Annual Report 2012 by Belgacom Group

Annual report 2012

We have sO much to share

WE HAVE SO MUCH TO SHARE

Discover our movie on www.belgacom.com/share

ideas, messages, projects, stories, beliefs, passions... wherever you are, whenever you wish, we want to give you the means to share your emotions...

hIghLIghTS 2012 4g

belgacom inaugurated the first 4g networks in eight belgian cities. This innovation makes mobile Internet ultra fast. It confirms our leadership in mobile technology.

muSIC AND FOOTBALL

mobile Internet for everyone Belgacom launched in Belgium the first catalog of terminals and applications designed for people with a disability. Yet another corporate social responsibility initiative on our part.

belgacom was very present at the summer music festivals where, among other things, it promoted its deezer online music catalog. we also strengthened our ties with football fans by becoming the official sponsor of division 2.

A new television experience we improved the belgacom tv interface, with clearer and faster navigation through our range of programs and content on demand. we added new search and personalized recommendation features.

SCArLET, ThE LOW-COST ChAmPION scarlet contributed to significantly reduce the price of mobile communications by launching the cheapest prepaid cards on the market.

Exclusive content in 4g on belgacomâ&#x20AC;&#x2122;s luxemTango bourgish subsidiary

was the first to offer an integrated 4g package combining fixed and mobile telephony, Internet, TV channels and exclusive entertainment content.

more intelligent networks Belgacom achieved a first in Europe by launching Explore Smart Networking. This solution allows businesses to give priority to their critical applications and better manage their network.

Office and go, «all in one» for SmEs our integrated offering of high-speed internet services was complemented by becloud backup, a data backup solution in the cloud intended for smes and the self-employed.

BICS

STILL IN TOP FOrm

TV EVErYWhErE we are the only operator to offer all the flemish channels anywhere and anytime through our tv everywhere solution. our customers can also watch the growing number of frenchlanguage channels on tv, a tablet, a smartphone or a computer.

going against market trends, belgacom’s carrier division showed strong growth in its voice business. its excellent performance is explained by, among other things, the longterm agreements with groups of mobile operators and an optimization of its voice processes.

INTErNET EVErYWhErE our Internet everywhere offering enables our customers to benefit from all the advantages of mobile Internet, thanks to Wi-Fi connections, 3g and more than 600,000 Wi-Fi relays in belgium. http://bit.ly/bgcvideo7

Belgacom aNNUal RePoRT 2012 - 1

CONTeNT our strategy and our networks

02•Interview with michel moll

Belgacom, a fine asset for Belgium 34

04•Interview with Didier Bellens Simplify to serve the customer better

06•our key figures for 2012 our customers

08•our profile

10•operational context 14

projects to share

our employees

28 convictions to share 34 Stories to share 50 talents to share

56 An attitude to share

corporate social responsibility

72 transparency to share

110•Glossary 72

112•General information 56

financial info

corporate governance

IntervIeW

2 - Belgacom aNNUal RePoRT 2012

BelGAcom, A for BelGIum

fIne ASSet

making durable our achievements in the context of the Belgium’s reindustrialization. linking the company’s governance with how business proceeds and develops. looking towards the future with confidence.

During the 2012 financial year, you chaired the meetings of the Board of Directors, the meetings of the nomination and remuneration committee which are required by law within boards of listed companies, and the meetings of the Strategic and Business Development committee. can your chairmanship be described as an interim one? Although long-lasting to be sure, my interim chairmanship of the Board will soon be coming to an end. Our statutes stipulate that the Chairman of the Board of Directors and the CEO belong to different language groups. The mandate of Mr. Bellens is ongoing. The next Chairman to be appointed will therefore be someone from the Dutch-language community.

What has been the general thrust of your mandate? The collapse or amputation of industrial assets with the social dramas, that brings to thousands of households, now impels us to conclude that, in both the north and the south of the country, we are powerless in the face of the “collateral damage brought on by choices made on a continental or global scale”.1 Yet warning signs preceded this situation. Under these circumstances, the goal to be attained is the sustained achievement

michel moll, chairman of the Board of directors a.i.

1. Bruno Colmant, economist, the “Mise au point” program, RTBF Television on 11 February 2013

of the group, no matter from where the headwind is coming from. Right from the outset, the general thrust of my mandate became closely entwined with the line of sight leading to that goal.

making durable Belgacom’s achievements calls particularly to mind those of 2012, seen in the aforementioned context of disappearing industrial activity. The reindustrialization of Belgium needs new vigor even while that of Europe is at a standstill. And primarily with regard to Belgium, a growing number of local industrial facilities are managed outside its borders. Against this backdrop of a disenchanted future, Belgacom is a fine asset for Belgium. Continuing with the financing of its winning strategy, coupled with an attractive dividend policy, the Belgacom group invested a total of EUR 753 million in 2012. In so doing, it has maintained the level of its investments, essentially within Belgium and during the course of several financial years, within the range of EUR 700 to 800 million on an annual basis. It pays EUR 184 million in corporation tax. While Belgacom pays out EUR 44.8 million to its employees, it distinguishes itself sharply from most of its European peers in that it provides a comfortable return on the capital entrusted to it. For example, the dividends of the 2012 financial year total EUR 798 million.

Belgacom ANNUAL REPORT 2012 - 3

“Two highlights of the financial year: the unity of the Board of Directors, and the three trade union organizations’ support for social dialog and the preliminary agreement on the 2013-2014 Collective Agreement.”

In another difficult context, i.e. that faced by the Belgian State in drawing up its budgets, the amounts of the 2012 financial year relating to the distributions and redistributions to Belgacom’s reference shareholder, total EUR 1.65 billion. Added to the EUR 451 million in dividends are EUR 1.199 billion in direct and indirect taxes, and social security contributions. Finally, we note an element that has become an exception in the Belgian industrial landscape: all decisions pertaining to the fully independent management of a group providing more than 15,000 jobs to the nation, are taken on the floors of its registered office, at the heart of the kingdom.

How does a management – Board of Directors collaboration work in the achievement of the company’s objectives? It is a dynamic resulting from a product of factors that have greatly contributed to Belgacom meeting its objectives in 2012 and which drives new achievements: (1) a winning strategy which is readjusted to technological, regulation and competitiondevelopments every year; (2) the CEO’s range of skills, each of them essential to the daily management of a telecoms provider of integrated multiservices; (3) a high-quality management

team; (4) the smooth functioning of a closely knit Board of Directors. Each factor has the same weighting. And it takes only one of the factors to be zero for their product to be zero as well. It should be added that in a sector where the long term is a time horizon of three years, having sound knowledge of the group and the theater of its operations, increases tenfold the capacity of the Chairman of Belgacom’s Board to act. Competence in the post involves close collaboration with the CEO and vice versa, each respecting the prerogatives of the other. The smooth running of an industrial group is indissociable from continuous dialog between the Chairman of the Board and the CEO.

What “Ariadne’s thread” guided the decisions mutually agreed on by the Board? Simply put, corporate governance. Well organized in Belgium, meeting the specificities of listed companies through an excellent legislation, it has been a unifying methodology. All the directors have had the same interpretation of their obligations and personal responsibilities, which they carry well beyond the end of their mandate. And those are particularly stringent in a company which makes extensive use

of public savings and private investments to finance its activities.

tility of regulation or the lack of clearly defined industrial policy.

The company’s interests were defined and redefined as many times as was found necessary in the course of the financial year. A project, decision or element outside the company’s control is either in its interest or not, depending on whether it serves or handicaps its operational objectives. Indeed, those are the foundation of the financial results, added to which is the optimization - immediate and over time - of the common interests of all the company’s stakeholders: its employees, its customers, its suppliers and all its shareholders, treated equally as prescribed by law.

Combined with the general economic situation and the intensive competition, in particular on the mobile market, these elements have led the Board to break with the earlier practice of communicating shareholder remuneration to the market at the very start of a financial year.

When interpreted as they should be, the rules of corporate governance are a powerful ferment for the favorable course and development of business.

What does Belgacom’s future hold? At a time when Belgium’s economy is suffering from a serious lack of investment and economists and policy makers try to agree on measures which would allow them to turn around this situation, Belgacom plans to step up its already very substantial level of investment. The risks associated with carrying out major investment programs are not compatible with the unpredictable, the vola-

The Board of Directors would like to stress, however, the company’s firm intention to continue to combine the financing of a winning strategy with an attractive return for its shareholders. Belgacom can look to the future with confidence.

4 - belgacom ANNUAL REPORT 2012

Interview

Simplify to serve the customer better The convergence of the fixed and mobile networks is now a reality. Consumers want to have access anywhere and anytime. Our priority is to make their lives simpler.

How do you look back on 2012? I’m satisfied that our company achieved its financial objectives for 2012 as a whole. The investments in our fixed and mobile networks have further speeded up access to multiple applications, content and available services. They have enabled us to differentiate ourselves from the other players on the market.

www.belgacom.com/bmcvideo

2012 was also the year in which convergence become even more of a reality for our customers due to the growth in smartphone and tablet sales. Sales of our “packs” combining fixed and mobile services are also increasing. The “Internet Everywhere” service also reflects this convergence, allowing our Internet customers to extend their data access via the mobile network. For our business customers, we successfully launched our “Office & Go” offering: a new service which, in addition to the fixed and mobile Internet subscription, ensures secure data storage and guaranteed service in case of a fault.

How is Belgacom positioning itself on a highly turbulent market?

Didier Bellens, President & CEO

We continue to be subject to an unfavorable Belgian and European regulatory context which alone explains the decrease in our 2012 operational results (EBITDA). We are also subject to strong competitive pressure, especially on mobile.

But we have responded in a determined and considered way. First, we simplified our product offering and revised our rates. We also continued our investments to improve our mobile networks and especially 3G, which is by far the best network in Belgium. We improved our products by offering more mobile data volume and usage time. And we proactively contacted our customers with advantageous mobile offers, proposing promotions spread across the term of their contract. As for our financial situation, it remains solid, thanks in particular to prudent management of mergers and acquisitions and real cost control. We closed 2012 with a revenue of EUR 6.462 billion, i.e. a 0.9% growth compared with 2011. At the end of the year, the net financial debt amounted to EUR 1,601 million, one of the lowest levels of the European telecoms sector. Finally, we applaud the excellent results of BICS, our subsidiary which provides connections to international operators and which continues its growth despite a difficult competitive environment. Today, BICS represents 25% of the group’s revenue and 7% of its EBITDA.

The networks are Belgacom’s backbone. Are they ready to meet the needs of the future? The quality of our fixed and mobile networks is and will continue to be the main strength of our company. It allows us to anticipate our consumers’ growing connectivity needs, to access the latest

Belgacom ANNUAL REPORT 2012 - 5

technological innovations. That is why we will continue to modernize our networks. With regard to the fixed network, we continued the roll-out of high-speed broadband. End-2012, our coverage reached 85% of the population, placing us among the European frontrunners. With regard to the mobile network, we were the first in Belgium to launch 4G, a technology which improves the performance of mobile Internet still further. Eight Belgian cities already benefit from this new network. We hope to complete the roll-out of this technology as quickly as possible following the desired outcome of a favorable decision for the Brussels-Capital region.

What means are you employing to satisfy our customers even more today? Our customers’ satisfaction is an absolute priority for us. The behavior of consumers has changed considerably. They want to forget the constraints of technology and benefit from its advantages. That is why we have started an extensive process to simplify our technologies and IT systems, along with our support services and product portfolio. Our goal is indeed to simplify to serve the customer better. In 2013, we will also be reviewing our way of working in order to respond more quickly to customer demand and to better anticipate market trends. Another essential growth element for Belgacom is innovation. It allows us to enhance our offers and differentiate ourselves from the competition. Today, we are able to offer our customers new solutions which improve their quality of life and their efficiency at work.

How can the company employees’ involvement in the projects of 2013 be increased? Technologies change very quickly, as do the needs of consumers. We have always been careful to ensure that our employees keep up to speed with this double trend. Together with the HR department, we have developed a strategy that aims to improve skills, to enable everyone to advance in their career.

“BY SIMPLIFYING OUR PRODUCTS, TECHNOLOGIES, COMMUNICATIONS AND WORKING METHODS, WE WILL BE ABLE TO SERVE AND SATISFY THE CUSTOMER EVEN BETTER.”

To improve our employees’ motivation still further, we also insist on the necessity of making work recognition an essential part of our corporate culture.

You have always attached great importance to Belgacom’s corporate social responsibility. How do you intend to continue your efforts in this field? We continued with the information measure started in 2008 asking our customers to use their mobiles responsibly. For instance, in our shops and on our websites, parents can find advice on how to reduce exposure to electromagnetic waves and limit or block paying SMS messages and unwanted content.

The combination of our fixed and mobile networks is our company’s trump card

Trend in the number of packs sold (in thousands)

We also launched in Belgium the first comprehensive catalog of products and services adapted to people with a disability. As in 2011, we continued with the Web Experts project, a program which encourages young people to train seniors on how to use the Internet. We are sparing no effort to preserve the environment. We have already reduced our CO2 emissions by 63% since 2007. And a new

1,237

1,089 870 560 302

2008

2009

2010

2011

2012

energy-efficient data center will start operating in February 2013. We are therefore on track to reach our goal of reducing our CO2 emissions by 70% by 2020.

How do you see Belgacom’s future? The 15,000 employees of our company are the ambassadors of the new techno logies which make our consumers dream and allow them to participate in today’s digital world. The leading company in a sector offering good future prospects and bringing about innovations, we have proven that we have the right strategy and have made wise choices in investments. The key to success in 2013 is the strong conviction we have in our business. We have all the strengths we need to face challenges successfully and build a future in which we have so much to share.

6 - Belgacom aNNUal RePoRT 2012

our key fIGureS for 2012 eur

6,462 1,784 753 691 1,601

eur

million

of revenues

+2.8%

million

organic revenue growth in It

of eBITda

(before non-recurring items)

million

of investments

million

of free cash flow

92%

Belgacom tv

coverage

million

of net debt

1,237,000 “pack” customers

Belgacom aNNUal RePoRT 2012 - 7

44%

8 cities covered by our new mobile 4G network

-63%

internet market share

CO2 emissions since 2007

32% digital Tv market share

41% mobile market share

15,000 kids

85%

fiber coverage (to the street cabinet)

trained on safe use of internet and mobile phones in 2012

8 - belgacom ANNUAL REPORT 2012

OUR PROFILE

WE ARE...

We are a telecommunications company operating in the Belgian and international markets. The quality of our interconnected fixed and mobile networks makes us the leading provider of telephony, Internet and television services in Belgium. It also allows us to offer anywhere and anytime access to digital data and the best multimedia content. In addition, we develop solutions to reduce our CO2 emissions, support the most vulnerable communities and promote access to the digital world for all. This is how we contribute to the economic, social and environmental development of the society in which we are rooted.

Belgacom aNNUal RePoRT 2012 - 9

our commItment

cation lifi SImplIfIcAtIon we think of our customers first. To attract and retain them, we are simplifying our product offering. To respond better, faster and more efficiently to what they want, we are simplifying our networks, our IT infrastructures and the way we work. we aim to be a truly trusted partner.

New

Sim p

our prIorItIeS Se

experience er

rvices

InnovAtIon we consolidate our leadership by preparing tomorrowâ&#x20AC;&#x2122;s solutions today, those which make our consumers dream. we develop original offerings of multimedia content and IT services. But we also innovate by continuing, year after year, to modernize our networks and improve the services we provide already.

cuStomer eXperIence we want our customers to feel understood and respected. we make every effort to exceed their expectations. we want to pleasantly surprise them with our high-quality, user-friendly products and an efficient, personalized service. The customer experience is at the heart of our concerns.

Custom

we waNT eveRyoNe To Be aBle To fReely shaRe TheIR exPeRIeNces, INfoRmaTIoN, Images aNd key momeNTs of TheIR lIves. oUR commITmeNT: make These exchaNges PossIBle By eNaBlINg yoU To coNNecT wheRe, wheN aNd how yoU waNT.

commItment we are organizing a new way of working together. mutual respect, recognition and transparency in what we do are our levers to increased commitment and efficiency. our employeesâ&#x20AC;&#x2122; collective support for our strategic objectives is the essential basis of our corporate culture.

10 - belgacom ANNUAL REPORT 2012

OPERATIONAL CONTEXT

New means of communication new opportunities

The telecoms market was characterized in 2012 by a stabilization of the revenue from telephony, against a backdrop of a price war between the mobile operators. But the mobile Internet boom enables the most innovative operators to remain optimistic.

Growing pressure on mobile prices The telecoms market is, of course, not impervious to the global economic climate. In 2012, the Belgian economy, varying from quarter to quarter, either stagnated or declined by a few tens of per cent. Pending the final figures, both the National Bank and the Federal Planning Bureau were counting on zero growth for the whole of the past year. Year 2013 does not look any more promising. On the telecoms market, this difficult economic climate is particularly manifest in the corporate world, where a certain number of investments in IT projects are

being postponed. As for private individuals, they are paying greater attention to value for money. Consumers continue to be attracted to new technologies and products but do not want to put a strain on their budget. For this reason, the telecoms sector must offer innovative products but at affordable prices. The profit margins are under pressure. Only operators able to offer competitive products and services on the high-growth market segments (mobile Internet, digital television, professional services in the cloud, etc.) can maintain a good level of growth.

Belgacom ANNUAL REPORT 2012 - 11

The consumer wants maximum value for money, which works in favor of integrated offerings as they are more competitively priced.

14%

The fixed telephony erosion is contained The Belgian fixed telephony market stabilized in 2012, despite an erosion over the past few years in favor of mobile telephony and various new operators such as Skype, which operate only on the Internet. Around 7 out of 10 households in Belgium remain loyal to fixed telephony. Attractive packages with unlimited free calls during off-peak hours have become widespread. The fixed line is increasingly integrated in a package combining fixed telephony, mobile telephony, digital TV and the Internet. Fifteen years after the opening-up of the telecoms market, and despite competition from the cable operators, Belgacom retains a comfortable lead in fixed telephony for residential and professional customers.

The smartphone boom boosts mobile data transfer The mobile telephony market is slowly becoming saturated in Belgium, the penetration rate reaching 110% at the end of 2012. Belgacom continues to lead the field with a 41% market share. The Belgian mobile telephony market, like everywhere else in Europe, is experienc-

14%

The percentage of Belgian households that supposedly have a tablet (Source : Belgacom)

ing strong price pressure. The operators are competing with “all-in” rate plans. In that respect, 2012 saw a growth in unlimited bundles including telephony, SMS and/or mobile data transfer. The main challenge for the incumbent operator and its two competitors Mobistar and Base, is to stabilize or increase the average revenue per customer. To that end, it must compensate for the reduction in average revenue from voice traffic by a data transfer increase. The explosion in smartphone sales (1.97 million sold in 2012) goes hand in hand with the growing demand for mobile services and applications.

Competition from virtual operators (MVNOs) The so-called virtual operators (MVNOs) who buy network capacity from the three existing operators and integrate it into a specific marketing offering, now number about 50 in Belgium. They typically target a niche market, such as young people (e.g. Jim Mobile), ethnic groups (e.g. Mobisud) or highly price-sensitive consumers (e.g. Carrefour Mobile). Among the main movements in the MVNO market in 2012, we note Mobile Vikings’ emphasis on mobile data and the competition from the cable opera-

1.97 million

+65%

the number of smartphones sold in Belgium in 2012 (Source: GfK Retail & Technology)

+38%

The mobile Internet penetration rate in 2012 (Source: Belgacom study)

tors in the north of the country. In spite of having acquired a 3G license in 2011, the Flemish cable company uses Mobistar’s network. A leading Chinese operator, in this case Datang (linked to the China Mobile group), also acquired a 4G license, along with Belgacom, Mobistar and Base in November 2011.

Continued growth of high-speed Internet connections End-December 2012, Belgium counted almost 3.7 million wired broadband connections, according to the statistics of the Belgian association of Internet service providers (ISPA). This is a 4% increase compared with 2011. This market still has growth potential, as about 73% of households have an Internet connection. Belgacom holds a market share of about 44%.

OPERATIONAL CONTEXT

12 - belgacom ANNUAL REPORT 2012

44%

Belgacom internet market share

Sustained investment in the quality of its fixed and mobile networks has contributed greatly to keep Belgacom in a good competitive position.

WiFi

Mobile Internet boosted by tablets 2012 will be seen as a pivotal year in terms of mobile Internet usage in Belgium. The commercial success of tablets has something to do with that. According to a study by IAB Belgium, 14% of Belgian households have a tablet, i.e. 9 percentage points more within a one-year period. Smartphones enjoyed record sales too. Equipped with these new devices, Belgian consumers can connect to the Internet anywhere, anytime to access their favorite content and applications. Belgacom was the first Belgian operator to grasp this trend by launching, in April 2012, its Internet Everywhere offer, which combines fixed and mobile Internet access at an attractive price.

preferred mobile internet technology

76%

of Belgians have digital TV

Belgacom focuses on its Bizz Packs to maintain its leadership position in the SME segment

nesses are installing relays in their buildings to offer mobile Internet access to as many of their employees and partners as possible. At the same time, Wi-Fi connections outside the home and office are becoming increasingly numerous and popular. Through its FON hotspots, Belgacom has been the pioneer in opening up secured Wi-Fi access shared between customers. Not only is the Wi-Fi community which those customers have joined the largest in Belgium, it is also the largest in the world.

...combined with a leading mobile network Belgacom further improved its 3G mobile network coverage and inaugurated its

A champion of Wi-Fi ... According to a study conducted by Deloitte (December 2012), Wi-Fi is the preferred mobile Internet access technology used by Belgians with a tablet or smartphone. The limited cost of Wi-Fi access – it is usually free of charge – is not the only reason. Users also value the speed and reliability of the connections. Wi-Fi is also widely used to access the Internet at home, through a wired connection. In addition, Wi-Fi is becoming ubiquitous in companies. More and more busi-

first 4G connections in eight Belgian cities. In fact, Belgacom’s strength resides in the unique and seamless combination of Wi-Fi and the mobile network. This combination allows us to offer a fully mobile Internet solution, not only at home and at the office, but also everywhere else.

Digital television continues its momentum Digital television now has pride of place in more than 76% of Belgian sitting rooms, i.e. a 10% increase compared to 2011. Thanks to high-quality offerings combining two or more items (digital television, fixed/mobile television and fixed/mobile Internet access) very competitively, Belgacom has conquered a market share estimated at 32%. Certain Belgacom TV channels are also available on mobile terminals through the “TV Everywhere” service. The competitive landscape has hardly changed, except for the emergence of new «over-the-top» (OTT) players who are marketing television content on the Internet only.

Triple convergence at work in companies Belgacom further improved its 3G mobile network coverage and inaugurated its first 4G connections in eight Belgian cities.

The corporate market, from SMEs to multinationals, was marked by an intensification of three types of convergence: voice and data, fixed and mobile

Belgacom ANNUAL REPORT 2012 - 13

A regulatory framework which stimulates competition and strengthens consumer protection

Our competitive position (market share)

networks, telecom and IT needs. The integrated offerings have been especially popular in the SME segment. Belgacom therefore focused on its “Bizz Packs” to maintain its leadership position in this segment over Telenet for Business and Mobistar. The annual telecom survey conducted by Data News also confirmed Belgacom’s leadership position in the large companies segment, both for fixed and mobile telephony and for data traffic, ahead of players such as Mobistar, Telenet, Colt, Orange Business Services, Verizon and BT. With regard to network and system integration, too, Belgacom has consolidated its lead over its main competitors. The convergence of voice and data solutions and Belgacom’s unique combination of telecom and IT expertise remain major assets. For companies need a flexible, high-performance telecom infrastructure to modernize their IT and make the most of the advantages afforded by cloud computing.

