcement of half-year results 2006 Announcement of third quarter results 2006

shareholder information

55