Internet 44% Belgacom 48% Cable 7% Other

Television

New telecom law A major change in our regulatory framework in 2012 was undoubtedly the entry into force of the “new telecom law”. This enables consumers to change operators more easily, allowing them, in particular, to terminate their contract after six months without incurring any charges (except payment of residual value of free device in case of joint offer). This adds to the general volatility of the market. The “new telecom law” also aims to modernize the universal service. Roaming The Belgian market has integrated the third European Regulation on roaming which provides for new rate decreases and “structural” measures to stimulate competition on this market. Opening-up of the cable network In 2012, the decision taken in 2011 to require cable operators to open up their network to the competition has above all had a legal impact. The Court of Appeal rejected the actions of suspension brought by these operators. The decisions of the Court have allowed the regulators to make progress in the effective implementation of the obligations. The first draft reference offers of the cable operators were submitted for consultation end-2012, and a final decision is expected during the first half of 2013: it is hoped that the effective implementation will take place by the end of the year. More details on the regulatory framework on page 106.

32% Belgacom 64% Cable 4% Other

Mobile 41% Belgacom 24% Base 31% Mobistar 4% Telenet

The corporate market, from SMEs to multinationals, was marked by an intensification of three types of convergence: voice and data, fixed and mobile networks, telecom and IT needs.

14 - belgacom ANNUAL REPORT 2012

OUR STRATEGY AND our NETWORKS

PROJECTS to share

This means calling ourselves into question continuously, reinventing ourselves every day and continuing to invest in the solutions of tomorrow, those which each one of us is perhaps already dreaming of...

Belgacom ANNUAL REPORT 2012 - 15

An improved customer experience

simplicity innovation convergence

Simple solutions for everybody

Sometimes we develop those solutions on our own. Sometimes we look for leading partners who complement our product and service offering. Our watchword is: get our customers to forget about the underlying technology, leaving them only with the pleasure of discovery, sharing and exchange.

16 - belgacom ANNUAL REPORT 2012

convergence to meet consumer needs

There is no longer such a thing as a typical consumer profile: instead one and the same person has a multiplicity of requirements, depending on the time of the day. A business manager who relies on Belgacom to provide him with a reliable infrastructure is also a father of a family who wants to inform and entertain himself. But he also wants to check his business e-mails from the comfort of his sofa while the other members of his family watch a film on demand, play a game on the Internet or share videos on the social networks. Our strategy based on convergence aims to bring each of them a rich and useful experience.

OUR STRATEGY

Belgacom aNNUal RePoRT 2012 - 17

convergence, reflecTed in our “everywhere” offerings, and The conTinuous improvemenT of The cusTomer experience are Key To our differenTiaTion. www.belgacom.com/ bmcvideo

promoting communication exchanges

+ response

In the era of mobile Internet and social networks, the boundaries between private and professional life are becoming blurred. What’s more, our consumers want to share messages, pictures and music at every moment. These exchanges require ever more powerful and reliable means of connection that are available everywhere.

“Simplification is an essential factor for improving the customer experience: the more we simplify our internal operations, the simpler the process will be for the customer and the better his experience will be.”

Our mission is to promote such exchanges and enable everyone to connect when and where they want, according to their different needs. Belgacom is finding that the aspirations and behavior of its customers are continuously changing: • the hyperconnected customer: this customer increasingly uses the Internet as a professional or leisure tool: to make various purchases, choose a holiday destination, look for a new potential employer, consult the social networks, etc. In each case, he wants to find an almost instantaneous answer. Unavoidable and ubiquitous sources of information, digital media (on a computer, tablet, smartphone or television) have become the entertainment platform of choice of families as well as essential tools in the professional world. • the customer seeking efficiency: a growing number of consumers with a fast-paced life see their smartphone as a personal tool to help them organize themselves better. They are looking for useful services and applications that save them time. These can be personalized applications that filter relevant information. Or, faced with the multiplicity of offerings, intuitive recommendation services which help them make their choices quickly. • the customer mindful of transparency: the overflow of information combined with the economic and financial crisis has created among customers a general feeling of distrust towards companies. In our sector in particular, customers want their telecom services to deliver flawless technological performance but also full transparency with regard to their pricing and in the way they are used. Expecting not only simplicity, they are also increasingly sensitive to the security and confidentiality of their data. It is also crucial to continue to educate the customer about new products and services to enable him to stay in the “race for progress”. Convergence remains the best answer to the multiple needs of the consumer.

Bruno Chauvat Executive Vice President Strategy & Content

the multi-play strategy Belgacom’s combined offerings, especially Internet Everywhere, were a resounding success in 2012. Belgacom will continue down the path of the “Packs”, which allow customers to combine high-quality services at a competitive price. Rather than sell our services at cut-price rates, we prefer to emphasize their value for money. We want to convince our customers that our offerings are well worth their price and that they are getting their money’s worth. We also see them as an excellent way to gain customers’ loyalty.

True convergence Convergence has been a buzz word in the telecoms sector for some years now. It means that the mobile and fixed networks are merging to enable consumers to surf on the Internet or access their favorite content and applications anytime, anywhere and on any device they choose. In a completely convergent world, the customer does not know via which technology or network (Wi-Fi, 3G, 4G, ADSL, VDSL, etc.) he is communicating. That has become an issue of secondary importance. The only thing that counts is the quality of the services and applications which the customer accesses with just a click of the mouse or a press on a touch screen. Belgacom launched TV Everywhere which enables a truly convergent TV experience: you can watch it everywhere, both inside and outside your home, regardless of the network. And with the successful deployment of 4G in eight cities in 2012, the mobile experience can be as fast as that of VDSL.

our StrAteGy

18 - Belgacom aNNUal RePoRT 2012

cation lifi

experience er

New

Custom

Sim p

Our priorities

rvices

we simplify our offer and systems

we innovate through new services

we improve the customer experience

are integrating this mission in everyone’s daily routines. More responsive services and a clearer and easier-to-understand offering will help to improve the emotional bond with our customers and their trust in us. Effective convergence, reflected in our “Everywhere” offerings, combined with the continuous improvement of the customer experience, are key to differentiating ourselves.

Simplification Simplification is an essential factor for improving the customer experience. We depart from the principle that “what

we are the first ambassadors towards our customers

technical and commercial convergence Even though mobile Internet is becoming increasingly widespread, there is still work to do to stimulate the convergence of our networks and applications. In the long run we want it to become totally transparent, to such an extent that the customer can move seamlessly from one network to another without even being aware of it. Not only does that require continuous technical integration work, but also a simpler commercial offering through the sale of “all-in” solutions rather than separate products.

To take on that challenge, Belgacom is relying on its solid telecom and IT skills. Our own data centers, at the cutting edge of technology, and our experienced salesforce are also undeniable assets. vIDeo - WWW.BelGAcom.com/converGence

Our priorities for 2013 An improved customer experience We want every customer to be completely satisfied when he comes into contact with our products, services or employees. That is what we call the “customer experience”. We are constantly improving this experience every day and

converGence remAInS tHe BeSt AnSWer to tHe multIple neeDS of tHe conSumer.

is done from the inside is noticed on the outside”: the more we simplify our internal operations, the simpler the process will be for the customer and the better his experience will be. To accomplish this we have started simplifying and standardizing our networks. This program will enable us to reduce in the long term the number of technical buildings and facilitate our interventions in the field. We will also invest substantially in our IT infrastructure and our support systems. This way we will be able to respond faster to our customers’ requirements. Finally, and at the same time as this internal simplification, we will also con-

Belgacom ANNUAL REPORT 2012 - 19

Belgacom is much more than a network manager. We will also be playing an increasingly active role in innovative services for families and businesses.

tinue to simplify our range of products and solutions. We are keen to make our offering more accessible and transparent for all our consumers.

Targeted innovation Innovation has allowed Belgacom to establish its leadership in mobile telephony, high-speed Internet and, more recently, digital television. Given the rapid technological changes, our strategy calls for increasing our investments in a series of key areas. Network modernization Continuing the development of 4G and further improving the quality of the 3G coverage is essential to consolidate our leadership on the mobile market. This is a unique opportunity to improve the customer experience in mobile Internet, everywhere and quickly. At the same time as extending the VDSL2 broadband coverage (85% of the population is already connected), we will be deploying “vectoring” in the next few years. This technology increases the transmission capacities of the existing networks and makes it possible to reach download speeds exceeding 50 Mbps. Innovative services for households and businesses Belgacom is much more than a network manager. We will also be playing an increasingly active role in innovative services for families and businesses.

For residential customers, we will not only speed up convergence, but also boost our digital, personalizable and multi-screen entertainment offering. Each member of the family will be able to use, as he or she sees fit, the possibilities available on the family platform. On the corporate market, Belgacom will step up its investments in cloud computing. Companies will thus be able to access their computer resources from our data centers on a self-service basis and completely securely. Mobile data and the “Internet of Things” (machine-tomachine) are two other important growth areas. Our greatest strength is being able to combine our expertise in these new fields with our network leadership. We will therefore continue to offer convergent ICT solutions and superior quality services to facilitate the activities of companies in an increasingly interconnected business world. To develop its innovative content and applications offering (see also page 20), Belgacom is relying as much on its inhouse expertise as on leading strategic partners (see page 22). The company will also continue to develop “intelligent systems”, i.e. made of items of equipment which can be interconnected, made to interact and controlled remotely. We will in this way be able to generate new revenue thanks to investments in “intelligent homes”, “intelligent offices” and even “intelligent cities”.

To see these three priorities through successfully, we intend to also reinvent the way we work In a saturating market, it has become crucial to increase revenues that can be generated by customers. To evaluate customers’ purchasing potential (which we call “value management”), we are developing a segmented approach based on different target groups of the public: the most technophile “premium” customers, families interested in bundles, young adults, price-sensitive consumers, etc. In addition, the digital revolution is changing the working and consumer habits of our customers. It also has an impact on the way in which we organize ourselves within the company. That is why we want to redefine the way in which employees of different generations connect, collaborate and communicate with each other. The new technologies should allow us to create a more involved, more efficient and more flexible organization, while preserving a pleasant working environment and maintaining social peace.

20 - Belgacom aNNUal RePoRT 2012

our StrAteGy

WHen tecHnoloGy IS

enHAnceD WItH content our content strategy can be summarized in three sentences: “what I want” (for all tastes, from the most general to the most local), “where I want” (on a Pc/mac, television, tablet or smartphone) and “when I want” (live or deferred). consumers want to take advantage of the digital revolution to entertain themselves in an intuitive and personal way. Belgacom is continuously fine-tuning its content offering to make life more pleasant for everyone.

“convergence” takes on its full meaning By watching the start of a football match on his TV, and subsequently on his smartphone, the consumer “experiences” convergence first-hand. This experience is no longer limited to the integration of the fixed and mobile networks. It is reflected in new ways of informing oneself, communicating or entertaining oneself. In this regard we are forging a close relationship with the customer by offering him the content he likes. For the customer perceives the value of our offerings better if, in addition to the basic services (Internet, TV, etc.), he receives personalized, high-quality content.

ever more interactive and personalized tv Digital television is becoming truly interactive. Since June 2012, Belgacom TV has been offering a new, more userfriendly and faster interface which makes it easier to navigate through the different

menus and search for programs. Television viewing is made more “intelligent” thanks to the “Recommended for me” service. This recommends films and TV programs to each member of the family according to his or her tastes, movie buff profile and viewer behavior. Everyone can define and refine their own profile through the Movie Me application. The customer becomes less and less passive in the face of a continuously expanding television offering. He is also much freer to enjoy his favorite programs when and where he wants: our “TV Everywhere” offering makes television easily accessible via a smartphone, tablet or computer.

WWW.tvpArtout.Be

DoWnloAD App ItuneS http://bit.ly/bgcapp3

DoWnloAD App GooGle http://bit.ly/bgcapp1

A wide choice to satisfy all tastes Our offering combines general content and more specialized programs to satisfy as many customers as possible. In this way, each member of the family can find what he or she is looking for. We already offer more than 200 channels, Belgian

Belgacom aNNUal RePoRT 2012 - 21

from the uefA champions league to behind-the-scenes footage of our clubs

and international, general and thematic. This diversity is especially appreciated by the large international community in Belgium. Moreover, agreements concluded with the major American and independent producers enable us to regularly add to a catalog containing thousands of films. From super productions to art and experimental films, everyone can create their own cinema moment. The largest TV channels also offer us the opportunity to watch and rewatch an infinite number of current or older programs à la carte. Lastly, we offer concerts and comedy shows without you having to leave the comfort of your arm chair.

20 million music tracks at your fingertips Music fans, too, enjoy an ever wider choice, thanks to our exclusive partnership with Deezer, the music service, whose number of tracks has been increased to 20 million. This gigantic digital record library, accessible via your PC, Mac, smartphone or tablet, is easy to browse through thanks to an intuitive system that allows users to search by title, by album or by artist. The service also provides recommendations based on the user’s personal tastes. Customers can share their music on the social networks and discover before everyone else, exclusive musical content of Belgacom: video clips, concerts, etc.

In 2012, we launched Belgacom 11+, a new channel devoted 100% to football, offering exclusive coverage of all UEFA Champions League matches, the top Spanish and Portuguese championships, multi-live coverage of the Jupiler Pro League and original programs on the best Belgian and European clubs. In that regard, our reality TV program “Anderlecht in UEFA Champions League” has taken our subscribers behind the scenes of RSC Anderlecht’s European adventure. We have also accompanied Charleroi all along its Division 2 journey up to Division 1 through our program “En route vers la D1” (“On the way up to Division 1”). The clubs of WaaslandBeveren and Eupen also opened their doors to our cameras for these unique reports, greatly valued by supporters. Local football “near where you are” therefore remains one of our priorities. That is why all Belgacom TV customers have free access to our Belgacom 11 channel, which every week shows the five Saturday matches of the Jupiler Pro

An attachment to local content Agreements with the world’s largest production companies are perfectly compatible with the promotion of local content. This is very important to differentiate ourselves and reinforce our proximity with our customers. Football is a perfect example of this.

WWW.BelGAcom11.Be

DoWnloAD App ItuneS http://bit.ly/bgcapp4 DoWnloAD App GooGle http://bit.ly/bgcapp5

League along with the two top matches of the Belgacom League (Division 2).

Sponsoring to reinforce our content offering Our desire to share events close to the hearts of the public is also reflected in the field of sponsoring. Belgacom supports numerous sports clubs and projects, both amateur and professional. We are also very proud to sponsor Division 2 football, renamed the “Belgacom League”, the top matches of which we broadcast every week on Belgacom 11. We are also present in Division 1 with clubs such as RSC Anderlecht, Club Brugge and Sporting Charleroi, and in Belgian basketball through Belgacom Spirou and the Antwerp Giants. In conjunction with our music offering, we sponsor various festivals (Rock Werchter, Pukkelpop, the Queen Elisabeth competition, etc.) and encounter more than one million visitors there every year. Our sponsoring enables us to offer exclusive music and sporting events to the great pleasure of our customers. Our content and sponsoring strategies are thus closely linked.

OUR STRATEGY

22 - belgacom ANNUAL REPORT 2012

The innovation race is not won alone The market is changing at an ever-increasing pace. Consumers expect us to deliver applications and personalized services that meet their requirements and which they find appealing. To stay ahead of the game, Belgacom has developed an open â&#x20AC;&#x153;innovation ecosystemâ&#x20AC;? in cooperation with external partners.

Sharing to achieve a win-win situation Our partnership strategy is characterized by a high degree of close, mutual cooperation with each partner. This relationship is therefore different to the one we have with traditional suppliers. We work together on our vision of the market and how we can respond to it as effectively as possible. In this context, we work on a common business plan and agree to share a certain number of risks, which are sometimes unavoidable given the uncertainty of the new markets. This was the case in 2012, for example, when the financial difficulties of OnLive had an impact on our partnership in cloud gaming.

Nevertheless, in the end, from Belgacomâ&#x20AC;&#x2122;s perspective, the mutual benefit translates into a saving of time and money when launching innovative services, while the partner benefits from having access to our unique expertise and from the excellence of our networks.

Vodafone, access to global expertise The Vodafone Group, the international leader in mobile telephony, provides us with invaluable information on the implementation of new technologies in other countries. This long-time partner shared its good practices with us regarding the installation of the new-generation network and machine-to-machine (M2M) communication systems. At the

Belgacom aNNUal RePoRT 2012 - 23

in a marKeT ThaT demands more and more services and an ever fasTer speed of execuTion, our parTnership sTraTegy allows us To complemenT our range of producTs and services while concenTraTing our invesTmenTs and inTernal resources on our core Business.

Jinni, giving the Softkinetic, another customer control over way of interacting with his television experience the digital world

commercial level, we also benefit from Vodafone’s critical mass and international profile when purchasing certain equipment. This partnership also gives us privileged access to other members of the Vodafone “network”, such as Swisscom, with which we have strengthened our cooperation. With this Swiss operator, which is active in a similar environment to ours, we exchange relevant tips on market demand and the implementation of new services.

“think global, act local” with Samsung The privileged relationship between Belgacom and the Korean electronics leader is playing a big part in the breakthrough of tablets and mobile Internet in our country. Samsung provides worldclass products which Belgacom adapts and positions according to the special characteristics of the local market. This “think global, act local” approach is of mutual benefit to the two partners.

This Israeli company has developed a unique entertainment discovery and recommendation application. Jinni is designed to adapt to the tastes and preferences of TV viewers on the basis of a profile linked to each of them. Jinni recommends, in an intuitive and completely personalized way, live or ondemand films or programs that the viewer is likely to enjoy. By integrating Jinni in its TV offering, Belgacom has reversed the viewer’s TV experience by giving him control over his personal entertainment world.

Through its stake in the capital of SoftKinetic, Belgacom has become involved in the development of gesture-control platforms in the entertainment sector. Based in Belgium, SoftKinetic offers applications allowing gesture recognition through, among other things, 3D sensors, thereby enabling users to control their screen, not with a click or via tactile contact, but with gestures. Intel and Texas Instruments have already integrated this completely innovative technology into their strategy. Belgacom, for its part, is in an ideal position to implement this technology when the market has matured sufficiently.

Awingu, local partner for the cloud Belgacom also has innovative partners at local level. In the highly strategic cloud computing sector for example, the operator has joined forces with Awingu. This Belgian company is pioneer in the management of data centers and cloud computing services. Belgacom also has a minority holding in this company, which is based in Lochristi (Ghent).

24 - Belgacom aNNUal RePoRT 2012

our netWorkS

our netWorkS form tHe BAckBone of our offer OF quAlIty ServIceS Belgacom is reaping the fruits of its continuous investments in its networks. The most visible example was undoubtedly the 5 November launch of our mobile 4g network in eight cities: we are the first Belgian operator to have done so. we also further extended our vdsl2 network so we can offer a fast Internet connection to even more customers. This continuous technical progress goes hand in hand with our companyâ&#x20AC;&#x2122;s permanent effort to improve its customer service.

first 4G operator in Belgium The successful launch on 5 November of the first 4G network in eight Belgian cities (Antwerp, Mons, Ghent, Hasselt, Leuven, LiĂ¨ge, Namur and Wavre) once again demonstrated our technological leadership in the mobile field. Our customers were also able to take advantage outside their homes of the strong growth in the number of points

of access to our public Wi-Fi network. More than 600,000 Fon hotspots are now available to our customers (compared with 100,000 end-2011). In addition, new central equipment for mobile data communication was set up in our network. This is based entirely on Internet technology, which provides more optimal stability and reliability in use for our customers. vIDeo - http://bit.ly/bgcvideo1

Belgacom aNNUal RePoRT 2012 - 25

our cusTomers value our ever more proacTive service. for example, cusTomers who have insTalled Their inTerneT or Tv connecTion Themselves are conTacTed By us To checK ThaT everyThing wenT To plan and wheTher we can help Them in any way.

+ response “Our customer approach must be based less on products and technology and more on all embracing customeroriented solutions.”

www.belgacom.com/ bmcvideo

85 % of the population has access to fast Internet

We continued with the rollout of the VDSL2 network and brought optical fiber closer to our customers. In March 2012 we connected our millionth fast Internet line. By the end of the year we reached as much as 85 % of the population which makes us one of the absolute leaders in Europe in terms of coverage of fast Internet connections. Indeed, the vast majority of our customers can enjoy an ultra-high-performance Internet connection with a speed of 30 Mbps and HD television of high quality.

up towards 50 mbps In 2012 we also announced our plans for the coming years to roll out the new vectoring technology on our network. This technology ensures even better performance of the VDSL2 technology on existing copper lines. Our first tests in real-life conditions – an absolute world first – confirmed that most of our customers will be able to reach individual speeds of 50 Mbps.

Guaranteed speed for everyone’s comfort Thanks to the investments in VDSL2 our fixed network is attaining ever-greater download and upload speeds. In contrast to coax cable, our network topology makes it possible to guarantee a specific speed for each individual connection. This means the bandwidth does not have to be shared with other customers on the network. In addition, it offers us special opportunities to differentiate ourselves from our competitors in the field of new services.

Geert Standaert Executive Vice President Service Delivery Engine and Wholesale

more than 1 million fast Internet connections (VDSL2)

92%

coverage with our tv offering

more user-friendly interfaces Besides investing in the performance of its networks, Belgacom also worked on a number of its key products in 2012 with the specific aim of increasing userfriendliness for the customer. To that end, the Belgacom TV interface was given a thorough overhaul to make it simpler for our customers to navigate through the ever-wider range of content and features. We also launched new cloud applications

97%

more than 97% of outdoor coverage for our 3G network

8 cities

covered by our new mobile 4G network

with which our business customers can create and configure their own virtual data center in just a few clicks.

more proactive services In 2012 our customer management became even more proactive. For more complex installations requiring outdoor work we were better able to arrange for all the necessary interventions to take place on the same day, meaning that the customer only has to stay at home one day. For connections of new-build sites or large-scale renovations, we concluded an agreement with the professional associations of electricians (Fedelec, Nelectra and LVMEB) to coordinate the installation of electricity and telecommunications.

26 - Belgacom aNNUal RePoRT 2012

our netWorkS

6.6 GWh

more than 600,000

energy saving in 2012 and

137 GWh a new, exTremely green daTa cenTer

The construction of our new data center in evere is nearing completion. The opening is planned for 1 february 2013. This 2250 m2 large data center will become the benchmark in energy performance, the aim being to comply with a maximum pue index of 1.5 (2 for most data centers in europe). an innovative cooling system that operates up to an outside temperature of 22° (Kyotocooling) will make an important contribution to saving the necessary energy. special attention will be paid to optimizing air flows so the cooling operates as closely as possible to the servers’ core. in practice this means that we will use curtains or plastic partitions to close off the server racks, screen off all spaces that do not require any cooling, etc. in keeping with its plan for transparent communication, Belgacom will display the pue* figure of its new data center in real time in the visitors’ area. * pue stands for “power usage effectiveness” and shows the proportion between the electrical power that enters the data center (incl. cooling, etc.) and the amount of power used by the iT equipment itself.

Http://mApS.fon.com

At the same time we improved our repair services through more efficient filtering of customer calls and faster exchange of information with the experts involved. Moreover, our field technicians received a new tool for managing equipment and spare parts which greatly simplifies the process, with equipment no longer being sent to and fro unnecessarily.

energy-efficient data centers

Seeing through the eyes of the customer

Belgacom’s effort to reduce its CO2 emissions is rewarded by a good ranking in both the Carbon Disclosure Project (https://www.cdproject.net) and the European “ET Carbon Rankings” of the Environmental Investment Organisation, an independent NGO. The regularly updated rankings can be consulted on www.eio.org.uk.

An example of the special attention we pay to the customer is the Outside In program, in which we encourage all our employees to put themselves in the shoes of the customer. With this program we want to ensure that our customers have an even better experience with our services for fixed and mobile.

Green technology

vIDeo - http://bit.ly/bgcvideo11

public WiFi access points

cumulative energy savings since 2009

To reduce our CO2 emissions by 70 % in the period from 2007 to 2020 in line with our strategy, various objectives were defined. For example, we are striving for a 25 % increase in the energy efficiency of our data centers and the fixed and mobile network. With the optimization of our mobile network we achieved at least 20 % in energy savings.

Belgacom constantly invests in its data center infrastructure in order to achieve the highest possible availability with the lowest possible energy consumption. Various adaptations in the existing data centers improved the energy efficiency of the server rooms in 2012. As a result, we already achieved a PUE average of 1.68 at the end of 2012.

Belgacom aNNUal RePoRT 2012 - 27

tHAnkS to temporArIly eXtenDInG our netWork cApAcIty At lArGe eventS SucH AS tHe pukkelpop feStIvAl, We enSureD tHAt 98.55% of cAllS AnD 98.66% of teXt meSSAGeS reAcHeD tHeIr DeStInAtIon ImmeDIAtely. vIDeo - http://bit.ly/bgcvideo3

Stepping up efforts in 2013 We are continuing to invest in the quality and coverage of our networks; VDSL for fixed lines and 3G and 4G for mobile connections. The 4G network, which is currently available in a number of large cities, complements the 3G network, without replacing it. We will therefore also continue to extend the 3G coverage. We will endeavor to approach things even less in terms of technologies and more in terms of all-embracing customeroriented solutions. Such an approach means that we must continue to simplify and unify our product range. It also means that we must optimize our internal support processes to obtain a central idea of the customerâ&#x20AC;&#x2122;s needs. To that end, we launched an ambitious program to remodel our IT and simplify interactions with the customer.

+ less nuisance

from digging works

Thanks to better cooperation and communication between the different teams involved in minor and major public works, the nuisance caused to people living in the vicinity was considerably reduced. accordingly, four out of five municipal authorities state that they are satisfied with their collaboration with Belgacom.

28 - Belgacom aNNUal RePoRT 2012

corporAte SocIAl reSponSIBIlIty

convIctIonS to SHAre

ThIs meaNs BecomINg INvolved To fINd solUTIoNs To The gReaT socIeTal challeNges whIch we caN acT oN. sUch as PRovIdINg eveRyoNe wITh secURe access To The wealTh of PossIBIlITIes of The dIgITal woRld.

Belgacom aNNUal RePoRT 2012 - 29

enhancing access to communications

vAlueS contrIButInG proGreSS

enabling a low-carbon society

IT Is also aBoUT TURNINg oUR coNvIcTIoNs INTo coNcReTe acTIoNs To RedUce co2 emIssIoNs; solUTIoNs To RedUce oUR TRavel aNd To Recycle BeTTeR. aNd IT has always BeeN aBoUT sUPPoRTINg The commUNITIes amoNg whIch we lIve... BecaUse They also have loTs of RIches To shaRe.

corporAte SocIAl reSponSIBIlIty

30 - Belgacom aNNUal RePoRT 2012

+ more information on www.belgacom.com/responsibility we welcome your feedback on our csR strategy and reporting csr@belgacom.be

A reSponSIBle AnD SuStAInABle BuSIneSS leADer

eur 2.3 million to support our communities

-63%

CO2 emissions since 2007

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

15,000 kids

trained on safe use of Internet and mobile phones in 2012

Belgacom aNNUal RePoRT 2012 - 31

“we wanT To conTriBuTe To a BeTTer fuTure, for socieTy and iTs environmenT.” didier Bellens – ceo

5,000

hygiene kits distributed to the homeless

Our significant investment in Belgium’s digital infrastructure (EUR 753 million) improves access to technology and essential services, empowering people and businesses to interact while generating economic benefits. We became pioneers in Belgium by developing a catalog of phones and applications for people with a disability, based on tests performed on a regular basis by an independent panel of disabled people. The catalog allows customers with a disability to choose a mobile phone, smartphone or tablet that meets their specific needs. +

WWW.BelGAcom.Be/HAnDIcAp

12,000 pcs distributed to schools & associations since 2010

1 enhancing access to communications

Climate change

2 encouraging a responsible product use

Ageing population

3 enabling a low-carbon society

4 ethical and responsible operations (employees, suppliers, communities)

materiality matrix

High

We use a materiality process to determine the social and environmental issues that are important to our stakeholders and relevant to our business. The choices arise from the results of a wide range of inquiries, including our dialogue with internal and external stakeholders, the requirements of international bodies and national legislation, monitoring of societal trends, and benchmarking of our peers. This year, we conducted an online survey with various types of stakeholders which confirmed that we were addressing the most relevant CSR issues, although priorities differ slightly according to the type of stakeholder.

Access to communications

Online safety

enable a more inclusive, safer and greener (e)-society

Green customer solutions

Employment issues

Customer satisfaction Electromagnetic fields & health

Corporate Governance and Compliance

Importance for stakeholders medium

SeverAl cSr cASe StuDIeS cAn Be founD tHrouGHout tHIS ActIvIty report AnD more DetAIleD InformAtIon on cSr IS AvAIlABle on WWW.BelGAcom.com/reSponSIBIlIty

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

Digital divide

Ensure ICT education E-waste and handset recycling

Community investment Responsible purchasing Responsible network deployment

Biodiversity

Water

Fair competition Responsible marketing

Digital inclusion & accessibility Privacy & safe use of products Energy & CO2 efficiency

Employee volunteering

Waste management

low

The issues identified in the top-right corner of our materiality matrix constitute the basis of our strategy.

Commitments Strategy challenges

our cSr strategy

As a matter of fact, our Vice-President in charge of CSR reports directly to the CEO. While the strategy and action plans are coordinated by his CSR team, the ownership is increasingly shifted within our operations and business units.

low

medium current or potential impact for Belgacom

High

corporAte SocIAl reSponSIBIlIty

32 - Belgacom aNNUal RePoRT 2012

our efforTs over The pasT years have Been recognized By independenT parTies, as demonsTraTed By our inclusion in various csr indexes such as eThiBel susTainaBiliTy index, aspi and Triodos susTainaBle invesTmenT universe.

78%

of waste We focus on improving digital literacy of citizens, helping more people get online and enjoy the benefits of the digital society. Web Experts, for-instance, stimulates youngsters and their classmates to share their Internet knowledge with the elderly. We continued to support various ICT training centers and started offering free Internet and digital TV training courses in our Belgacom shops. In total, we helped more than 12,000 disadvantaged people to enhance their digital skills. vIDeo - http://bit.ly/bgcvideo14

responsible product use We encourage a safe and responsible use of our products, and focus in particular on providing transparent information on electromagnetic fields and health and

on protecting children online. This helps us to mitigate potential financial and reputational risks, and to build trust with our stakeholders. For instance, in 2012, our employees trained 15,000 children on safe use of Internet and mobile phones in 750 primary school classes, in collaboration with Child Focus (Belgian Safe Internet Centre) and Microsoft. vIDeo - http://bit.ly/bgcvideo15

low-carbon society We are committed to playing an important role in preserving the environment and moving towards a low-carbon society. Our aim is to reduce our CO2 emissions by 70% by 2020 (2007 baseline), to help our customers lower their environmental impact and costs, and to involve our stakeholders.

recycled

+ philippe courard

State Secretary for Social Affairs, families and the Disabled: “means of telecommunications are fundamental tools which open new doors for people with a disability. Belgacom therefore deserves to be thanked and congratulated for its initiative. and may it inspire other service companies to embark on the same path!”

+ eric De ripainsel

Sales account manager and Safer internet project volunteer: “Through this program, i really got the feeling that i was doing something useful for the children, the schools and the teachers. we are responding to a real need and i’m very proud that Belgacom offers me this opportunity. i will advise all my colleagues to take part!”

WItH GooDplAnet.Be, We Inform our employeeS of our Green InItIAtIveS.

Since 2007, we’ve managed to lower our own carbon footprint by 63% (-70% target by 2020), delivering EUR 13 mio. in cumulative energy savings. We enable energy and CO2 savings for our customers through our “ICT for green” solutions, like videoconferencing or cloud solutions. And we have collected nearly 200,000 mobile phones for recycling and refurbishment since 2008 with our partner Zone Impact, thereby preserving natural resources and enabling access to mobile communications in less developed countries.

ethical and responsible operations We aim to conduct our business in a responsible and ethical way vis-à-vis our employees, our suppliers and the communities in which we operate. This helps us to build trust with our stakeholders, protect our reputation, enhance employee engagement, contribute to social integration, and forge stronger links with our suppliers and communities. Our Corporate Governance Charter, our Code of Conduct and our compliance office and policies, underpin our approach to responsible business.

Belgacom aNNUal RePoRT 2012 - 33

number of people trained on Ict skills in Belgium 14,000 12,000

Supporting our communities We gave back EUR 2.3 mio. through our community investment activities, through financial donations, in-kind support, and volunteering of our employees. We continued to provide broadband connectivity to Bednet and Take-Off, enabling children with long-term sickness to remain in contact with their school classes. We provided shelter, food, and warm clothing to homeless people in one of our buildings. Our employees financed the distribution of 5,000 hygiene kits for the homeless and we enabled the fundraising of EUR 154,140 via SMS.

10,000

responsible supply chain

8,000 6,000 4,000 2,000 0

2010

2011

2012

-63%

-70% Target

2012

2020

CO2 emissions

2007

Our goal is to raise standards throughout our supply chain, in close collaboration with our suppliers. By integrating our CSR standards in our procurement procedures, we can maintain our good reputation and really make a difference for the communities in which our suppliers are active.

vIDeo - http://bit.ly/bgcvideo16

We contribute to Belgian society as one of its biggest employers and by paying more than EUR 1.6 billion in taxes, social security, and dividends.

Positive working culture We believe in the professional development of our employees, we work towards equal opportunities and we promote work-life balance through many initiatives. We have been selected as “Top Employer” for several years. +

more DetAIlS on p.52

We trAIn cHIlDren to A reSponSIBle uSe of Internet AnD moBIle pHoneS.

We apply labor, ethical, safety and environmental standards for suppliers, and we monitor compliance through questionnaires and discussions with our vendors. This year, 235 suppliers filled in our CSR self-assessment questionnaire, and 92% of our “high-risk” vendors responded positively with a corrective action plan.

34 - belgacom ANNUAL REPORT 2012

our customers

stories to share

This means listening to and understanding our customers to build up a relationship of trust with them

Belgacom ANNUAL REPORT 2012 - 35

Because we are convinced that our products, combined with attentiveness, a smile and pragmatism can make their lives better. Because our priority is always to offer them the means to communicate their story whenever they want. Easy-to-use products and solutions

simplicity everywhere pleasure

Innovation in pursuit of a better customer experience

Residential customers

36 - belgacom ANNUAL REPORT 2012

A clear strategy: offer more value

Convergence has become a reality Communicating and accessing content anywhere, anytime and on any device, whether fixed or mobile, is no longer the preserve of the privileged few. In 2012, Belgacom enhanced and simplified its offering in order to make convergence a daily reality for all its residential customers.

Following the many innovations in 2011 (partnership with Samsung, and TV Everywhere over the fixed, mobile and Wi-Fi networks), Belgacom has continued to offer more value to each customer. How? By enabling customers to access, simply and everywhere, new applications and innovative content. More than ever, Belgacom is establishing itself as the single doorway to a host of communication and interaction possibilities. We note with pride that our strategy has made it possible to turn “convergence” into a reality for hundreds of thousands of customers. In 2012 this reality manifested itself in the success of our various “packs”, combining fixed and mobile telephony, mobile TV and Internet, 3G and 4G networks and exclusive content.

A simplified offering Technological progress cannot be shared by everyone unless it is made accessible through easy-to-use products and solutions. That is why Belgacom has considerably simplified its commercial offering. For example, we focused our mobile telephony products on three major customer segments: customers who essentially communicate by phone and via text messages (Easy offering), those who wish to add mobile Internet to that (Smart offering) and, finally, those –

Belgacom aNNUal RePoRT 2012 - 37

www.belgacom.com/bmcvideo

+ response “2012 was the year in which the convergence of networks and terminals took concrete form in the daily lives of our customers. We are proud of having been able to show that it is possible to be connected everywhere. In simple fashion.”

we made our offering even more advanTageous: more calling minuTes and more download capaciTy for The same price.

Dominique Leroy Executive Vice President Consumer Business Unit

young people especially – who are keen on unlimited texting and mobile Internet (Generation MTV offering). During the last quarter we made our offering even more advantageous: more calling minutes and more download capacity for the same price. And we proactively contacted customers, offering to optimize their rate plan.

streaming access to more than 20 million music tracks on Deezer, or Belgacom 11+ for football fans.

“All-in” packs at attractive prices

It is precisely billing that we are paying special attention to. We are aiming for full transparency in our pricing. We absolutely want to avoid our customers getting an unpleasant surprise when seeing their bills.

Our “combined pack”, Internet Everywhere, has become the reference for all consumers wanting to surf the Net, interact on the social media and read their e-mails, whether at home or on the go. They have access to the leading Belgian multi-use network (fixed, Wi-Fi, Fon and 3G) by means of a single subscription, without any extra costs. Those who opt for a pack even receive a discount of at least EUR 5 per month on their mobile subscription. In addition, customers who choose the “all-in” Maxi Pack, benefit not only from “connectivity everywhere” but also from free rental of a tablet or one of the following options: a selection of Belgacom TV channel packages, a Pass of their choice,

content and applications to suit all tastes

Whatever they choose, consumers can centralize all their telecom needs on a single bill.

more transparent pricing

To that end, since June 2012, we have been billing a flat rate of EUR 99 for the installation of Internet or TV by a technician. This simplification has significantly reduced the number of complaints about this subject. We have also simplified our mobile data rates. The pricing is now based on the volume of data transferred. If a customer surfs the Internet abroad, he is regularly informed by SMS about his usage in real time. And the customer’s connection is cut if he exceeds by EUR 60 the limit set by his subscription.

1,237,000

“pack” customers

customers tv 51,000 subscribed to the TV Everywhere offer in 2012

10 million pages

of paper saved thanks to zoomit electronic billing

To offer our customers ever more value, we also provide a range of varied, sometimes even exclusive, content. In addition to the 80 channels included in the basic package, Belgacom TV offers six thematic channel packages and a wide choice of on-demand programs and films. Moreover, since 2012, a growing number of channels and programs can be watched anywhere, on a computer, tablet or smartphone, thanks to our TV Everywhere service. Belgian sport remains a major asset of our digital TV offering. All Belgacom TV subscribers have free access to our football (Belgacom 11) and basketball (Belgacom 5) channels. Every week and exclusively on Belgacom TV, they can watch the five Saturday matches of the Jupiler Pro League and the best of the Belgacom League (D2) and of Division 1 basketball. +

WWW.BelGAcom11.Be

reSIDentIAl cuStomerS

38 - Belgacom aNNUal RePoRT 2012

Belgacom was The firsT To launch 4g Technology: in Belgium, in 8 large ciTies, and in The grand duchy, Through Tango.

Belgacom tv applications In December 2012, Belgacom also launched its Belgacom TV Application store. This virtual shop offers statistics for football and basketball fans, “TV maps” to search for and view on TV any location in the world, and “Chocolapps”, an edutainment application for children.

Belgacom 11+ In 2012, we launched Belgacom 11+, a pay channel 100% dedicated to football, something that is unique in Belgium. Here, customers can watch the Jupiler Pro League in “multilive” mode, the UEFA Champions League and the top Spanish and Portuguese championships.

music everywhere Through our partner Deezer, we provide streaming access to more than 20 million music tracks: an immense record collection within easy reach via your computer, mobile telephone or tablet.

Innovation in pursuit of a better customer experience Since June 2012, our digital television offering is built on a completely new TV interface, making it easier to navigate and search for programs through the different menus. A free recommendation service advices customers on the basis of their movie buff profile or television viewer habits. Each family member can

85%

describe the procedure of connecting to our eServices as “simple”.

define his or her own profile and enhance it by allocating a score to a series or a film. Belgacom thus offers a new way of watching TV, one that is even more interactive and personalizable.

With more than

ever more powerful networks

85% of our customers

Hello! 3,000,000 visits a month, Hello!

is one of the most popular free mobile applications in Belgium

vIDeo - http://bit.ly/bgcvideo10

DoWnloAD App Http://WWW.BelGAcom.Be/Hello

Improving the customer experience is also achieved through continuous investment in our networks. Belgacom was the first to launch 4G in 8 Belgian cities. This technological advance manifested itself on a commercial level in the launch of 4G-specific terminals and rate plans. For fixed Internet too, the technology of vectoring will enable our customers to attain speeds of up to 50 Mbps in the coming years.

New mobile applications In the summer of 2012, Belgacom launched the mobile application “I am OK”. This allows users to easily reassure their nearest and dearest in the event they are at or near the scene of a serious or exceptional incident. Launched one year earlier, the Hello! mobile application confirmed its success. It enables our customers to obtain an overview at all times of their telecom usage and to better manage their budget. It is considered one of the most popular free mobile applications in Belgium, with close to 400,000 downloads in 2012.

Sales channels closer to the customer Our sales channels largely determine how our customers perceive our level of service. Our strength lies in offering our customers the channel that suits them best: one of our many points-of-sale, the telephone or the Internet.

A new point-of-sale concept In December we inaugurated a new shop concept in the Westland Shopping Center of Anderlecht. In this point-of-sale we provide customers with a complete experience, by immersing them in the world of possibilities that Belgacom offers.

A more personalized service We want to provide a personalized service to each customer who visits us. For example, customers purchasing a smartphone or a tablet can count on a salesperson’s help to configure the device so they can use it as soon as they leave the shop. In 2002, three smartphones out of four and almost 100% of all tablets were configured on-site. That is an undeniable plus-point when it comes to customer satisfaction. To help reduce the digital divide, 13 of our shops also opened their doors to provide free courses on how to use the Internet and Belgacom TV. More than 1,000 people, customers and non-customers alike, followed these courses.

Belgacom aNNUal RePoRT 2012 - 39

our shop of The fuTure

cuStomerS purcHASInG A SmArtpHone or A tABlet cAn count on A SAleSperSonâ&#x20AC;&#x2122;S Help to confIGure tHe DevIce So tHey cAn uSe It AS Soon AS tHey leAve tHe SHop.

Given the rapid changes in technology, we want to provide ever-better guidance to our customers and make their lives easier by focusing on the complementarity of our different points of contact, whether they be face to face, by telephone or via the Internet.

An extensive, diversified network To further improve our service to customers, we launched a pilot project with KrĂŤfel, installing a Belgacom stand in three of its stores. Here, customers can seek the advice of a specialist. In 2012, in order to comply with the competition rules, we disposed of a number of our The Phone House points-of-sale. The 57 shops we have kept remain an important component among our sales channels for reaching out to a broader and more diverse public.

our new point-of-sale concept, established in the westland shopping center of anderlecht, allows customers to immerse themselves in the world of possibilities offered by Belgacom. special emphasis is placed on education and discovery, as well as on sales and personalized service. it is essential that the customer becomes familiar with our solutions in their entirety and feels guided so as not to lose his way in the world of technologies. we are planning to open several other shops of this type in 2013. vIDeo - Http://vImeo.com/58870784

40 - Belgacom aNNUal RePoRT 2012

reSIDentIAl cuStomerS

By launching a new service cenTer By chaT, availaBle monday To friday from 9 a.m. To 9 p.m., scarleT comBines flexiBle service and compeTiTive prices.

A clearer website Web experts - when youngsters train seniors Launched in October 2011, Web Experts has made it possible to train more than 1,500 seniors on Internet basics. This project was driven by some 100 initiatives from schools and associations, or from young people in a personal capacity. The “project of the month” receives an additional allowance of EUR 1,000. The “project of the year” receives a handsome fund boost of an extra EUR 4,000. As for the best individual project, that wins a Samsung tablet. +

WWW.WeBeXpertS.Be vIDeo - http://bit.ly/bgcvideo14

A range of terminals adapted for people with a disability A pioneer in Belgium, Belgacom produced the first catalog of terminals and applications for people suffering from a visual, hearing, motor or mental disability. These people can choose the smartphone, tablet or rate plan most suited for their type of disability. This catalog is the product of tests conducted by people with a disability, in coordination with the nonprofit association ASBL PasseMuraille, and will be updated regularly. +

WWW.pASSe-murAIlle.Be

Our website is increasingly becoming our customers’ interaction channel of choice. In this regard, we have merged our two websites, belgacom.be and proximus.be, into a single, clearer and more convenient site. In one click, customers have access to our whole range of services and can place their orders in just two clicks. Everything is designed to make navigation simple, intuitive and fast. The customer thus occupies a central place in our communication. For example, we have created a section dedicated to parents who would like to teach their children on how to use the Internet safely. It is important that the whole family can take advantage of Belgacom’s products. +

WWW.BelGAcom.Be

Interaction on the social media Our customer proximity is, of course, increasingly achieved through the social media. In 2012, Eva, our virtual operator, managed about 15,000 interactions on Twitter and various forums. We have also used Facebook to look for customers willing to test our products and services. Our customers’ involvement via the social media will continue to grow in the months and years to come. +

WWW.fAceBook.com/BelGAcom

tango in quadruple play Belgacom’s Luxembourgish brand was the first in the Grand Duchy to market 4G services for smartphones, tablets and PCs. For just EUR 15 extra per month, Luxembourgish customers benefit from a 10 times faster connection speed and a volume of 50 GB. In 2012, Tango was the only player in the Grand Duchy to combine voice and data on the 4G network. Tango also consolidated its entertainment content offering by launching Tango Generation, a quadruple-play offering integrating digital television. Luxembourgish customers now have access to a wide choice of channels and programs. Like its parent company, Tango enables its customers to benefit from the advantages of convergence by offering all-in packs. Capitalizing on the success of tablets, Tango offers deals combining devices and 3G bundles. There is certainly a high degree of interest in these, as our sales of connected tablets have increased by 50%. In the field of smartphones, Tango was the first official reseller of the iPhone 5 in Luxembourg.

Belgacom ANNUAL REPORT 2012 - 41

12,000

88%

people trained on the use of new media

The proportion of custom足 ers satisfied by the speed of the Belgacom TV interface

Our challenges for 2013 We will continue our educational efforts to make it clear to everyone what our fixed and mobile networks can offer in the way of possibilities: telephony, Internet and digital television. This is accomplished by simplifying our offering still further. We will also have to create powerful communication campaigns which highlight our proximity with the customer.

Scarlet, the low-cost alternative For customers who are particularly priceconscious, Scarlet proposes an offering complementary to that of the Belgacom brand. 2012 was an important year for Scarlet with respect to mobile telephony. In June, the brand launched prepaid cards that are among the most competitive on the market and regularly adapts its offering to maintain very advantageous prices. Scarlet also extended its distribution network, mainly in Brussels, in order to improve its market penetration rate. Its points-of-sale are Conway, Alvadis, Lyfra, Cartomat and The Phone House.

Through our partner Deezer, we provide streaming access to more than 20 million music tracks.

42 - belgacom ANNUAL REPORT 2012

Business customers

Higher added-value services for companies

+24% Increase of customers who opted for a pack with at least 3 products

76,000

Up to SME customers

In 2012, we launched new services and solutions bringing considerable added value to companies, from SMEs to multinationals. By continuously improving its network and IT solutions, on-site or in the cloud through remote servers, Belgacom was able to strengthen its leadership position on the professional market.

use our cloud solutions, i.e. twice as many as in 2011

+ 10%

Growth in the number of mobile users on the corporate market

Belgacom aNNUal RePoRT 2012 - 43

wiTh Becloud acceleraTe, Belgacom provided Technological supporT To 12 innovaTive commercial cloud proJecTs developed By Third parTies.

www.belgacom.com/bmcvideo

+ response “We are the only operator in Belgium to offer such a high level of integration of ITC solutions. Thanks to our wealth of innovative products and services and our proximity to our customers, we manage to strengthen our leadership every year”. Bart Van Den Meersche Executive Vice President Enterprise Business Unit

Growth of It and stabilization of our leadership in the telecoms market By offering companies services integrating both telecom and IT solutions, Belgacom was able to strengthen its leadership position in those two segments. In the telecoms segment, we were able to retain our market share. In the IT segment, which is also fiercely fought over, we saw our sales increase compared to the previous years.

Priority on service This growth is the result of our innovation strategy, applied mainly in the fields of cloud computing and mobile data. In contrast to a good number of its competitors, Belgacom in 2012 mainly concentrated on further improving its service level rather than on a price war. A wise decision! SMEs in particular, are increasingly opting for comprehensive service offerings combining telecoms and IT, voice and data, and fixed and mobile networks. For them it is the most efficient way of creating value for their customers and employees.

cloud computing: guaranteed flexibility Cloud computing makes it possible to access IT solutions over the Internet. It is growing more and more popular every year. Instead of installing the technology on his own premises, the customer connects to the required application via the public Internet or a private secured connection. The application is hosted in Belgacom’s state-of-the-art data centers. The advantages for the customer: he no longer needs to invest in expensive hardware and software or worry about maintaining and updating these. Everything is included in the service. This package is very flexible: each company can outsource part of its computer park, according to its strategic needs or available resources. In addition, the customer takes out a subscription: he is therefore billed only for his actual usage. +

WWW.BeclouD.Be

In 2012, Belgacom launched a series of innovations, making the company a key cloud player. Indeed, more than 76,000 companies are now using this new IT management system. We note two major developments in Becloud, our generic offering:

BuSIneSS cuStomerS

44 - Belgacom aNNUal RePoRT 2012

more than of our Sme customers

The number of new connections to our Explore network has grown by 23%.

are confident that they can rely on Belgacom to ensure their business continuity.

of their IT infrastructure in our strongly secured and high-performance data centers. This makes them free to concentrate on their core business.

+ Partouttoutletemps The sudpresse group (rossel) teamed up with Belgacom and samsung to launch a tablet designed for reading the group’s newspapers (partouttoutletemps.be) for a fixed amount per month, starting from eur 23, this offer, unique in europe, includes a tablet, mobile data and a subscription to the papers. +

WWW.pArtouttoutletempS.Be

Http://neWStABlette.leSoIr.Be

office & Go, the all-in solution for Smes Launched in 2012, Office & Go meets all the needs of modern SMEs as regards data transfer. This solution combines traditional Internet, mobile Internet and our Becloud solutions. It allows an SME to, for example, make back-up copies of its data in the cloud at any time and from any device (a PC, tablet, smartphone, etc.). To that we have added a 24/7 service and repair guarantee and extensive security features. Our customers can therefore make the most of their “connected office” with complete peace of mind.

vDatacenter : Infrastructure as a Service Reserving computer capacity and storage volume in a few clicks: that is possible too with Infrastructure as a Service (IaaS). This online distribution service has made Belgacom into a pioneer in Belgium. Companies outsource all or part

90%

+ 23%

In 2012, Belgacom improved the flexibility, speed and simplicity of its cloud solutions. Based on the “pay-as-youuse” principle, these solutions have also been grouped in our integrated offering, vDatacenter. This offering received a very positive welcome on the market. For a relatively low entry-level price, companies can be sure of having reliable computer systems that are compatible with the latest technology and always available. In 2012, Belgacom signed an agreement with IT supplier TechData. Through this, we have entrusted the distribution of our “IaaS” services to more than 2,500 vendors.

explore Smart networking: more intelligent network management One of our major achievements in 2012 relates to the management of our Explore data network. The “Application Aware Networking” service manages data traffic by prioritizing business-critical

applications. It can for example authorize business-related videos and block those which are not. It thus controls the use of available bandwidth much more effectively. Belgacom was the first in Europe to offer this service on a large scale.

unification of fixed and mobile telephony We also continued with the integration of our fixed and mobile telephony services. Our unified communications solution FMU (Fix Mobile Unification) extends a company’s set of fixed-line telephone features to its mobile phone users. This solution provides transparent pricing, with free calls between employees and optimized call routing.

An answer to the ByoD trend Thanks to this exclusive solution, companies can also respond to the growing demand from their employees to use their own smartphone in the workplace. Belgacom allows its customers to communicate completely securely and at low cost, regardless of the network or device used. It also offers much more than the mainstream services of a telephone operator. It provides unique solutions to companies wishing to adapt to the new working habits.

Belgacom aNNUal RePoRT 2012 - 45

all The cloud applicaTions offered By Belgacom are hosTed in daTa cenTers locaTed in Belgium. This local anchoring ensures ThaT The daTa remains confidenTial and is availaBle quicKly.

The Mobile Device Management & Protection solution makes it possible to manage and protect the mobile devices in a company. By combining it with FMU, Belgacom offers a comprehensive answer to the new BYOD (“Bring Your Own Device”) trends.

Sector-specific solutions to face the challenges of the future In 2012, Belgacom stepped up a series of partnerships with a view to developing high added-value services and applications in key sectors. Belgacom provides its technical expertise on network security and performance, while its partners, generally leading companies in their respective sectors, lend their technical know-how.

more efficient health care In collaboration with the health care sector, Belgacom is currently in the process of developing the HealthCloud project. This platform provides a userfriendly and practical answer to the sector’s IT needs. Already up and running, the www.rdvous.be portal makes it easier to set up appointments, both for the health care providers and for the patients. Some 400,000 households

+ PlaceOf as part of a partnership with the start-up placeof, the online directory assistance service 1307.be allows internet users to find professionals (plumbers, architects, lawyers, etc.) in their neighborhood and ask them for a quote online. +

WWW.1307.Be

BuSIneSS cuStomerS

46 - Belgacom aNNUal RePoRT 2012

+ BeSafe

and 2,000 providers have already had the opportunity to test the quality of the service and the great efficiency of this application. Belgacom also took part in a pilot project launched in the framework of Flanders Care in collaboration with the Christian Mutual Health Insurance Fund of Leuven. This project allows patients to communicate visually with a doctor, nurse or member of their family with the help of a tablet or smartphone.

Better controlled energy consumption In cooperation with several electricity grid operators, Belgacom launched the first pilot projects for efficient energy consumption. A certain number of homes, public buildings and offices were equipped with smart meters. These display a series of indicators in real time, allowing better power consumption analysis. The aim is to subsequently take the necessary measures to consume

Belgacom developed the Besafe service for organizers of large events to ensure optimal communication and security. in case of an emergency situation, the solution makes it possible to communicate important messages on giant screens.

less and encourage the emergence of a sustainable society.

Higher-performing public transport Smart meters are a perfect example of the possibilities afforded by the â&#x20AC;&#x153;Internet of thingsâ&#x20AC;? (machine-to-machine). Meters collect and save the data, and the IT systems to which they are connected analyze this data. This technology makes it possible to use resources more efficiently, such as in the energy or public transport sectors. For example, Belgacom was able to install this system in buses and trams of De Lijn, the Flemish public transport company. Vehicle travel data is transmitted in real time over the mobile network and collected by the public transport company. The data is then used to keep public transport users better informed and optimize the routes.

respect for the environment

AlreADy up AnD runnInG, tHe WWW.rDvouS.Be portAl mAkeS It eASIer to Set up AppoIntmentS, BotH for tHe HeAltH cAre provIDerS AnD for tHe pAtIentS.

Most of our new solutions (cloud, videoconferencing and teleworking applications) help to reduce CO2 emissions, because they are more energy-efficient or optimize the mobility of goods and people. As such, they are meeting a growing need, among our business customers,

Belgacom ANNUAL REPORT 2012 - 47

we are committed to responding even faster to market changes and adapting our solutions to our customers’ specific needs.

for management and sustainable, ethical and ecological development. In 2012, we developed the Publinergie service in collaboration with the company Dapesco. This is a cloud application enabling public bodies, large energy consumers, to continuously monitor their electrical power consumption and identify any disparities. In Wallonia, 27 public bodies have already made use of Publinergie to optimize their energy consumption.

ICT International In 2012, the four international subsidiaries of Telindus continued to grow, despite an unfavorable economic climate and a very competitive landscape. Telindus International grew at a faster rate than the respective markets in the United Kingdom, France, the Netherlands and Luxembourg. It thus significantly contributed to the growth of the Belgacom Group and its ICT activities in Belgium and abroad. The added value services are growing faster than products. Also, we expect that at least 50% of our total revenue will be derived from services as from 2016. Knowledge of the local market, the presence of teams in the country and our mix

of products and solutions are the main factors that set us apart from our competitors. In Luxembourg, for example, Telindus Telecom has continued to deploy innovative telecom and cloud services. For the second time running, it won the “Cloud Computing Provider of the Year” award, confirming its undisputed leadership position on the ICT market.

features, ensure an end-to-end service, etc. Finally, we will extend our cloud applications offering, paying greater attention to user-friendliness and innovation. Machine-to-Machine (M2M) communication services, too, have important growth potential and we will continue to develop them. Those are just a few examples. Our mission essentially consists of helping our business customers to develop their activities and do better business. Our “Solution Centricity” strategy is con-

A strong position to meet the challenges of 2013 Two major challenges await us in 2013. The first is to consolidate our leadership on the telecoms market. The second is to increase our market share in the IT segment whithin an economic climate that encourages few companies to launch new projects. Our sales and support teams will continue to offer integrated solutions (telecom and IT, fixed and mobile) rather than separate products. Indeed, customers know that they get more value for their money from these. We will also review our unified communications offering on the basis of our customers’ actual needs: optimize connectivity and traffic management, add

Our “Solution Centricity” strategy is construed in terms of solutions rather than products.

strued in terms of solutions rather than products. That is why, in the short term, we are committed to responding even faster to market changes and adapting our solutions to our customers’ specific needs.

48 - belgacom ANNUAL REPORT 2012

international operator customers

telecommunications without frontiers Through BICS, Belgacom, as a wholesaler (or â&#x20AC;&#x153;carrierâ&#x20AC;? in the industry jargon), provides a whole series of telecom solutions to more than 700 operators worldwide. This ranges from connectivity services for voice and mobile data to innovative international payment solutions. BICS is a world leader in this field, one which is not very visible to the general public, but which is crucial for the transmission and quality of international telecommunications.

Belgacom aNNUal RePoRT 2012 - 49

28 billion

minutes processed in 2012 (+3.4% compared with 2011)

more than 700 customers

www.belgacom.com/bmcvideo

operators worldwide

+ response

BICS (Belgacom International Carrier Services) is a Belgacom subsidiary, whose mission consists of ensuring that voice and data communications are properly routed across the different networks on an international scale. The services offered by BICS (voice, SMS, roaming, etc.) constitute the “junction” as it were, between several hundreds of operators around the world.

“We are very pleased that our customers from around the world have rewarded our continuous efforts to provide topquality products and services. This renewed confidence has enabled us to post strong growth despite a difficult economic environment.”

Daniel Kurgan, CEO of BICS (Belgacom International Carrier Services)

Impressive growth ... In 2012, despite the downward trends of the market, BICS recorded an increase of about 5% of its business and confirmed its growth on the market of mobile virtual network operators (MVNO). It also continued its forward momentum on the emerging segment of “over-the-top” players (OTT) which offer telecom services over the Internet without going through the traditional networks. BICS signed a partnership agreement with some of this segment’s leaders and is also proud to have been awarded the first 4G roaming contracts.

... in a difficult context “Carriers” such as BICS directly feel the strong competitive pressure exerted on their operator customers. Key activities such as voice traffic are at best stagnating. However, BICS is managing rather well on this highly fragmented market thanks to its technological expertise and innovative services, particularly in the still growing segments of international SMS and roaming.

the priority for 2013 Given the growth potential of these segments, BICS will continue to extend its range of messaging and roaming products and services. Our goal is to integrate the new technologies (4G, IP, Wi-Fi, etc.) into solutions with a high added value. On a strategic level, we will continue to be on the look-out for any growth opportunity in an international “wholesale” market undergoing consolidation.

corporAte SocIAl reSponSIBIlIty of BIcS Present in the four corners of the world, particularly in africa and asia, BIcs supports a certain number of social projects in aid of the local populations: the safaricom foundation in kenya, co-founded by vodafone and active in the field of socialeconomic development, the Belgian Ngo close the gap, which recycles computer equipment intended for the countries of the south, and the soeur jeanne devos foundation, which works to combat exploitation of children in India.

25 %

of the Belgacom Group’s revenue

of the Group’s profitability (EBITDA)

50 - belgacom ANNUAL REPORT 2012

our employees

talents to share

This means considering our thousands of talented people, who are committed to serving our customers every day, as our greatest asset.

Belgacom ANNUAL REPORT 2012 - 51

It is about respecting them, investing in them and training them to help them develop their potential. It is about deserving our â&#x20AC;&#x153;Top employerâ&#x20AC;? label every day.

Actors in control of their own career

team engagement responsibility

Supporting individual commitment

52 - belgacom ANNUAL REPORT 2012

Rewarding commitment In 2012, our HR management policy strived in particular to develop the human potential. Our dynamic talent management takes place within a framework of respect and trust. This delicate balance allows the company to evolve slowly but surely to a performancebased culture while preserving social peace.

1,243 high-quality training modules

Belgacom Corporate University has become an important tool for develop ing strategic competencies and skills within the group

70% of the vacancies at Belgacom were filled internally, which is substantially higher than the average of other companies in Belgium

1,300 employees

AVO

changed jobs within Belgacom in 2012. In 374 cases a promotion was involved

Our “Bravo” program groups dozens of tokens of recognition for a praise worthy action by a colleague in the company

our employees

Belgacom aNNUal RePoRT 2012 - 53

respecT, Team worK, Transparency and accounTaBiliTy can Be TransmiTTed only By culTivaTing closeness BeTween The differenT hierarchical levels.

+ response “Our corporate culture is constantly evolving towards greater empowerment, trust and accountability. Belgacom’s HR department is both the driving and the guiding force of this evolution.”

www.belgacom.com/ bmcvideo

closer to meet expectations more effectively Our Human Resources department is committed to positioning ourselves as the strategic partner of the other departments. How? By providing them with the tools that will enable them to achieve their respective priorities. The HR teams thus continue to engage in constant efforts to ensure the “human” dimension is integrated to an even greater extent in the decisions made every day. For it is by optimizing the use of our human resources (in short, “the right person in the right place at the right time”) that we will improve our efficiency, More transparent management is, moreover, beneficial to everyone’s motivation. In 2012, we noted with satisfaction that an increasing number of employees used the different initiatives and interactive tools made available to them. They use them to find a solution to a problem or to develop their skills. This is a significant development in HR’s claim to be an internal strategic partner.

Actors in control of their own career Our employees are increasingly aware of the fact that they have primary responsibility for managing their career. They are more receptive to our encouragements and more open to various options for development. In that regard we are noting an improvement in internal mobility, both of the vertical kind (climbing up the career ladder by accepting new responsibilities) and of the horizontal kind (adapting to change in connection with a new job of the same level or a new department). In 2012 many employees made use of one of our training courses or the Career Days to discover and acquire new skills and they are increasingly using interactive tools that help them manage their career.

Michel Georgis Executive Vice President Group Human Resources

coaching of team leaders An essential relay between the management and all employees, our 1,750 team leaders play a key role in the development of skills. To stimulate the commitment of his or her employees, the team leader must set clear and specific objectives, give and collect feedback and constructively evaluate their professional development. The “Lead 21” program launched this year aims to ensure that all team leaders, in addition to their technical competences, possess human skills that make them a leader. Now, the ability to manage HR problems forms an integral part of the evaluation criteria. As many as 350 team leaders have already followed the “Lead 21” program, which will be extended to encompass all team leaders in 2013.

transparency strengthens support Respect, team work, transparency and accountability can be transmitted only by cultivating closeness between the different hierarchical levels. One of our actions in 2012 was to reinforce this proximity between the company’s management and employees. More specifically, we launched work sessions from the Management Committee level, cascading them down to all levels of the organization. The aim? To reaffirm our values, communicate our strategy in a more transparent way and stimulate stronger collective support. Indeed, the commitment and effectiveness of the organization as a whole is achieved first of all through mutual respect which transcends the hierarchical levels. Respect is essential for a culture of empowerment, where everyone, depending on their position, is prepared to delegate responsibilities or take on new ones.

our employeeS

54 - Belgacom aNNUal RePoRT 2012

+ vitality

we ensure the health and safety of our employees, especially of the technicians working on the mobile antenna sites. in addition, we provide each of our employees with a series of tools to encourage a healthy lifestyle: our vitality program groups an intranet site brimming with initiatives and practical advice, a team of employees to promote all «health» actions in the company, and a community for sharing ideas and suggestions.

Top employer Belgacom again took home the “Top employer of Belgium” title, a distinction awarded by an independent organization.

our employees are committed to safer Internet use In 2012, three training sessions were held (in February, May and November) on how to use the Internet and mobile phones responsibly. Trained by Child Focus, 300 employees went to schools all over Belgium on a volunteer basis to train 15,000 4th, 5th and 6th grade primary school pupils. Encouraging responsible use of our products is one of our priority CSR objectives. This program also helps to create a positive working culture within Belgacom and strenghtens our employees’ commitment and loyalty. +

WWW.BelGAcom.Be vIDeo - http://bit.ly/bgcvideo15

expressing our appreciation Belgacom is a company with strong technical skills, employing many engineers, where a job well done is often considered as a given. Pointing out a personal achievement is not really part of our DNA. But even though discretion is often a quality, it is important to sometimes be able to recognize the efforts made. Such recognition generally boosts the motivation and commitment of the people concerned. And the fact of “taking off one’s hat” to something a colleague has accomplished often creates healthy competition within the teams. That is why we have set up an online platform, called “Bravo”, on which everyone can praise a colleague’s contribution in a well-defined area of competence.

measuring individual commitment The personal commitment of each employee through good, high-quality work lies at the heart of our HR strategy. This is achieved by a motivating, dynamic and pleasant working environment as well as by a climate of trust. But also by putting in place an evaluation system that measures this individual commitment. In 2012, for the first time, our annual employee survey, called Speak Up, no longer aims to measure the employee satisfaction level only. It also seeks to evaluate their level of commit-

ment in achieving the group’s strategic objectives. This implies that all employees have clearly understood the strategic priorities, that the latter make sense to them and that they have the means necessary to integrate them in their daily activities.

Diversity is an asset The promotion of diversity in the teams is an exercise which again engaged our attention in 2012. Our priority focus areas are the gender mix (balanced representation of men and women) and age-related issues.

Substantive work to promote a gender mix The barriers to the professional development of women are well-known: difficulties in combining career and family life, lack of confidence due to the absence of a female role model, etc. Belgacom’s gender mix policy entails services facilitating flexibility (for example, child care) and specific training courses, notably on leadership. Our gender mix action plan has been closely scrutinized by the consulting firm McKinsey, which stressed its soundness and credibility. We laid the foundations for a sustained improvement of female representation in our decision-making bodies. Indeed, the effectiveness of a gender mix strategy is measured over the long term.

Belgacom ANNUAL REPORT 2012 - 55

Our priorities in 2013

7,900 hours Career management which takes account of age A 55-year-old’s motivation or physical capacity to perform certain tasks is not the same as that of a 25-year-old. Belgacom aims to implement an HR management system which integrates the natural life cycle of a career. In 2012, we took a series of specific actions, focusing on the over 50s, in order to adapt, where required, their working environment, the type of training courses given to them or the way in which their working days are organized. Moreover, all employees who turn 50 are invited to an advisory meeting to plan the remainder of their career as effectively as possible. Belgacom intends to extend this more dynamic career management principle to all employees and all ages. Our Vitality program is already encouraging everyone to look after their health asset. We advocate a proactive strategy precisely to ensure that age does not become a problem. In fact, the HR department makes a point of raising its employees’ awareness of the risks linked to agebased discrimination in any HR procedure.

In 2012, our employees volunteered 7,900 hours of their time to giving training in schools on Internet safety, team building events for a social purpose, etc.

36%

Of Belgacom’s Board members, 36% are women

Our greatest challenge is performance management. We want to not only evaluate the activities of our employees, but also to stimulate their commitment and motivation. To that end, we will continue the work focusing on the accountability and coaching of our team leaders and intensify original initiatives such as Vitality. Another priority will be to make the most of the new technologies which are revolutionizing our professional lives. In close collaboration with the trade union organizations, we will define a clear framework which facilitates the gradual, transparent and responsible adoption of new work habits (teleworking, flex desks, flexible working hours, etc.) Finally, and despite some harmonization of our company’s statutes and structures over the past couple of years, we will continue to simplify our organization and make it more efficient. It can only further improve the service to the customer.

“Let’s take a walk” In this context, more than 1,000 employees responded to the call “Let’s take a walk”, which brought colleagues and their families together for three hikes in different locations in Belgium

Green mobility Belgacom is striving for a more ecological mobility by allowing its employees with a com pany car to freely combine this advantage with the use of public transport

Life within the company finds a modern resonance on the Twitter account “Life@Belgacom”, where everyone can share personal favorites or small snippets of useful information.

56 - belgacom ANNUAL REPORT 2012

corporate GOVERNANCE

an attitude to share

This means meeting our commitments with honesty, in compliance with the strictest standards and ethical principles.

Belgacom ANNUAL REPORT 2012 - 57

It is about applying good management and control practices at all levels in our daily activities. Our desire: to inspire sound and lasting trust in all those who interact with us.

ethics transparency responsibility

Applying good management practices

Meeting our commitments

corporate GOVERNANCE

58 - belgacom ANNUAL REPORT 2012

CORPORATE GOVERNANCE STATEMENT

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

Name

Age

Position

Term

Didier Bellens

President & CEO

2003 - 2015

Theo Dilissen

Chairman/Director

2004 - 2015

Martine Durez

Director

1994 – 2012 (**)

Mimi Lamote

Director

2006 – 2012 (**)

Michèle Sioen

Director

2006 – 2012 (**)

Michel Moll

Director/Chairman a.i.

Paul Van de Perre

Director

(*)

1994 – 2012 (*)(**) 1994 – 2012 (**)

The mandate of Mr. Theo Dilissen as Chairman of the Board ended on 29 February 2012. According to the by-laws of the company, it is up to the Belgian State to appoint the new Chairman. In the meantime the function of Chairman is taken up by Mr. Michel Moll, being the board member appointed by the Belgian State with the most seniority.

(*)

The mandates of Mrs. Martine Durez, Mrs. Mimi Lamote, Mrs. Michèle Sioen, Mr. Michel Moll and Mr. Paul Van de Perre ended on 23 December 2012. According to the by-laws of the company, it is up to the Belgian State to renew these mandates or to replace the members. In the meantime, based on the principle of continuity, the mandates are tacitly extended.

(**)

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

Name

Position

Term

Jozef Cornu

Age 68

Independent Director

2009 - 2015

Pierre Demuelenaere

Independent Director

2011 - 2017

Guido J.M. Demuynck

Independent Director

2007 - 2013

Pierre-Alain De Smedt

Independent Director

2004 - 2016

Carine Doutrelepont

Independent Director

2004 - 2013

Oren G. Shaffer

Independent Director

2004 - 2013

Lutgart Van den Berghe

Independent Director

2004 - 2016

Belgacom governance model At Belgacom, the Articles of Association are strongly influenced by the specific legal status of the company. As a limi ted liability company under public law, Belgacom is in the first instance governed by the Law of 21 March 1991 on autonomous public sector enterprises (“the 1991 Law”). For matters not explicitly regulated otherwise by the 1991 Law, Belgacom is governed by Belgian corporate law. The key features of Belgacom’s governance model are: •A Board of Directors, which defines Belgacom’s general policy and strategy and supervises operational management; •T he creation by the Board of Directors within its structure of an Audit and Compliance Committee, a Nomination and Remuneration Committee and a Strategic and Business Development Committee; •A President & Chief Executive Officer, who takes primary responsibility and ownership for operational management (including, but not limited to, day-today management); •A Management Committee, which assists the President & Chief Executive Officer in the exercise of his duties.

Designation applicable Code on Corporate Governance Belgacom designates the 2009 Belgian Code on Corporate Governance as the applicable Code.

Board of Directors As provided for in the 1991 Law, the Board of Directors is composed of: • Directors appointed by the Belgian State in proportion to its shareholding • Directors appointed by a separate vote among the other shareholders, for the remaining seats. At least 3 of these Directors must be independent according to the criteria of article 526ter of the Belgian Code of Companies and the criteria of the Belgian Corporate Gover nance Code. The Board of Directors is composed of maximum 16 members, including the person appointed as President & Chief Executive Officer. Today the Board is composed of 14 members.

Functioning of the Board of Directors The Board of Directors meets whenever the interests of the company so require or at the request of at least two Directors. In principle, the Board of Directors meets every year in five regularly scheduled meetings. The Board of Directors must

Belgacom ANNUAL REPORT 2012 - 59

also evaluate the strategic long-term plan in an extra meeting each year.

independent. In line with its charter, it is chaired by an independent Director.

In general, the Board’s decisions are made by simple majority of the Directors present or represented, although for certain issues a qualified majority is required.

The Audit and Compliance Committee’s role is to assist and advise the Board of Directors in its oversight of: •T he financial reporting process; •E fficiency of the systems for internal control and risk management of the company; •T he Company’s internal audit function and its efficiency; •T he quality, integrity and legal control of the statutory and the consolidated annual accounts and the financial statements of the Company, including the follow-up of questions and recommendations made by the auditors; •T he relationship with the Company’s auditors and the assessment and monitoring of the independence of the auditors; •T he Company’s compliance with legal and regulatory requirements; •C ompliance within the Company with the Company’s Code of Conduct and the Dealing Code.

The Board of Directors has adopted a Charter which, together with the charters of the Board Committees, reflects the principles by which the Board of Directors and its Committees operate. The Board Charter provides, among other things, that important decisions should have broad support, understood as a qualitative concept indicating effective decision-making within the Board of Directors following a constructive dialogue between Directors. They should be prepared by standing or ad hoc Board Committees with significant representation of non-executive, independent Directors within the meaning of Article 526ter of the Belgian Company Code. All charters were reviewed a last time in September 2012. The most important change is the adaptation of the Corporate Governance Charter to the prescriptions of the law of 20 December 2010 on the exercise of specific rights of shareholders in stock quoted companies.

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

Audit and Compliance Committee The Audit and Compliance Committee (ACC) consists of five non-executive Directors, the majority of whom must be

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

Nomination and Remuneration Committee The Nomination and Remuneration Committee (NRC) consists of five Directors, the majority of whom must be independent. In line with its charter, this committee is chaired by the Chairman of the Board of Directors, who is an ex-officio member. The Nomination and Remuneration Committee’s role is to assist and advise the

Board of Directors regarding: •T he nomination of candidates for appointment to the Board of Directors and the Board Committees; •T he appointment of the President & Chief Executive Officer and of the members of the Management Committee on proposal of the President & CEO; •T he appointment of the Secretary General; •T he remuneration of the members of the Board of Directors and the Board Committees; •T he remuneration of the President & Chief Executive Officer and members of the Management Committee; •T he review on an annual basis of the remuneration philosophy and strategy for all personnel, and specifically the compensation packages of top senior management; •T he oversight of the decisions of the President & Chief Executive Officer with respect to the appointment, the dismissal and the compensation of management; •T he preparation of the remuneration report and the presentation of that report at the Annual General Shareholders meeting; •C orporate governance issues. The Nomination and Remuneration Committee meets at least four times a year. The first meeting each year reviews the performance, budgets for payout of bonuses and merits, and long-term and short-term incentive plans. At that meeting an annual review of the philosophy and strategy of the remuneration is also discussed. At the second meeting the Nomination and Remuneration Committee fixes the performance measurement targets of the President & Chief Executive Officer and the members of the Management Committee through Key Perfor-

mance Indicators. In addition to these meetings, the Committee organises a meeting on Human Resources and a meeting on Corporate Governance. In 2012, Mr. Theo Dilissen (member and Chairman till 29 February 2012), Mr. Michel Moll (member and Chairman a.i. from 1 March 2012), Mr. Jozef Cornu, Ms. Martine Durez, Mr. Pierre-Alain De Smedt and Ms. Lutgart Van den Berghe were the members of the Nomination and Remuneration Committee.

Strategic and Business Development Committee The Strategic and Business Development Committee (SBDC) consists of six Directors. In line with its charter, the President & Chief Executive Officer and the Chairman of the Board of Directors are ex-officio members, and the Committee is chaired by the Chairman of the Board of Directors. One additional member is chosen among the Directors appointed by the Belgian State. Three members must be appointed among the Directors appointed by the General Shareholders meeting. The Strategic and Business Development Committee’s role is to review envisaged acquisitions, mergers and divestments over EUR 100 million and to review large corporate restructuring programmes. If appropriate, the Board of Directors can decide on establishing a special ad hoc Committee, dealing with a specific subject, and composed of members with the appropriate experience. In 2012, Messrs. Theo Dilissen (Chairman till 29 February 2012), Michel Moll (Chairman a.i. from 1 March 2012), Didier Bellens, Jozef Cornu, Guido J.M. Demuynck and Mrs. Carine Doutrelepont were the members of the Strategic and Business Development Committee.

corporAte GovernAnce

60 - Belgacom aNNUal RePoRT 2012

memBerS of tHe BoArD OF DIrectorS 5 - GuIDo J.m. Demuynck

1 - DIDIer BellenS President & Chief Executive Officer and Director of Belgacom since March 2003, more info see p.64 Members of the Management Committee.

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

3 - tHeo DIlISSen Since January 2011 Mr. Dilissen is member of the Board of Directors of Eurostar. Mr. Dilissen was Chairman of the Board of Directors of Belgacom from October 2004 till March 2012. From June 2010 until March 2012, he was CEO of Arcadis Belgium. From September 2005 until the end of March 2009 he was CEO and afterwards Chairman of Aviapartner. Previously Mr. Dilissen was CEO, Managing Director and ViceChairman of Real Software and from 1989 to 2000 he was COO and member of the Board of ISS (a Danish publicly listed company). He studied Sociology and holds a Master in Business Administration.

4 - pIerre DemuelenAere

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

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

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

Belgacom aNNUal RePoRT 2012 - 61

7 - cArIne Doutrelepont

10 - mIcHel moll

11 - oren G. SHAffer

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

Mr. Moll, since 1st March 2012, acting Chairman of the Belgacom Board of Directors, is a Non Executive Director of industrial and financial companies such as Sonaca (Société Nationale de Construction Aérospatiale), the Belgian Corporation for International Investment (SBIBMI), the Belgian Investment Company for Developing Countries (BIO). He is also Censor of the National Bank of Belgium. Mr. Moll previously served for about 10 years as President and Chairman of the Board of Directors of Bruficom, a venturecapital firm in the telecom sector, and subsequently, until 2007, as President of BATS (Belgian Advanced Technology Systems), a company specialized in security electronics. In this company, he also served as Chairman of the Board of Directors for about 10 years. Mr. Moll has a degree in Business Engineering from the School of Management of the University of Louvain (UCL).

Formerly, Mr. Shaffer was Vice Chairman and Chief Financial Officer of Qwest Communications from 2002 to 2007 and President and Chief Operating Officer of Sorrento Networks. He was a member of the Board of Directors at Belgacom from 1996 to 2000. He currently holds directorships at DEMAG Cranes A.G. (Germany), Intermec Inc. (USA), TEREX Corp. (USA) and XPO Logistics (USA). He received a Bachelor of Science in business administration from The University of California at Berkeley and a Master of Science in management from The Massachusetts Institute of Technology.

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

Michele Sioen is CEO of the Sioen Industries group. The stock quoted Sioen Industries produces and processes technical textiles and is world market leader. Michele Sioen is former president of Fedustria. She is vice president of the Fédération des Entreprises de Belgique (FEB/VBO), has directorships at Belgacom, ING Belgium and D’Ieteren amongst others. She is member of the Commission Corporate Governance. Michele Sioen holds a degree in Economics and several postgraduate degrees.

13 - lutGArt vAn Den BerGHe

9 - mImI lAmote Ms. Lamote started her career in retail in 1988: she held different positions in C&A Europe. From 2001 until 2005 Ms. Mimi Lamote was General Manager of C&A BelgiumLuxembourg. From 2001 until 2004 she was member of the Board of Directors of the Federation of Enterprises in Belgium (FEB). In the same period, Mrs. Lamote was also member of the Board of Directors of Fedis (Federation of Distribution). From 2005 until 2006 she was CEO of SCF (BelgiumLithuania), listed on the Belgian stock market. From 2007 until October 2009, Ms. Lamote worked as COO in ZNA (hospital network Antwerp). From November 2009 until June 2012 she was Vice President at GrandVision B.V. in Amsterdam. Ms.Lamote currently advises management and board members of various international companies. She holds a master degree in Applied Economic Sciences of the University of Antwerp, a master in Retail Management of the Tias University of Tilburg and several other postgraduate degrees.

12 - mIcHÈle SIoen

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

14 - pAul vAn De perre Mr. Van de Perre is the cofounder of GIMV (Venture Capital Firm) and was formerly a director of Sidmar (ArcelorMittal) and other companies . He is currently director of Greenbridge Incubator (University of Ghent) , president of Thenergo (listed on Euronext), member of the Investment Committee of PMV. Mr. Van de Perre is CEO of Five Financial Solutions (corporate finance) and CEO of Caesar Real Estate Fund (real estate finance). Mr. Van de Perre holds an MBA in Economics and is a certified accountant (IAB).

corporate GOVERNANCE

62 - belgacom ANNUAL REPORT 2012

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

Departure from the 2009 Belgian Corporate Governance Code Belgacom complies with the principles and provisions of the 2009 Belgian Corporate Governance Code, except provisions 4.6 and 4.7. Although provision 4.6 stipulates that mandates of Directors should not exceed four years, the mandates of Belgacom Directors are for six years as prescribed by article 18 of the 1991 Law. Where provision 4.7 states that the Board appoints its Chairman, article 18 § 5 of the 1991 Law foresees that the Chairman is appointed by the King.

Transactions between the company and its Board Members and executive managers A general policy on conflicts of interest applies within the company. It prohibits the possession of financial interests that may affect personal judgment or professional tasks to the detriment of the Belgacom Group.

In accordance with article 523 of the Belgian Companies Code, the President & CEO, Mr. Didier Bellens, declared to have a conflict of interest in connection with the Employee Incentive Plans, item of the agenda of the Board of Directors’ meeting of 1 March 2012. He is in fact a beneficiary of the Senior Management Short- & Long-term Incentive Plan 2009. He informed Belgacom’s auditor of this conflict of interest and decided not to participate in the deliberation or the voting on this item. In accordance with article 523 of the Belgian Companies Code, Mrs. L. Van den Berghe declares to have a conflict of interest in connection with the Power Supply Agreement (Electrabel) item of the agenda of the Board of Directors’ meeting of 26 July 2012. Mrs. L. Van den Berghe informed Belgacom’s auditor of this conflict of interest and decided not to participate in the deliberation or the voting on this item. In accordance with article 523 of the Belgian Companies Code, Mrs. M. Durez declares to have a conflict of interest in connection with the Bpost Fixed and Mobile Billing item of the agenda of the Board of Directors’ meeting of 13 December 2012. Mrs. M. Durez informed Belgacom’s auditor of this conflict of interest and decided not to participate in the deliberation or the voting on this item. On 24 February 2011, the Board adopted a “related party transactions policy” which governs all transactions or other contractual relationships between the company and its board members. Belgacom has contractual relationships and is also a vendor for telephony,

Internet and/or ICT services for many of the companies in which Board members have an executive or non executive mandate. These transactions take place in the ordinary course of business and at arms length. Belgacom is also a Partner of Guberna, the Belgian Institute for Directors (affiliated with Mrs Lutgart Van den Berghe who is Executive Director of Guberna), for which it has paid a fee of EUR 30,250 in 2012.

Activities Report of the Board and Committee meetings In 2012, 8 meetings took place for the Board of Directors, 5 meetings for the Audit and Compliance Committee, 7 for the Nomination and Remuneration Committee and 2 for the Strategic and Business Development Committee. A list with the attendance of the members is included in the Remuneration Report.

Application of the measures taken by the company in order to comply with legislation on insider trading and market manipulation (market abuse) In order to comply with legislation on insider dealing and market manipulation, Belgacom adopted a dealing code prior to the Initial Public Offering. This code aims to create awareness about possible improper conduct by employees, officers and Directors and the possible sanctions. This dealing code has been widely communicated and is available to all employees. A list of key persons is kept, and all Directors and key employees were requested to sign an affidavit that

they had read, understood and agreed to comply with the dealing code. Closed periods (including prohibited periods) are defined, and any deal must be communicated to and cleared by the Head of Compliance Services before transaction (see “Compliance” section on p.71).

Evaluation of the Board The Board performed a self-evaluation in December 2012 in order to assess its size, composition, performance as well as the interaction with management. This exercise was conducted with the help of Spencer Stuart as external expert. Members were invited to answer an extensive questionnaire, followed by an interview between the external expert and every individual member. Starting from the conclusions and the action plan that was agreed upon after the previous evaluation, members were asked their opinion on corporate governance at Belgacom, the functioning of the Board, the Board relationships and the functioning of the committees. As an outcome, the Board decided at its meeting of 28 February 2013 to implement the following short term actions: • Having each year a yearly draft agenda for the committee’s; • Organize a tutorial on the role of the committees and on risk management; • Have a yearly presentation on succession planning to the Board; • Develop a reporting system, allowing the Board to follow the key business drivers of the company; • Add one meeting a year for the strategic committee.

Belgacom ANNUAL REPORT 2012 - 63

Management President & Chief Executive Officer The President & Chief Executive Officer is appointed by the Belgian State by Royal Decree deliberated in the Council. Appointments are for a renewable sixyear term, and can be terminated only by Royal Decree deliberated after discussion in the Council of Ministers. In line with the 1991 Law and the Company’s Articles of Association, the President & Chief Executive Officer is a member of the Board of Directors. The President & Chief Executive Officer and the Chairman of the Board of Directors must come from different language groups. The President & Chief Executive Officer is entrusted with day-to-day management, and reports to the Board of Directors. In addition, in line with the 1991 Law and the company’s Articles of Association, the Board of Directors may, deciding by a majority of two thirds of its members present or represented, delegate all or part of its powers to the President & Chief Executive Officer, with the exception of: • The approval of the Management Contract with the Belgian State and changes to it; • The establishment of the business plan and general policy of the company; • The supervision of the President & Chief Executive Officer;

•A nd 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 powers of the Management Committee are determined by the President & Chief Executive Officer. The Management Committee’s role is to assist the President & Chief Executive Officer in the exercise of his duties.

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

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

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

Management Committee The members of the Management Committee are appointed and dismissed by the Board of Directors on proposal of the President & Chief Executive Officer, after consultation of the Nomination and Remuneration Committee.

The Management Committee generally meets on a weekly basis. In 2012, the Belgacom Management Committee, in addition to the President & Chief Executive Officer, was composed of the following members (see table below). Mr. Scott Alcott, who was the Executive Vice President Consumer Business Unit & previously Service Delivery Engine, left the company end of June 2012.

Members of the Management Committee

Name

Age

Position

Bruno CHAUVAT

Executive Vice President Strategy & Content

Michel GEORGIS

Executive Vice President Group Human Resources

Dominique LEROY

Executive Vice President Consumer Business Unit

Geert STANDAERT

Executive Vice President Service Delivery Engine & Wholesale

Ray STEWART

Executive Vice President Finance

Bart VAN DEN MEERSCHE

Executive Vice President Enterprise Business Unit

corporAte GovernAnce

64 - Belgacom aNNUal RePoRT 2012

memBerS of tHe

BelGAcom mAnAGement commIttee 1 - DIDIer BellenS

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

Belgacom ANNUAL REPORT 2012 - 65

2 - Michel Georgis

4 - Bart Van Den Meersche

6 - Geert Standaert

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

Bart Van Den Meersche is the Executive Vice President of Belgacom’s Enterprise Business Unit. Mr. Van Den Meersche joined Belgacom after 28 years of experience in the ICT Sector through a professional career with IBM, of which 16 years in different Management positions, including 8 years as Country General Manager of IBM Belgium/Luxembourg. In his last year at IBM, he was Vice President Industries & Business Development IBM South-West Europe and a member of the IBM South-West Europe Executive Management Team. Bart Van Den Meersche holds a degree in Mathematics from the University of Leuven. Mr. Van Den Meersche was during 6 years President of Agoria ICT and also a member of the Board of Agoria, VOKA and VBO/FEB.

Geert Standaert joined the Belgacom Management Committee as Executive Vice President Service Delivery Engine & Wholesale in March 2012. In this function, he oversees all IT development, service engineering, technical infrastructure and operations for the group as well as the wholesale activities. Mr. Standaert joined the Group in 1994 and held Director positions in various disciplines, including IT, Infrastructure Operations and Data operations before becoming Vice President Customer Operations in 2007. Mr. Standaert holds a Master’s degree in Civil Engineering from the University of Ghent

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

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

7 - Dominique Leroy Since 1 June 2012, Dominique Leroy is the Executive Vice President of the Consumer Business Unit of Belgacom. She joined Belgacom as Vice President Sales for the Consumer Business Unit in October 2011. Prior to Belgacom, Mrs. Leroy worked for 24 years at Unilever. She was Managing Director of Unilever Belux and member of Unilever’s Benelux management committee. She previously held various positions in marketing, finance and customer development. Mrs. Leroy is member of the Boards of Tango and Scarlet and is an independent Board Member at Lotus Bakeries. Mrs. Leroy holds a degree in Business Economics from the Solvay Business School.

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66 - belgacom ANNUAL REPORT 2012

Remuneration Report

Director’s Remuneration

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

Policy of Director’s Remuneration The remuneration and compensation of the Directors was decided by the General Shareholders Meeting of 2004. The principles of this compensation did not change in 2012: it foresees an annual fixed compensation of EUR 50,000 for the Chairman of the Board of Directors and of EUR 25,000 for the other members of the Board of Directors, with the exception of the President & CEO. All members of the Board of Directors, with the exception of the President & CEO, have the right to an attendance fee of EUR 5,000 per attended meeting of the Board of Directors. This fee is dubbled for the Chairman.

Activities report and attendance at Board and Committee meetings

Name

Board (total 8)

ACC (total 5)

Didier BELLENS

7/8

Jozef CORNU

8/8

Pierre DEMUELENAERE

8/8

Guido DEMUYNCK

8/8

5/5

Pierre-Alain DE SMEDT

7/8

5/5

NRC (total 7)

7/7

SBDC (total 2)

Total remuneration

(in EUR)

2/2

89,500 67,000

Theo DILISSEN (*)

7/8

Carine DOUTRELEPONT

8/8

Martine DUREZ

8/8

Mimi LAMOTE

8/8

Michel MOLL (**)

8/8

5/5

Oren G. SHAFFER

7/8

5/5

Michèle SIOEN

7/8

Lutgart VAN DEN BERGHE

7/8

Paul VAN DE PERRE

8/8

2/2 6/7 1/7

84,500 102,000

1/2

74,000

2/2

72,000

7/7

84,500 67,000

6/7

2/2

182,000 74,500 62,000

7/7 5/5

79,500 79,500

End of mandate on March 1, 2012 as Chairman. Total Remuneration: telecom advantage included (**) Start of mandate on March 1, 2012 as Chairman a.i. ACC: Audit and Compliance Committee; NRC: Nomination and Remuneration Committee; SBDC: Strategic and Business Development Committee (*)

Attendance fees of EUR 2,500 are foreseen for each member of an advisory committee of the Board of Directors, with the exception of the President & CEO. For the Chairman of the respective advisory committee these attendance fees are doubled. The members also receive EUR 2,000 per year for communication costs. For the Chairman of the Board of Directors the communication costs are also doubled. The Directors do not receive performance-based remuneration such as bonuses or long-term share-related incentive programs, nor do they receive benefits linked to pension plans.

Overview of Director’s Remuneration The individual Director remuneration for the fiscal year 2012, based on their activities and attendance at Board and Committee meetings is presented in the adjacent table.

Group Remuneration Policy Belgacom has an innovative remuneration policy which is regularly assessed and updated through close cooperation with external Human Resources fora and universities. The remuneration policies of Belgacom employees are defined in a process of dialogue with the Board of Directors and the social partners. The Belgacom remuneration policy aims at offering fair remuneration both to civil servants and to the group’s contractual employees, taking into account the performance of the employee and of the company. The evolution of total remuneration is linked to the results of the company.

Because of Belgacom’s history as a public-service company, there are some differences in its dynamics and structure, compared to the private sector. This has a considerable influence on how its remuneration policy has evolved. Belgacom Human Resources developed creative and adaptable programs to deal with its obligations related to the statutory employment status of some of its workforce, and introduced new elements that harmonised policies between civil servants and contractual employees. • Some powerful private sector instruments were introduced, such as performance differentiation, job classification, employee engagement and variable pay. These were superimposed on the traditional payment rules linked to statutory employment. •B elgacom also maintains and modernises powerful public sector instruments, such as work-life benefits and social assistance. It is the responsibility of the Belgacom work-life department to combine the needs and responsibilities of employees and their families with those of the company and society as a whole. Over the years Belgacom has won several awards for the continuous efforts of the company to create a balanced working environment for its staff. The public-sector component is also an important tool for employer branding. The objective of Belgacom is to treat all employees equally and to create a working environment in which any differences are acceptable to employees.

Belgacom ANNUAL REPORT 2012 - 67

Executive Remuneration Policy of Executive Remuneration Belgacom has a balanced executive remuneration policy which rewards executives competitively and at rates which are attractive in the market, aligning the interests of management and shareholders. The company wants to attract and retain high performing top executives for its Management Committee and for its senior management. It wants to reward clear role models, who have a commitment to high performance and the company values. The top executives are covered by dedicated reward programmes which focus on the principles of Belgacom’s strategy to consistently reward high performance by individuals and by the company. To distinguish itself from other employers, Belgacom seeks to excel in the total package it offers, by providing not only cash but also numerous other benefits. A fundamental principle of its remuneration policy is a degree of freedom for executives in choosing how they are to be rewarded. The company wants to position top executive pay towards the median in the market for base salaries and for the achievement of targets at 100%. In case of sustained excellent performance the total remuneration is aligned on the upper quartile. The policy aims to ensure that top performers can benefit from the growth of the company through long-term incentive plans. The Nomination & Remuneration Committee sets the remuneration policy for top executives and decides the individual packages for the President & CEO and the members of the Management Committee. These are regularly verified by

benchmarking executive pay against both the BEL 20 companies (Financial sector excluded) and a set of peer companies in the European Telecommunications and ICT sector. The current remuneration policy does not provide for a specific contractual claw back stipulation in favour of the company for the variable remuneration of executive managers accorded on the basis of incorrect financial information, this without deterioration of the various legal provisions applicable between the concerned individuals and the company (e.g. Acts of July 7, 1978, April 12, 1965 and February 10, 2003 concerning the claw back possibilities from employees in case of fraud, serious fault and usual minor fault, civil liability, etc.). To date, no fundamental changes to the policy are foreseen for the next two years. However a governmental initiative actually in discussion proposes a cap on the remuneration of the top executives (CEO) and members of the Management Committee of companies fully or partially owned by the Belgian state. If this initiative would lead to a law, Belgacom’s executive remuneration policy would have to be modified as from the next mandate of the President & CEO or at the appointment of a new member in the Management Committee. The relationship between the distinct remuneration components of the Belgacom Management Committee members and the President & CEO is illustrated in the adjacent figures.

Figure 1: Relative importance of the various components of remuneration (KPI’s 100% at target) President & CEO 45% Basic Remuneration 25% Short term variable remuneration 25% Long term share-based variable remuneration 5% Group insurance premiums 0% Other benefits

Belgacom Management Committee 45% Basic Remuneration 22% Short term variable remuneration 22% Long term share-based variable remuneration 9% Group insurance premiums 2% Other benefits

Overview of executive remuneration The executive Remuneration Policy is built upon fixed components, being the basic remuneration, the retirement and post employment benefits and other benefits, and variable performance based components, being the short term variable remuneration and the long term share-based variable remuneration. In the framework of the application of the new corporate governance law, the Board of Directors has approved to rebalance, as from performance year 2011, the short term variable remuneration and the long term share-based variable remuneration in order to obtain an equal weight between short and long term target remuneration. Annual variable pay is calculated in relation to performance against Key Performance Indicators set by the Board of Directors upon advice of the Nomination & Remuneration Committee. For 2012, these performance indicators included financial indicators as well as non-financial indicators, at both Group and Business Unit level. The achievement of these KPI’s are followed-up and communicated regularly. The results are based on audited financial figures and non-financial indicators measured by internal and external agencies specialised in market and customer intelligence, of which the processes are audited on a regular basis.

corporate GOVERNANCE

68 - belgacom ANNUAL REPORT 2012

• The most important key financial indicator used is the operational cash flow. • Important non-financial indicators included are the “care and ease” indicator (figure 2) and the “employee loyalty index”. The “care and ease” indicator (figure 2) supports the ambition of Belgacom to offer superior service to each customer (care) and to re-introduce a culture of superior process quality (ease). The “care indicator” measures the end-to-end satisfaction of our customers. The “ease indicator” measures operational excellence in our customer interactions. Satisfaction and operational excellence of our interactions and channels are measured on a regular basis. • Another operational indicator is the “employee loyalty index”, which each year measures employees’ organisational commitment and job engagement through a survey. This is used as a starting point for further actions. For 2013, new key performance indicators have been defined. These financial and non-financial indicators reflect strategic pillars and priorities of Belgacom’s strategy. At Group level, the Care & Ease indicator makes way for Simplicity & Customer Experience measuring the progress made in the simplification and optimization of processes, and client’s user experience. The engagement KPI will be based on the new personnel survey Speak Up, an indicator reflecting engagement, agility and strategic alignment amongst Belgacom employees. At Business Unit level, the key performance indicators will concern amongst others convergence, value management, solution centricity and the transformation of the fix and mobile network.

Figure 2: Information about the “Care and Ease indicator”.

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

Care

Web

Distribution

Install & Repair

Group 30%

Usage

Customer Service

Result Business Unit 30%

Individual 40%

ease

Web

Distribution

Install & Repair

Usage

Customer Service

Figure 4: Short term variable remuneration: Pay out curve % 250 200 150 100

Basic Remuneration (in kEUR) 2,760.2

2,597.6

963.1

938.6

50 0 Under limit

Target

Short term variable remuneration (in kEUR) 1,653.1

2011

CEO

Upper limit

1,393.1

2012

Management Committee 712.1 513.7

2011

CEO

2012

Management Committee

Basic remuneration The basic remuneration of the Management Committee is annually reviewed by the Nomination & Remuneration Committee, based on an extensive review of performance and assessment of potential provided by the President & CEO, as well as on external benchmarking data. The basic remuneration comprises the base salary earned in the position of the President & CEO and the members of the Management Committee for the reported year. The President & CEO, Didier Bellens, is also a non-remunerated member of the Board of Directors. During 2012, neither the President & CEO nor the other members of the Management Committee received a merit increase. Changes in the figures are mainly the result of legal indexation in March 2012 and changes within the Management Committee composition.

Short term variable remuneration The Belgacom Group variable pay system reflects the group values, emphasizes the strengths of the Business Units, and creates incentives for individual performance (figure 3). The short term variable remuneration includes the actual bonus paid in the reported year 2012, for performance year 2011. A linear pay out curve with an upper and lower limit is adopted for each component of the short term variable remuneration. The curve determines the short term variable remuneration that will be granted to the President & CEO and to the members of the Management Committee, based on the effective result of each KPI. The short term variable remuneration is paid through one of the options of the “Short Term Incentive Plan”. As from performance year 2013, although the parameters taken into

Belgacom ANNUAL REPORT 2012 - 69

consideration in the formula defining the short term variable remuneration granted to the President & CEO and to the members of the Management Committee remain unchanged, their weight has been reviewed so that the impact of the Group KPI prevails the individual and Business Unit KPI’s. The President & CEO and the members of the Management Committee can choose to receive their short term variable remuneration in cash bonus or under the “Discounted Share Purchase Plan”. The Discounted Share Purchase Plan provides the right to buy allocated shares at a 16.67% discount. The shares are treasury shares and are blocked for a period of two years. The employee himself finances 83.33% of the full share purchase price. The discount is financed by the employer. The President & CEO chose to receive his short term variable remuneration through the Discounted Share Purchase Plan. The other members of the Management Committee have all opted for a cash bonus. The Short term variable remuneration of the President & CEO and of the members of the Management Committee decreased in comparison with last year as a result of changes in the composition of the management team and of a rebalancing of the target percentages between short term and long term incentives in accordance to the new Belgian corporate governance rules.

Long term Share-based variable remuneration On an annual basis the members of the Management Committee may also receive a stock-option grant. The options issued under this plan are subscription rights, each giving the right (for a limited period) to acquire Belgacom shares at a

price equal to the value of the share at the time of grant of the options. To comply with the new law on corporate governance, the Long Term Incentive plan has been changed as from the stock options granted in 2011:

Long term share-based variable remuneration (in kEUR) 1,154.4

692.9 534.6

474.3

2011

CEO

2012

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

prior to the earlier of the expiration of 5 years following the termination of the employment contract or the expiration of the exercise period. On an individual basis, the Management Committee received the options mentioned in the table below. For the President & CEO, the variation in the figures of long term share-based variable remuneration is mainly due to a rebalancing of the target percentages between short term and long term incentives in accordance to the new Belgian corporate governance rules. For the Management Committee, the variation is mainly due to changes within the composition of the Management Committee and to the new Belgian legislation on the benefit in kind related to stock options, which impacted the acceptance rate.

Management Committee

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

Scott Alcott

Bruno Chauvat

Michel Georgis

Dominique Leroy

Geert Standaert

Ray Stewart

Bart Van Den Meersche

on January 1st, 2012, Stock options remaining from previous years:

536,585

170,898

192,646

31,590

293,112

55,000

Stock options accepted during reported year

135,414

Exercise price (in EUR)

22.275

Stock options exercised during reported year

Number

86,225

Year of grant of options exercised

2005

Stock options lapsed during reported year

Number

32,406

Year of grant of options lapsed

2010 & 2011

TOTAL

Number

585,774

138,492

65,857

12,665

6,000

75,988

15,000

22.275

4,147

71,822

2009

2006 & 2008

258,503

12,665

33,443

297,278

70,000

corporate GOVERNANCE

70 - belgacom ANNUAL REPORT 2012

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

Remuneration

President & CEO

Other members of the Management Committee

2011

2012

2011

2012

Basic remuneration

938,591

963,096

2,597,582

2,760,207

Short term variable remuneration

712,056

513,715

1,653,134

1,393,093

Long term Share-based variable remuneration

474,330

534,614

1,154,360

692,914

Retirement and post employment benefits

109,440

113,032

514,310

538,377

9,663

14,773

203,409

154,819

TOTAL (excl. employer’s social contribution)

2,244,080

2,139,231

6,122,795

5,539,410

TOTAL (incl. employer’s social contribution)

2,580,147

2,484,136

7,438,289

6,916,767

Other benefits

Retirement and post employment benefits The President & CEO participates in a complementary pension scheme which foresees an annual indexed contribution of EUR 77,970.53. The current members of the Management Committee have a “Defined Benefit Plan”.

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

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

The year-on-year evolution of the figures is mainly the consequence of: • t he changes in the composition of the management team; • t he legal indexation of salaries; • t he new Belgian legislation on the benefit in kind related to stock options, which impacted the acceptance rate.

Main provisions of the contractual relationships Contractual arrangement of President & CEO In March 2009 Didier Bellens started a new six-year mandate as President & CEO. He has a contract as a selfemployed executive. Nevertheless he is subject to employee social security charges, in line with Article 11 § 1 of the Royal Decree of November 28, 1969. This article states that “the application of the law on the social security system for employees is extended to those institutions of public utility and autonomous public enterprises as well as such individuals who, in their capacity of agent and against remuneration, devote

their principal activity to the day-to-day management or direction of these institutions and enterprises, to the extent no statutory pension regime is applicable to these individuals”.

Clauses The President & CEO is bound by a noncompetition clause, prohibiting him for 12 months after leaving the group from working for a competitor of Belgacom Group in Belgium and in those countries where Belgacom Group generates at least 5% of its consolidated revenues. He will receive an amount equal to one year’s salary as compensation. The members of the Management Committee, who are bound by a noncompetition clause prohibiting them for 12 months after leaving the group from working for any other mobile or fixed licensed operator active on the Belgian market, will receive an amount equal to six months’ salary as compensation. Didier Bellens, Dominique Leroy, Bruno Chauvat, Geert Standaert, Ray Stewart and Bart Van Den Meersche have a

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

Board of Auditors The Board of Auditors of the company is composed as follows: • Deloitte Auditors SC sfd SCRL, represented by Mr. Geert VERSTRAETEN also Chairman of the Board of Auditors; • Romain LESAGE, Member of the Court of Auditors; • Pierre RION, Member of the Court of Auditors; • Luc Callaert SC sfd SPRLU, represented by Luc CALLAERT. Deloitte Auditors SC sfd SCRL, represented by Mr. G. Verstraeten and Mr. L. Van Coppenolle, are responsible for the audit of the consolidated financial statements of Belgacom and its subsidiaries. The other members of the Board of Auditors are, together with Deloitte, entrusted with the audit of the non-consolidated financial statements of the parent company. Mr. Lesage’s mandate will expire on 30 June 2014, the mandates of Mr. Rion, Deloitte and Callaert will expire at the annual General Shareholders Meeting in 2016.

Belgacom ANNUAL REPORT 2012 - 71

Additional fees paid to the auditors In accordance with the provisions of Article 134 § 2 of the Belgian Companies Code, Belgacom declares the supplementary fees that it granted during the 2012 financial year to two auditors, members of the Joint Auditors: Deloitte Auditors SC sfd SCRL and Luc Callaert SC sfd SPRLU. The Group spent during the year 2012 an amount of 343,462 EUR for non-mandate fees for Deloitte Auditors SC sfd SCRL, the Group’s auditors. This amount is detailed as follows: (in EUR) Other mandatory audit missions Tax advice

Auditor

Network of auditor

62,145

26,000

6,805

Other missions

241,193

7,319

Total

310,143

33,319

The Group also spent during the year 2012 an amount of EUR 1,593 for nonmandate fees paid to Luc Callaert SC sfd SPRLU. This amount is detailed as follows: (in EUR) Other mandatory audit missions

Auditor 1,593

Tax advice

the State appointed Mr. Michel Vanden Abeele as new Government Commissioner in order to supervise, in conformity with the 1991 Law, the management of Belgacom from an administrative point of view. He must ensure compliance with this law, the articles of association and the management contract. He must ensure that the company’s policy does not prejudice the performance by the company of its public services obligations.

Compliance Role of Compliance at Belgacom In an increasingly complex legal and regulatory context and a changing business environment as well as a difficult economic situation, compliance plays an important role in the business world. The Belgacom Group Compliance Office is responsible for coordinating compliance activities within the Belgacom Group, explaining the applicable rules, providing with the required tools to encourage compliance, and ensuring a consistent approach to compliance within the Group. Our compliance program is a key building block for our Corporate Social Responsibility strategy (more info available in the CSR section).

Government Commissioner

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

Mr. Paul Vanwambeke was Government Commissioner until 17 April 2012, then

The Code “The way we do responsible business” sets out the above-mentioned

Other missions Total

1,593

principles, and aims to inspire each employee in his daily behavior and attitudes. The ethical behavior is not limited to the text of the Code. The Code is a summary of the main principles and is thus not exhaustive. The principles and the rules in the Code are more developed in the different internal policies and procedures. The Code is available on www.belgacom.com.

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

The Compliance Program Ethical behavior and respect for the values are part of the compliance approach within the Belgacom Group. In line with the former years actions, the following efforts have been done, in order to improve the visibility of the Code of conduct and its policies: •A n e-learning training regarding the Code of conduct has been launched. All Belgacom staff were invited to follow this training, in which the main themes of our compliance program were set out. •A logo “Everyone responsible, we all win” has been created. It allows the

Belgacom staff to better identify our compliance campaigns. •P articular emphasis was placed on the confidentiality of information: the policy regarding document classification has been revised, an important information campaign has been launched through the intranet and by posters put up in all meeting rooms. The compliance domains which were the compliance focus areas for 2012 were : •T he Dealing Code •R egulatory compliance •C ompetition law •C hinese walls •E nvironment •P rivacy •A ccounting practices •B usiness expenses

Report on internal control and riskmanagement systems Belgacom defines risk as any uncertainties impacting the achievement of its performance objectives. Taking risk is inherent in doing business and an effective internal control & risk management of those risks delivers values to the Belgacom various stakeholders. The identification and the assessment of the particular risks and uncertainties which could affect Belgacom business are updated, reviewed and reported each year through an extensive Enterprise Risk Management framework exercise. The detailed report on the assessment of the effectiveness of the internal control and risk management systems can be found on pages 101 to 104.

72 - belgacom ANNUAL REPORT 2012

Financial info

transparency to share

This is means giving clear information to the financial world so that it can understand our performance, our objectives and our vision.

Belgacom ANNUAL REPORT 2012 - 73

Our goal: to give them the tools necessary to make wise decisions at all times, with full knowledge of the facts.

Trust Solidity Openness

Clear objectives and vision

Transparent information at any time

74 - belgacom ANNUAL REPORT 2012

Financial info

The Belgacom Share Since March 2004, Belgacomâ&#x20AC;&#x2122;s shares have been listed on Euronext Brussels under the ticker symbol BELG. The Belgacom share is a.o. included in the following leading indices: BEL20, EURO STOXX Telecommunications Index, STOXX Europe 600 Telecommunications index, FTSE Eurofirst 300 index, and MSCI Euro.

Belgacom share performance in 2012 2012 was a tough year for the Telecom sector. Compared to the overall market (SXXP index up 14.4% year-over-year), the Telecom sector (SXKP index down 10.7% year-over-year) underperformed the sector with 25.1 p.p.. Furthermore, the BEL20 closed the year 2012 18.8% higher versus end 2011. The main reasons for this sector underperformance were the fierce competition, top line pressure, rising capex and limited cost flexibility. This also resulted in many Telecom Incumbents having to cut their shareholder return. Furthermore, the financial and sovereign crisis continued in 2012 with the unrelenting insecurity and volatile markets also impacting the Telecom sector and foremost the indebted companies. As result of its strong financial position and stable strategy, the Belgacom share performed well over 2012 in comparison to most of its peers in the Telecom Sector. Share listing

Name

Term

Stock market:

First Market of Euronext Brussels

Ticker:

BELG

ISIN:

BE0003810273

National SVM code:

3810.27

Bloomberg code:

BELG BB

Thomson code:

BELG-BT

Reuters code:

BCOM

Over the year 2012, the Belgacom share lost 8.4%, with the closing price of 31â&#x20AC;ŻDecember 2012 at EUR 22.21, while the average trading volume declined with 4.1%. The share reached its year-high closing price of EUR 24.60 on 11 January 2012 and its lowest level on 5 June 2012 with a closing price of EUR 20.80 when the European financial markets reflected the peaking nervousness for a Greek exit from the European Union combined with the crisis giving Southern-Europe a hard time. In 2012 the kick-off the Telecom reporting season brought disappointing 2011 results, a weak outlook and reduced shareholder returns. Combined with other peers disappointing the market, this negatively impacted the share price of Belgacom in February. In March however, the share completely recovered after positive news flows on Belgacom obtaining the replacement of the two experts in the on-net rates legal case, markets gaining more confidence in general and some further support by the management roadshow. The Belgacom share went ex-dividend on 24 April 2012. Despite better than expected first quarter results, the share was further pressured by a negative read-across from some underperforming peers, the markets fearing for a Greek exit of the European Union and general concerns for the Euro. As from that point, the share recovered driven by M&A buzzes in the Telecom Market in June, the EU Commissioner pulling back from the Broadband Regula-

Belgacom aNNUal RePoRT 2012 - 75

tion plan to stimulate fiber deployment in August and the Belgian Court of Appeal deciding not to suspend the opening of the cable in September. Belgacom’s second quarter results announcement end July was in line with the expectations, keeping the shareprice stable. In October, the third quarter results of certain peers shocked the market with either lowered outlooks, dividends cuts and/or missing the market expectations. This pressured the Belgacom shareprice considerably in the fortnight of Belga-

com third quarter results announcement. Belgacom however positively surprised the market with better than expected third quarter results, the improved fullyear guidance and the announcement of a one-time extra interim dividend. Finally, on December 11 Belgacom went ex-interim dividend and in combination with several financial publications seeing a negative 2013 outlook for the Telecom sector, the downward pressure on the share and Telecom market continued in the year end.

www.belgacom.com/bmcvideo

+ response “2012 proved to be a tough year for European Telecoms. The Belgacom share, however, was fairly well preserved as result of Belgacom’s stable and successful convergence strategy in conjunction with its attractive shareholder return and healthy financial position.” Ray Stewart Executive Vice President Finance & CFO

Belgacom share performance

2008

2009

2010

2011

2012

33.31

28.65

29.11

27.64

24.60

Share information Share price high Share price low

24.58

21.67

24.31

21.40

20.80

Share price at 31 December

27.33

25.32

25.13

24.24

22.21

Annual trading volume (number of shares) Average trading volume per day (number of shares)

281,419,643 181,364,309 138,569,376 148,786,324 142,139,111 1,099,295

708,454

532,959

578,935

555,231

Number of outstanding shares

320,334,261 320,614,683 321,482,641 317,648,821 318,321,665

Weighted average number of outstanding shares

326,179,820 320,475,553 321,138,048 319,963,423 318,011,049

EBITDA1

5.84

6.14

7.56

5.93

Net Income (Group Share)1

2.45

2.82

3.94

2.36

2.24

Ordinary dividend (gross)

1.68

Interim-dividend (gross) Gross dividend yield2

28 26 24 22

0.50

0.40

0.50

0.81

8.0%

8.2%

8.7%

9.0%

11.2%

11.15

8.98

6.37

10.26

9.94

EBITDA1

6.10

6.18

5.97

5.61

2.71

2.79

2.57

2.41

2.29

10.09

9.09

9.79

10.06

9.68

8.75

8.12

8.08

7.70

7.07

Market capitalization at 31 December (billion EUR)3

Belgacom share performance over 2012 as compared to some of its peers (source: thomson one) 35 30 25

Net Income (Group Share)1 Price/earnings at 31 December2

Based on weighted average number of outstanding shares 2 Based on share price 31 December 3 Calculation based on number of outstanding shares & share price 31 December

BEL 20 restated SXXP restated BELG-BT Close SXKP restated

5.55

Key data per share before non-recurring

20 02/01 02/02 02/03 02/04 02/05 02/06 02/07 02/08 02/09 02/10 02/11 02/12

Key data per share as reported

Price/earnings at 31 December

Belgacom share performance over 2012 as compared to Bel20, StoXX euro telecom 600 (SXkp) and StoXX euro 600 (SXXp) (source: thomson one)

20 15 10 5 02/01 02/02 02/03 02/04 02/05 02/06 02/07 02/08 02/09 02/10 02/11 02/12

TNET restated SCMN restated DT restated BELG-BT Close PT restated FT restated TKA restated MOBB restated KPN restated

Financial info

76 - belgacom ANNUAL REPORT 2012

Our shareholders The Belgian government remains the main shareholder, owning 53.5% of the Belgacom shares. Belgacom itself held 5.8% of its own shares, end 2012. The free-float represents 40.7%. The main institutional shareholders are located in the United States and the United Kingdom followed by Belgium, Germany and France.

Institutional Shares by Geography 21% United Kingdom 21% United States 11% Belgium 11% Germany 6% France 20% Rest of Europe 10% Rest of World

Situation 31 December 2012

Belgacom ownership Belgian State

Shares % Total shares

56.0%

53.5%

56.8%

19,703,470

5.8%

0.0%

1.5%

Free-Float

137,434,096

40.7%

43.2%

42.5%

TOTAL

338,025,135

100.0%

Treasury shares evolution (source: Shareholder analysis September 2012)

Status 31 December 2011 Option exercised during 2012

The voting rights of the treasury shares are suspended by law. The dividend rights of the treasury shares acquired in 2004 are also suspended, whereas the dividend rights for shares acquired as from 2005 are cancelled.

Belgacom SA holds 19,703,470 treasury shares, representing 5.8% of the total number of outstanding shares. The Belgian state holds 180,887,569 shares, representing 53.5% of the total number of outstanding shares.

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

To Belgacom’s knowledge, no other shareholder owned 3% or more of Belgacom’s outstanding shares as at 31 December 2012.

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

% Dividend rights

180,887,569

Belgacom own shares

End 2012, Belgacom held 19,703,470 treasury shares, representing 5.8 % of the total number of shares. In the course of 2012, 208,433 treasury shares were used in a Discount Share Purchase Plan for Belgacom management and 464,411 options were exercised.

Transparency declarations

% Voting rights

20,376,314 -464,411

Discount Purchase Plan employees

-208,433

Status 31 December 2012

For the year 2012, no transparency declarations have been made.

Notifications of important shareholdings to be made according to the Law of 2 May 2007 or Belgacom’s bylaws should be sent to: •F SMA (former CBFA) on trp.fin@fsma.be •B elgacom on investor.relations@belgacom.be

19,703,470

Investor Relations Belgacom Investor Relations (IR) aims at providing the Belgian and international investment world with an open communication on a regular basis. Through a transparent and consistent dialog with investors and financial analysts, the Group strives for a fair share value based on high-quality financial information. In this context, Belgacom is proud to have received the Award for Best Press Releases in October 2012 from the Belgian Financial Analysts’ Association. To keep Belgacom’s current and potential shareholders informed, Belgacom’s management speaks to the financial community on a regular basis. Each quarterly results announcement is followed by a conference call or investor/ analyst presentation during which maxi-

Belgacom aNNUal RePoRT 2012 - 77

eur 2.49

gross dividend per share for 2012

mum time is reserved for a â&#x20AC;&#x153;questions & answersâ&#x20AC;? session. Twice a year, following the full-year and half-year results, Belgacom organizes a roadshow with top management covering the most important money centers of Europe and the United States. Furthermore, Belgacom participated in several major international investment conferences. In between these events, meetings and conference calls with senior management are organized. In all these activities, management is supported by the Investor Relations team (IR). The Belgacom IR team offers daily support to the retail and institutional shareholders as well as to the sell-side analysts. A strict quiet period is observed four weeks before the issuing of a quarterly report and six weeks before the communication of the annual results.

17 april 2013

annual general shareholder meeting

23 april 2013

ex-dividend listing of shares

Shareholder remuneration

26 april 2013

Payment of ordinary dividend

Shareholder return policy

03 may 2013

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

announcement of first-quarter results 2013

26 July 2013

announcement of half-year results 2013

25 october 2013

announcement of third-quarter results 2013

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

Dividend per share (in eur) 2.49

The shareholder remuneration policy is based on a number of assumptions regarding future business and market evolutions, and may be subject to change in case of unforeseen risks or events outside the companyâ&#x20AC;&#x2122;s control.

2.18 1.93

2.18

2.08

2.18

1.89 1.52

1.38

1.52

1.60

1.68

1.68 0.31

0.55

Belgacom defines free cash flow as cash flow generated by operating activities, minus capital expenditures and including other investing activities such as acquisitions or divestments.

The Board of Directors approved in October 2012 the payment of an interim dividend of EUR 0.81 gross per share (net amount of EUR 0.6075 per share). This is the combination of the normal interim dividend of EUR 0.50 gross per share and a one-time extra interim dividend of EUR 0.31 per share since Belgacom opted for an extra dividend instead of returning the EUR 100 million outstanding as a share buyback.

Note that these dates may be subject to change.

2004

Shareholder return from the financial year 2012

+ financial calendar

2005

0.29

0.50

0.40

0.50

2006

2007

2008

2009

2010

2011

2012*

Interim dividend Extra-ordinary dividend Normal dividend (*)

Subject to approval by General Shareholder Meeting

On 28 February 2013, the Board of Directors decided to propose an ordinary dividend of EUR1.68 per share to the Annual Shareholder Meeting of 17 April 2013. As a result, Belgacom expects to exceptionally increase its dividend to EUR 2.49 gross per share for the 2012 full-year results. After approval by the Annual Shareholder Meeting, the normal dividend will be paid on 26 April 2013, with record date on 25 April 2013 and ex-dividend date on 23 April 2013. This brings the 2012 total shareholder return to EUR 798 million, including the interim dividend.

Financial info

78 - belgacom ANNUAL REPORT 2012

CONSOLIDATED BALANCE SHEET Assets

(EUR million) NON-CURRENT ASSETS

As of 31 December

Note

2011 6,217

2012 6,160

Goodwill

2,323

2,339

Intangible assets with finite useful life

1,155

1,097

Property, plant and equipment

2,401

2,467

Investments in associates

Other participating interests

Deferred income tax assets

121

113

Pension assets

Other non-current assets

180

134

2,095

2,051

CURRENT ASSETS Inventories

116

133

Trade receivables

1,328

1,341

Current tax assets

143

151

Other current assets

152

141

Investments

Cash and cash equivalents

320

202

8,312

8,211

TOTAL ASSETS

The Consolidated Financial Statements prepared under International Financial Reporting Standards (IFRS) can be consulted on the Belgacom website www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 79

Liabilities and equity

(EUR million) EQUITY Shareholders' equity

As of 31 December

Note 16 16

Issued capital Treasury shares Restricted reserve Stock compensation Retained earnings Foreign currency translation

2011 3,303

2012 3,228

3,078

3,016

1,000

-570

-551

100

2,532

2,451

225

212

2,749

2,512

Interest-bearing liabilities

1,931

1,761

Liability for pensions, other post-employment benefits and termination benefits

479

402

Provisions

180

203

Deferred income tax liabilities

157

144

Other non-current payables

2,260

2,472

Non-Controlling interests NON-CURRENT LIABILITIES

CURRENT LIABILITIES Interest-bearing liabilities

Trade payables

215

1,343

1,310 236

Tax payables

229

Other current payables

647

711

8,312

8,211

TOTAL LIABILITIES AND EQUITY

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

80 - belgacom ANNUAL REPORT 2012

CONSOLIDATED INCOME STATEMENT Year ended 31 December

(EUR million) Net revenue

Note 21

2011 6,361

2012 6,415 47

Other operating income

Non-recurring income

6,417

6,462

Total income Costs of materials and services related to revenue

-2,517

-2,611

Personnel expenses and pensions

-1,117

-1,141

Other operating expenses

-860

-925

Non-recurring expenses

-26

-18

-4,520

-4,696

1,897

1,766

Total operating expenses before depreciation and amortization Operating income before depreciation and amortization Depreciation and amortization

Operating income Finance income Finance costs Net finance costs

Income before taxes Tax expense

Net income Non-controlling interests

Net income (group share)

-756

-748

1,141

1,018

-137

-127

-106

-111

1,035

906

-262

-177

773

729

756

711

Basic earnings per share (in EUR)

2.36 EUR

2.24 EUR

Diluted earnings per share (in EUR)

2.36 EUR

2.23 EUR

Weighted average nb of outstanding ordinary shares

319,963,423

318,011,049

Weighted average nb of outstanding ordinary shares for diluted earnings per share

320,514,286

318,688,078

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 81

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Year ended 31 December

(EUR million) Net income

2011 773

2012 729

Other comprehensive income: Exchange differences on translation of foreign operations

-1

Other comprehensive income net of related tax effects

-2

-1

772

728

755

710

Total comprehensive income Attributable to: Equity holders of the parent Non-controlling interests

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

82 - belgacom ANNUAL REPORT 2012

CONSOLIDATED CASH FLOW STATEMENT (EUR million) Cash flow from operating activities

Note

Net income (group share)

2011

2012

756

711

Adjustments for: Non-controlling interests

Depreciation and amortization on intangible assets and property, plant and equipment

4.5

756

748

Increase of impairment on intangible assets and property, plant and equipment

4.5

-6

Increase of provisions Deferred tax expense Increase of impairment on participating interests Fair value adjustments on financial instruments Loans amortization Loss on disposal of consolidated companies

Gain on disposal of associates

Gain on disposal of property, plant and equipment Other non-cash movements Operating cash flow before working capital changes Increase in inventories Increase in trade receivables Decrease in current income tax assets Decrease in other current assets Increase in other non current assets

-1

-3

-5

1,569

1,546

-8

-10

-103

-3

-34

Increase / (decrease) in trade payables

-31

Increase in income tax payables

Increase in other current payables

-85

-77

Decrease in net liability for pensions, other post-employment benefits and termination benefits

Decrease in other non-current payables and provisions

-26

-19

Increase in working capital, net of acquisitions and disposals of subsidiaries

-17

-66

1,551

1,480

Net cash flow provided by operating activities (1)

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 83

(EUR million) Cash flow from investing activities

Note

2011

2012

4, 5

-757

-773

-6

-4

Cash paid for acquisition of consolidated companies, net of cash acquired

-14

-23

Cash received from sales of consolidated companies, net of cash disposed of

Cash paid for acquisitions of intangible assets and property, plant and equipment Cash paid for acquisitions of other participating interests

Cash received from sales of intangible assets and property, plant and equipment Net cash received from other non-current assets

Net cash used in investing activities

-764

-789

Cash flow before financing activities

788

691

Cash flow from financing activities Dividends paid to shareholders

-701

-798

Dividends paid to non-controlling interests

-24

-31

Net sale / (acquisition) of treasury shares Net (purchase) / sale of investments Decrease of shareholders' equity Issuance of long term debt Repayment of long term debt Issuance of short term debt Net cash used in financing activities Net decrease of cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (1)

-86

-42

-2

-3

495

-773

-4

-1,051

-809

-264

-118

584

320

202

-91

-81

et cash flow from operating activities includes N the following cash movements :

Interest paid Interest received Income taxes paid

-154

-175

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

84 - belgacom ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (EUR million) Balance at 1 January 2011

Issued Treasury capital shares (TS)

Restricted reserve

Foreign currency translation

Stock Compensation

Retained Earnings

Shareholders' Equity

Noncontrolling interests (NCI)

Total Equity 3,342

1,000

-484

100

2,476

3,108

235

Currency translation differences

-2

-1

Equity changes not recognised in the income statement

-2

Net income

756

773

Total comprehensive income

-2

756

755

772

Dividends to shareholders (relating to 2010)

-540

Interim dividends to shareholders (relating to 2011)

-159

Dividends of subsidiaries to non-controlling interests

-24

NCI arising in a business combination

-1

-3

-4

Treasury shares (TS) Exercise of stock options

Acquisition of TS

-100

Sale of TS under a discounted share purchase plan

-1

Stock options Stock options granted and accepted

Deferred stock compensation

-3

Amortization deferred stock compensation

Exercise of stock options

-1

Total transactions with equity holders Balance at 31 December 2011

-86

-700

-784

-27

-811

1,000

-570

100

2,532

3,078

225

3,303

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 85

(EUR million) Balance at 31 December 2011

Issued Treasury capital shares (TS)

Restricted reserve

Foreign currency translation

Stock Compensation

Retained Earnings

Shareholders' Equity

Noncontrolling interests (NCI)

Total Equity 3,303

1,000

-570

100

2,532

3,078

225

Currency translation differences

-1

Equity changes not recognised in the income statement

-1

Net income

711

729

Total comprehensive income

-1

711

710

728

Dividends to shareholders (relating to 2011)

-534

Interim dividends to shareholders (relating to 2012)

-258

Dividends of subsidiaries to non-controlling interests

-31

Exercise of stock options

Sale of TS under a discounted share purchase plan

-1

Treasury shares (TS)

Stock options Stock options granted and accepted

Deferred stock compensation

-1

Amortization deferred stock compensation

Exercise of stock options

-1

Total transactions with equity holders Balance at 31 December 2012

-792

-772

-31

-804

1,000

-551

100

2,451

3,016

212

3,228

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

86 - belgacom ANNUAL REPORT 2012

MANAGEMENT discussions 1 Belgacom Group

• Group revenue grew 0.9%2 in 2012 to EUR 6,462 million • Group EBITDA of EUR 1,784 million, i.e. -6.7%3 lower than for 2011 • Full-year EBITDA margin of 27.6%; 2.2 p.p. less than 2011 • Belgacom generated EUR 691 million Free Cash Flow in 2012

Revenues The Belgacom Group ended the year 2012 with total revenue of EUR 6,462 million. In contrast to some of its peers in the European Telecoms industry, Belgacom realized a positive revenue evolution of +0.9%, i.e. an increase of EUR 56 million over the previous year. Belgacom achieved this through the solid financial result of its Consumer segment, and the growth realized in the International Carrier segment, while the revenue erosion in the Business segment remained limited in spite of operating in an unfavorable economy. Excluding the net impact from acquired and disposed companies, the Belgacom Group revenue was up 0.5%. This includes a revenue loss due to regulatory5 measures for a total amount of EUR -90 million, or -1.4%. This excluded, the underlying revenue from the Belgacom Group was up 1.9% from 2011.

Revenue (in EUR million) before non-recurring items 5,978

2008

6,603 5,990

2009

2010

6,406

6,462

2011

2012

Share in 2012 revenue per BU 35% CBU 35% EBU 5% SDE&W 1% S&S 25% BICS

1. Detailed financial results on the website www.belgacom.com/annualreport 2. Variance excluding non-recurring revenue. Including non-recurring revenue of 2011, the 2012 Group revenue was up 0.7% 3. Variance excluding non-recurring items. When including non-recurring items, EBITDA was down 6.9% 4. Mainly related to Lower Mobile Termination Rates, lower Voice and Data Roaming rates 5. Following its acquisition by Belgacom, financials of The Phone House are consolidated as of January 2012 6. Other operating expenses

Operating expenses The Belgacom Group’s total operating expenses for 2012 amounted to EUR 4,677 million before non-recurring items, which is 4.1% higher compared to the year before. The Belgacom Group ended the year 2012 with a Cost of Sales of EUR 2,611 million, i.e. 3.7% higher than the previous year. This increase is mainly driven by: 1- the International Carrier Services (BICS), operating at lower margins; 2- an increase in Cost of Sales in the Consumer segment, partly driven by The Phone House5; 3- a EUR 22 million accounting adjustment following the passing of the new Telecom law. In the course of 2012, the Belgacom Group headcount increased, driven by the acquisition of The Phone House and business-critical hiring. This was partly offset by employees leaving under the “Tutorship” restructuring program. By end-2012, the Belgacom Group counted 15,859 full-time equivalents, or 71 FTEs more than the year before. The 2012 HR-expenses of EUR 1,141 million were 2.2% higher versus 2011, mainly as a result of inflation-driven wage indexations, and a higher personnel base.

The 2012 non-HR expenses 6 for the Belgacom Group were up by 7.6% to a total of EUR 925 million, including the costs related to The Phone House, some costs linked to Belgacom’s efficiency effort, and an unfavourable variance for one-off items. Total expenses (in EUR million) before non-recurring items 4,619 3,989

4,035

890

840

1,124

1,108

CoS

1,975

2008

Non-HR

(*)

4,677

4,494

870

860

925

1,107

1,117

1,141

2,087

2,642

2,517

2,611

2009

2010*

2011

2012

2010 impacted by full-consolidation of BICS

Headcount evolution (in FTE) 17,371

2008

16,804

16,308

15,788

15,859

2009

2010

2011

2012

Belgacom ANNUAL REPORT 2012 - 87

EBITDA

Tax Expense

The Belgacom Group EBITDA, before non-recurring items remained under pressure in 2012, ending at EUR 1,784 million, 6.7% lower versus 2011. This led to a full-year EBITDA margin of 27.6%.

The effective tax rate resulting from the application of the general principles of Belgian tax law was 19.5% for full-year 2012. The decrease compared to 25.3% ETR for 2011, resulted from: lower earnings before tax with rather stable adjustment of the tax base, (accelerated) use of tax deductions and relative higher ETR in 2011 due to taxation on 5% of intragroup dividends.

Regulatory measures had a negative impact for a total amount of EUR 55 million, or -2.9%. Excluding the regulation impact, the full-year EBITDA was 3.8 % or EUR -72 million lower than the previous year. In addition, the introduction of the new telecom law on 1 October 2012 triggered an accounting adjustment for EUR -34 million at the EBITDA level. The remaining decrease in EBITDA is mainly driven by higher HR and non-HR expenses, while direct margins are pressured by a changing product mix. EBITDA (in EUR million) & margin before non-recurring items 33.3%

32.6%

30.0%

29.8%

1,990

1,955

1,984

1,912

2008

2009

2010

2011

1,784

2012

2012 EBITDA contribution per BU (in EUR million) 129 BICS 1108 EBU 986 CBU -97 SDE&W -341 S&S

12.8%

12.1% 11.1%

764

10.0% 734

777

2012

19.5%

2011

25.3%

2010

21.6%*

2009

21.0%

2008

24.1%

ormalized effective tax rate, excluding the nonN recurring non-taxable gain of EUR 436 million

CAPEX The Belgacom Group invested a total of EUR 753 million in 2012, or 11.7% of its Group revenue. To support its convergence strategy, Belgacom continued to invest in its network, further increasing coverage and speed for both its fixed and its mobile network. In this regard, Belgacom further rolled out fiber to the curb and installed VDSL2, increasing its fiber coverage to over 85% by year-end.

Free Cash Flow (in EUR million) 980

11.7%

797

691

597

409

2008 2008

2009

788

753

2010

2011

2009

2010

2011

2012

2012 Capex per BU (in EUR million)

Effective tax rate*

(*)

27.6%

Capex (in EUR million) & capex as % of revenue

164 CBU 15 EBU 514 SDE&W 40 S&S 20 BICS

Free Cash Flow* Belgacom ended the year 2012 with EUR 691 million of Free Cash Flow. This is EUR 97 million lower than for 2011, explained by the lower EBITDA (adjusted for non-cash one-off impacts following the new Telecom Law), the acquisition of Wireless Technologies BVBA for EUR 23 million, the payment of the 4G spectrum license for EUR 20 million and higher income tax payments for EUR 21 million.

Net financial position Belgacom closed the year 2012 with a very sound net financial position. Its financial debt end of 2012 was EUR 1,601 million, or 0.9 times EBITDA (before non-recurring items), one of the lowest net debt positions in the European telecom sector. The Net Debt increased by EUR 122 million as the cash returned to shareholders in the form of dividends exceeded the 2012 Free Cash Flow. The outstanding long-term gross financial debt amounted to EUR 1.9 billion (re-measured at fair value). Net financial position (in EUR million)

(1,479)

691

(798)

(*) Cash flow before financing activities

(1,601) (31)

Net debt Dec. 2011

FCF

Dividends

(19)

Net sale of Non controlling treasury shares interests

(3) Other

Net debt Dec. 2012

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

88 - belgacom ANNUAL REPORT 2012

Consumer Business Unit - CBU • Consumer segment generated EUR 2,321 million revenue in 2012, up 1.4% from 2011 • Revenue from Data, TV and The Phone House fully offset Voice revenue erosion • Multi-play Packs supporting customer growth: TV +175,000; Internet +50,000 9; while limiting Voice line erosion • Full-year segment result of EUR 986 million, i.e. a 3.8% decline compared to 2011

CBU revenues For the full-year 2012, CBU reported revenues of EUR 2,321 million or 1.4% more than for 2011. The year-over-year improvement is driven by the solid reve nue contribution from Belgacom TV, Mobile Data and Fixed Internet as well as the revenue contribution from The Phone House. Excluding the net contribution from acquired and divested companies in addition to a one-off accounting adjustment triggered by the introduction of the new telecom law, lowering the Consumer revenue by EUR 10 million in the second quarter 2012, CBU’s organic revenue was nearly flat (-0.3%) versus the prior year. This includes the negative effect of regulatory measures which reduced the 2012 revenue by EUR 40 million (-1.8%). This entails the effect from a further decline of Voice roaming tariffs, lower Mobile Termination Rates and the resulting decline in fixed-to-mobile tariffs, as well as the regulated capping of Mobile Data Roaming pricing since 1 July 2012. The underlying revenue, i.e. excluding the above impacts, was up by 1.5% compared to 2011.

Revenue (in EUR million) 2,253

2,414

2,368

2,288

2,321

2009

2010

2011

2012

Belgacom’s more traditional product lines such as Fixed Voice and Mobile Voice continued to be under pressure in 2012, in part due to regulation. The share of revenue from Voice in the total consumer revenue further decreased to 40% in 2012, whereas this was 45% in 2011. Fixed & mobile voice revenue (in EUR million)

2008

The line erosion over 2012 further improved to a loss of 81,000 lines versus 115,000 in 2011. End-2012, CBU counted a total Fixed Voice customer base of 1,718,00010. The Fixed line revenue felt pressure from some regulatory measures11, though, on the other hand benefitted from the price indexations of 1 January 2012. Fixed line & mobile customers (in ‘000) Mobile

CBU 2012 revenue split 32% Data (fixed & mobile) 40% Voice (fixed & mobile) 4% Other 6% Terminals 8% Scarlet & Tango 10% TV

Mobile

723

704

641

565

505

Fixed

599

561

506

454

425

2008

2009

2010

2011

2012

The consumer segment generated EUR 425 million in revenue from Fixed Voice over the full-year 2012, showing sequential improvement over the quarters. The reduced revenue loss results from a maintained lower level of voice lines erosion following the success of multi-play Packs and Happy Time XL.

9. Excluding 11,000 Internet customers (‘Internet for Employees’) that were resegmented from EBU to CBU 10. Including Scarlet VoIP customers 11. Implementation of a financial collecting model and lower fixed-to-mobile tariffs following the cut in mobile termination rates 12. As of 2011 the allocation of Mobile Access revenue to Voice and Data was adjusted to better reflect the price plans. The 2010 revenue from Mobile Voice and Data was restated accordingly; note however that the 2009 revenue has not been restated 13. Lower roaming tariffs, a double cut in mobile termination rates and the implementation of a collecting model for Premium Rate Services

2012* 2011 2010 2009 2008

Fixed

2012* 2011 2010 2009 2008

(*)

3,643 3,805 3,769 3,824 3,777 1,718 1,818 1,933 2,028 2,165

ear-over-year difference differs from net add Y figures due to a re-segmentation exercise between the Business Units

The EUR 505 million revenue from Mobile Voice12, was 10.5% lower than for 2011, including a significant impact from regulatory measures13. Compared to end-2011, the CBU mobile customer base shrunk by 152,000 customers to a total of 3,643,000. Whereas in the first half of 2012 CBU still grew its mobile customer base, the second half of 2012 showed a significant net customer loss. This was especially visible in the Prepaid

Belgacom ANNUAL REPORT 2012 - 89

segment (-192,000), while the Postpaid segment (+40,000) was protected by the growing success of data cards, driven by Packs including mobile and Internet Everywhere. As of October 2012, however, Postpaid too was under pressure, driven by aggressive competitor pricing and the new telecom law entering into force. Fixed & mobile voice ARPU (in EUR) Mobile

2012 2011 2010 2009 2008

11.5 12.8 14.5 15.8 16.6

Fixed 2012 2011 2010 2009 2008

19.9 19.9 20.7 21.7 21.6

Both Fixed and Mobile data showed a positive revenue evolution compared to 2011, driving the share of Data in the total CBU revenue to 32% versus 31% in 2011. Fixed & mobile data revenue (in EUR million)

Mobile

277

303

334

369

398

Fixed

313

323

337

332

339

2008

2009

2010

2011

2012

Full-year Mobile data revenues of EUR 398 million were 7.8% higher than for the prior year. Mobile data includes revenue from both SMS and non-SMS data, i.e. “Advanced Data”.

In contrast to the trend seen in other European countries, Belgacom’s revenue from SMS continued to show growth in 2012, increasing to EUR 342 million, up 6.9% compared to the previous year. This trend is driven by the continued success of pricing plans including free SMS, boosting the total SMS volume by 12.5% to an average of 282 text messages/user/ month. Revenue from Advanced Data showed strong growth over the first half of 2012, driven by the strong demand on Mobile Internet and Mobile Data roaming. As of July 2012 the revenue growth trend was subdued by the European Roaming regulation, lowering the rates for Mobile Data roaming significantly. Over the fullyear 2012, Advanced Data revenue was up 14.3% to EUR 56 million. Fixed & mobile data ARPU (in EUR) €) Mobile

2012 2011 2010 2009 2008

8.8 8.2 7.4 6.8 6.3

Fixed 2012 2011 2010 2009 2008

26.5 26.8 28.2 28.7 30.0

Revenue from Fixed Internet increased by 2.1% from last year. In spite of a mature and competitive market, CBU continued to grow its Fixed Internet customer base in 2012, driven by the success of multi-play Packs. CBU grew its Fixed Internet customer base by 50,000 to a total of 1,193,000 customers. The Broadband ARPU for 2012 was EUR 26.5 compared to EUR 26.8 for 2011.

TV revenue (in EUR million)

Fixed Internet customers (in ‘000) 1,075

1,113

1,156

235 1,193

208 182

902 134 86

2008 2008 (*)

2009

2010

2011

2009

2010

2011

2012

18.4

17.9

2011

2012

2012*

ear-over-year difference differs from net add Y figures due to a re-segmentation exercise between the Business Units

Benefitting from Belgacom’s attractive and well-targeted Packs, Belgacom TV continued to be very successful in 2012, with its customer base growing by 175,000 customers to a total of 1,386,000 including 230,000 multi-settop box users. The monthly average revenue per customer (ARPU) for TV was EUR 17.9 versus EUR 18.4 for 2011. With the free football offer annualising, Belgacom TV saw its revenue growth picking up again in the second half of 2012. Over the full-year 2012 Belgacom TV generated EUR 235 million revenue, up 13.5% compared to 2011. In 2012, TV revenues represented 10% of total CBU revenues.

TV ARPU (in EUR) 20.4

19.4

2008

19.7

2009

2010

TV customers (in ‘000) 1,386 1,211 975 752

230

190

135

100

Multi-stream

506 65

Household

441

652

839

1,021

1,156

2008

2009

2010

2011

2012

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

90 - belgacom ANNUAL REPORT 2012

CBU operating expenses CBU’s total expenses were up 5.7% over the previous year. This is the result of higher Cost of Sales, which increased year-over-year by 6.8% to EUR 666 million. This increase was mainly driven by the costs from the The Phone House, and includes a EUR 16 million accounting one-off following the passing of the new telecom law. This was partly offset by a positive effect from regulatory measures14, capitalization of modems and initiatives to improve product profitability. Additional headcount from The Phone House and inflation-based wage indexations (June 2011 and March 2012) drove the 5.5% year-over-year increase in HR costs to EUR 359 million Non-HR costs for 2012 totaled EUR 310 million or 3.7% higher compared to 2011, including non-HR expenses from The Phone House.

1,365 1,160

1,335

1,295

1,263

297

291

299

310

Non-HR

282

325

345

325

340

359

CoS

553

723

678

624

666

2008

2009

2010

2011

2012

The CBU full-year segment result amounted to EUR 986 million which is EUR 39 million or 3.8% below that of 2011. This includes a negative impact from regulation for EUR 22 million (-2.1%) and a one-off accounting adjustment for EUR 26 million following the new telecom law. The 2012 full-year contribution margin15 decreased to 42.5% from 44.8% for 2011.

For the full-year 2012, Tango, Belgacom’s Luxembourgish mobile operator, continued to do well with reported revenues of EUR 114 million or an increase of 6.5% compared to 2011. This growth is driven by strong sales in Luxembourg of smartphones and the iPhone. Along with the ongoing migration of prepaid towards postpaid offers and increased revenues from bundles, this resulted in a continued revenue increase. Furthermore, over theyear 2012, Tango added 7,000 customers. Revenue (in EUR million)

107

114

Segment result (in EUR million) & margin 48.5%

1,093

2008

14. Lower mobile termination rates 15. Belgacom does not apply a full cost allocation. Network and IT costs are therefore mainly centralized within SDE&W

Tango

Total expenses (in EUR million)

43.4%

45.3%

44.8%

1,048

1,073

1,025

2009

2010

2011

2009

2010

2011

2012

42.5% 986

Tango Mobile customers (in ‘000) 259

260

264

271

2009

2010

2011

2012

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 91

Enterprise Business Unit - EBU • Revenue 2.3% lower versus 2011 in competitive landscape and unfavorable economic context • Regulatory price cuts significantly impacted revenue and segment result • Underlying growth from ICT and mobile data offsetting Voice decline, ex-regulation • 2012 segment result totals EUR 1,108 million

EBU revenues

EBU 2012 revenue split

Over the year 2012 Belgacom’s professional customer segment generated EUR 2,294 million in revenue, i.e. 2.3% lower than for 2011. This decline is partly explained by the divestment of Telindus Spain, partially compensated for by the acquisition of Eudasys by Telindus France. Organically, i.e. excluding the M&A impact, the revenue erosion was limited to -1.5%. This was mainly caused by regulatory16 measures, lowering EBU’s 2012 revenue by EUR 46 million or -1.9%. Leaving aside the M&A and regulation impact, the underlying revenue from EBU was 0.4% up compared to 2011. The positive underlying revenue variance resulted from the volume growth in Mobile Data and higher ICT revenue, which offset the pressure on Fixed and Mobile Voice.

30% ICT 26% Data 40% Voice 1% Other 4% Terminals

The traditional voice products, both Fixed and Mobile, continued to feel pressure from regulatory measures16, i.e. from the lowered Mobile Termination Rates, the resulting lower Fixed-to-Mobile rates and the cut in Roaming rates. In 2012, Fixed and Mobile Voice represented 40% of the total EBU revenue. Fixed & mobile voice revenue (in EUR million)

Revenue (in EUR million) 2,696 2,501

2008

2009

2,421

2010

2,349

2011

Mobile

624

560

500

448

403

Fixed

608

574

539

496

481

2008

2009

2010

2011

2012

2,294

2012

16. L ower Mobile Termination Rates and the flowthrough to Fixed-to-Mobile rates, lower Roaming rates 17. Average revenue per user on a monthly basis 18. I ncluding Mobile Voice, Mobile Data and M2M cards

In 2012, EBU generated EUR 481 million in revenue from Fixed Voice, which is 3.1% lower than for 2011. This is in part due to the lowered Fixed-to-Mobile rates, and in part due to the continued erosion of Fixed Voice lines. In 2012 EBU’s Fixed Voice line base eroded by 57,000 lines to a total of 1,356,000. The price indexation of 1 January 2012 gave some support to the 2012 Fixed Voice ARPU17 which remained fairly stable at EUR 28.5. Fixed line & mobile & mobile datacustomers ARPU (in €) (in ‘000) Mobile

2012 2011 2010 2009 2008

1,486 1,408 1,303 1,235 1,139

Fixed 2012 2011 2010 2009 2008

1,356 1,385 1,441 1,491 1,545

*Y ear-over-year difference differs from net add figures due to a re-segmentation exercise between the Business Units

Revenue from Mobile Voice for the year 2012 amounted to EUR 403 million, 10% lower compared to 2011. Regulatory price decreases in Mobile Termination and Roaming rates further impacted the Mobile Voice revenue, along with continued price erosion as a result of the successful uptake of Mobile pricing plans including free Voice minutes and the

fierce competition in the Corporate Mobile Market. The price pressure was, however, partly compensated for by a solid customer growth of 95,000 active Mobile customers18, ending 2012 with a total of 1,486,000 Mobile customers. Usage per customer was only slightly down from the previous year with an average usage of 315 minutes per month. Fixed & mobile voice ARPU (in EUR) Mobile

2012 2011 2010 2009 2008

23.3 27.6 33.0 39.2 47.6

Fixed 2012 2011 2010 2009 2008

28.5 28.7 30.0 30.8 31.7

In 2012 EBU reported EUR 692 million revenue from ICT, compared to EUR 697 million in 2011. The variance was, however, impacted by the divestiture of Telindus Spain and the acquisition of Eudasys by Telindus France. Organically, the revenue from ICT was up by 2.1% over the previous year in spite of the unfavorable economic climate in 2012.

Financial info

92 - belgacom ANNUAL REPORT 2012

totalling EUR 115 million for 2012. Revenue from Advanced data grew solidly in the first half of 2012 as a result of a strongly increasing customer base for Mobile Internet and volume growth in Mobile Data Roaming. However, since mid-2012, there has been a reversal in this positive revenue trend as the revenue was significantly impacted by the regulation of Mobile Data roaming tariffs, applicable since 1 July 2012.

ICT revenue (in EUR million) 756

2008

697

692

670

2009

2010

692

2011

2012

Mobile Data revenue continued to grow in 2012, up by 3.3% to EUR 223 milion. The revenue from Mobile Data includes both revenue from SMS and non-SMS Data (Advanced Mobile Data).

Fixed Internet customers (in ‘000) 443

446

445

434

443

Fixed & mobile data revenue (in EUR million)

Mobile

162

184

187

216

223 2008

Fixed

408

2008

401

2009

392

2010

389

2011

388

2012

Revenue from SMS continued to grow solidly by 10.3% year-over-year to EUR 108 million for 2012. Usage per customer further increased to an average of 110 text messages per user per month, up by 24%. Non-SMS Mobile Data revenue over the full year was 2.5% lower versus 2011,

2009

2010

2011

2012*

* Year-over-year difference differs from net add figures due to a re-segmentation exercise between the Business Units

For 2012, EBU reported Fixed Data revenue of EUR 388 million, which is nearly stable (-0.2%) compared to the previous year. In 2012 the migration from older technologies (ATM, Frame Relay, Leased Lines) to the Belgacom Explore platform continued, for which pricing is more favorable. In a highly competitive and saturated professional Internet market, EBU kept its Fixed Internet customer base fairly flat, ending the year 2012 with

19. Including impact from resegmentation of 11,000 Broadband customers (Internet for Employees) to CBU 20. Salaries were indexed by 2% on 1 October 2010 and 1 June 2011 for Belgacom SA employees, and on 1 January 2011 for all other employees 21. Belgacom does not apply a full cost allocation. Network and IT costs are therefore mainly centralized within SDE&W

443,00019 Internet customers, with an ARPU of EUR 39.1.

Total expenses (in EUR million) 1,430

Non-HR

Fixed & mobile data ARPU (in EUR)

142

Mobile data 2012 2011 2010 2009 2008

12.9 13.3 12.3 12.8 12.4

Fixed data 2012 2011 2010 2009 2008

1,269

178

39.1 39.2 39.1 39.9 40.6

EBU operating expenses EBU ended the year 2012 with EUR 619 million Cost of Sales, i.e. 3.1% less than for 2011. The lowered Mobile Termination rates for all Belgian Mobile operators positively impacted EBU’s costs for terminating mobile calls on alternative mobile networks. In addition, the divestment of Telindus Spain favorably impacted the first half-year variance. This more than offset the unfavorable underlying evolution of Cost of Sales due to the changing product mix. Compared to 2011, EBU’s HR expenses of EUR 407 million were 6.7% higher, mainly due to a change in internal cost allocation of customer installation and overhead costs. The remaining increase resulted from inflation-based wage indexations20 and additional hiring for business-critical jobs in the ICT area. For 2012, EBU reported a total non-HR expense of EUR 160 million, i.e. 11.3% more than for the previous year. The nonHR costs included an unfavorable effect from a change in cost allocation, foreign currency and bad debt.

1,210

1,164

149

144

160

375

381

407

1,186

408

379

CoS

844

748

685

639

619

2008

2009

2010

2011

2012

EBU segment result and contribution margin The EBU segment result for full-year 2012 totals EUR 1,108 million, which is 6.5% or EUR 77 million less than for the previous year. This includes a EUR 30 million negative impact from Regulation, and a net negative impact from the divestment and acquisition within the ICT domain. The contribution margin21 decreased to 48.3% in 2012. Segment result (in EUR million) & margin 49.2%

50.0%

50.4%

1,266

1,231

1,212

1,185

2008

2009

2010

2011

47.0%

48.3%

1,108

2012

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 93

Service Delivery Engine & Wholesale – SDE&W SDE&W revenues Revenue within the SDE&W segment relates mainly to wholesale activities from Belgacom. Over the full-year 2012 the SDE&W revenues amounted to EUR 304 million, or 4.4% below those of 2011. This includes the negative effect from some regulatory22 measures, lowering the SDE&W revenue by EUR 3.6 million in 2012. The remaining decline is due to a lower volume of leased lines and decreased Roaming prices, which was only partly offset by higher roaming volumes.

SDE&W operating expenses

Revenue (in EUR million) 415

386 342

2008

2009

2010

318

2011

304

2012

Total operating expenses for 2012 amounted to EUR 401 million, 2.1% lower versus 2011. Over 2012 the SDE&W cost of sales was slightly up by 3.3% to EUR 37 million. The positive effect on HR expenses from both lower headcount and a Group neutral change in cost allocation fully offset the inflation-based salary indexations, leading to an 11% lower HR expense for 2012.

cantly higher compared to the previous year as in 2011 SDE&W benefitted from positive provision23 reversals exceeding the positive one-off recorded in 2012. Total expenses (in EUR million) 481

CoS

450

451

209

193

179 2008

410

401

203

199

177

185

202

175

187

2009

2010

2011

2012

374

Non-HR

The non-HR expenses of EUR 187 million for the full-year 2012 were signifi-

Staff & Support – S&S S&S revenues Staff and Support reported EUR 34 million of revenues for the year 2012. The decrease over last year, however, is the result of the accounting of a oneoff internal revenue in 2011, which was neutralized on a Group level.

S&S operating expenses

Revenue (in EUR million) 47

2008

2009

2010

2011

2012

22. Regulatory impacts from Mobile Termination Rates and lowered Local Loop Unbundling and Bitstream prices 23. Related to provision reversals due to litigation settlements

Total operating expenses remained fairly stable in relation to 2011. Non-HR expenses were somewhat up whereas HR expenses were 2.1% lower as the decline in headcount more than offset the inflation-based wage indexations.

Total expenses (in EUR million) 397

370

358

160

166

165

160

156

Non-HR

237

204

192

215

218

2008

2009

2010

2011

2012

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

94 - belgacom ANNUAL REPORT 2012

International Carrier Services - BICS • Revenue increase of 5.3% over 2011 • Voice revenue up: solid volume growth, favorable destination mix and stronger dollar • Strong uptake of Mobile data • 2012 gross margin up by 9.3% from 2011

ICS revenues

ICS gross margin

In spite of an increasingly competitive market and revenue being pressured by the European-wide decrease of Mobile Termination Rates, BICS grew its revenue by 5.3% to EUR 1,645 million.

ICS reported for full-year 2012 a gross margin of EUR 244 million, up by 9.3% year-on-year, a significant improvement to the 1.1% decline of 2011. This positive evolution was the result of both a growing Non-Voice gross margin (+10.2%) and a higher Voice gross margin (+8.4%).

The revenue from Voice was up 3.6% to EUR 1,457million, driven by higher volumes (up 3.4% to 28 billion minutes), reinforced by a better destination mix and a favorable effect from a strengthening average dollar rate year-over-year. This more than offset the negative MTR effect. Non-Voice volume growth accelerated to 45.1%, resulting in 10.2% higher revenue compared to 2011. Revenue (in EUR million) before non-recurring items 1,610

812

2008

(*)

1,562

2011

226

127

224

244

129

2010 impacted by full-consolidation of BICS

129

122

2008

2009

2010*

2011

2012

ICS Volumes Volumes continued to grow in 2012 with Voice volumes up 3.4%, now exceeding 28 billion minutes, while Non-Voice volumes grew by 45% year-over-year.

143

Volumes (in EUR million) 2008

2009

2010

2011

1,074

2012

1,557

800

ICS EBITDA and margin

2012

7.8%

Gross margin (in EUR million)

The reported EBITDA of ICS for 2012 of EUR 129 million was 6.1% higher compared to the previous year as a result of the higher gross margin. 2010*

8.0% 8.7%

7.9%

1,645

892

2009

EBITDA (in EUR million) & margin

The 2012 EBITDA margin of 7.8% remained stable in relation to last year’s.

379

549

16,232

19,316

25,290

27,442

28,382

2008

2009

2010

2011

2012

Non-Voice

Voice

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 95

Quarterly results as reported Group – Financials

(EUR million) Revenues (1)

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

1,583

1,612

1,596

1,616

6,406

1,588

1,611

1,620

1,644

6,462

Consumer Business Unit

565

579

571

572

2,288

577

575

587

581

2,321

Enterprise business unit

593

572

591

2,349

579

576

560

579

2,294

318

304

372

388

401

1,562

382

409

424

430

1,645

Service Delivery Engine & Wholesale Staff&Support International Carrier Services Intersegment eliminations Costs of materials and charges to revenues

-36

-51

-36

-159

-37

-34

-33

-137

-609

-621

-633

-655

-2,517

-614

-667

-649

-680

-2,611 -1,141

Personnel expenses and pensions

-274

-282

-278

-283

-1,117

-282

-285

-294

-282

Other operating expenses

-220

-196

-213

-232

-860

-226

-224

-218

-257

-925

480

512

472

446

1,912

466

434

460

425

1,784

30.3%

31.8%

29.6%

27.6%

29.8%

29.3%

27.0%

28.4%

25.9%

27.6%

-18

-15

-10

-3

-4

-18

480

494

472

450

1,897

466

424

456

421

1,766

EBITDA (1) Segment EBITDA margin (1) Non recurring items Ebitda after non-recurring items (1) before non-recurring items

Group Reported to Underlying

Q111

Q112

Var in %

Q211

Q212

Var in %

Q311

Q312

Var in %

Q411

Q412

Var in %

2011

2012

Var in %

GROUP - REVENUE Reported One-offs M&A Like-for-like

1,583

1,588

-16

-19

1,567

1,569

Regulation Underlying

0.3%

0.1%

1,612

1,611

-17

-16

1,595

1,607

-0.1%

0.8%

1,596

1,620

-2

-19

1,594

1,601

1.5%

0.4%

1,616

1,644

-17

1,616

1,627

1.7%

0.7%

6,406

6,462

-35

-70

6,371

6,404

0.9%

0.5%

1,567

1,583

1.0%

1,595

1,623

1.8%

1,594

1,637

2.7%

1,616

1,650

2.1%

6,371

6,493

1.9%

Reported

480

466

-3.1%

512

434

-15.3%

472

460

-2.7%

446

425

-4.8%

1,912

1,784

-6.7%

One-offs

6 1 487

0 4 470 6 476

-3.6%

-17 -1 495

-4.7%

6 -1 478

-3.5%

478

2.1%

439

36 12 1,833 55 1,887

-4.0%

-3.2%

4 2 431 14 445

-2 -1 1,909 0

495

-2 3 461 27 488

-7 0 439

-2.3%

34 3 471 7 479

GROUP - EBITDA

M&A Like-for-like Regulation Underlying

487

-1.8% 1.4%

1,909

One offs: Accounting impact new Telecom Law in Q2 2012, net impact provisions, capitalization of modems as of 2012 – M&A: acquisiton of The Phone House, divesture of Telindus Spain and Scarlet Curaçao Regulation: includes impact from lower Mobile Termination and Roaming rates, and other regulatory impacts

-1.1%

Financial info

96 - belgacom ANNUAL REPORT 2012

Revenue evolution in percentages

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012 0.9%

GROUP Reported YoY variance

-3.5%

-3.2%

-2.7%

-2.6%

-3.0%

0.3%

-0.1%

1.5%

1.7%

Like-for-like YoY variance

-3.5%

-3.3%

-2.0%

-1.6%

-2.6%

0.1%

0.8%

0.4%

0.7%

0.5%

Underlying YoY variance

-0.4%

-1.3%

-0.9%

-1.0%

-0.9%

1.0%

1.8%

2.7%

2.1%

1.9%

CBU Reported YoY variance

-4.3%

-2.1%

-2.3%

-4.6%

-3.3%

2.1%

-0.7%

2.8%

1.5%

1.4%

Like-for-like YoY variance

-4.3%

-2.1%

-2.3%

-4.0%

-3.2%

0.5%

-0.8%

0.3%

-1.0%

-0.3%

Underlying YoY variance

-0.1%

0.4%

-0.8%

-3.2%

-0.9%

1.7%

0.7%

2.8%

0.7%

1.5%

EBU Reported YoY variance

-3.7%

-2.8%

-3.1%

-2.4%

-3.0%

-2.2%

-2.9%

-2.2%

-2.1%

-2.3%

Like-for-like YoY variance

-3.7%

-3.1%

-1.1%

-0.2%

-2.1%

-1.0%

-0.3%

-2.5%

-2.4%

-1.5%

Underlying YoY variance

-0.8%

-0.7%

0.3%

0.6%

-0.2%

0.1%

0.8%

1.3%

-0.3%

0.4% -4.4%

SDE&W Reported YoY variance

-13.9%

-6.1%

-2.3%

-3.9%

-6.9%

-4.3%

-4.9%

-3.2%

-5.0%

Like-for-like YoY variance

-13.9%

-6.1%

-2.3%

-3.9%

-6.9%

-5.1%

-6.1%

-4.5%

-6.3%

-5.5%

Underlying YoY variance

-3.6%

-2.9%

-0.8%

-3.4%

-2.7%

-4.3%

-4.9%

-3.3%

-5.0%

-4.4%

-1.5%

-6.5%

-3.4%

-0.3%

-3.0%

2.6%

5.5%

5.7%

7.3%

5.3%

2012

BICS Reported YoY variance

Like-for-like: i.e. excluding impact from M&A, the re-segmentation and the new Telco Law accounting adjustments â&#x20AC;&#x201C; Underlying: i.e. like-for-like excluding impact from regulatory measures

Group - Capex

(EUR million) Group Capex Consumer Business Unit Enterprise business unit Service Delivery Engine & Wholesale

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

173

161

163

279

777

186

174

160

234

753

134

164

115

119

125

193

552

116

126

114

158

514

Staff&Support

International Carrier Services

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 97

CBU - Financials

(EUR million) Revenues

Q111 565

Q211 579

Q311 571

Q411 572

2011 2,288

Q112 577

Q212 575

Q312 587

Q412 581

2012 2,321 1,096

From Fixed

281

278

271

269

1,099

274

270

274

277

Voice

118

115

111

110

454

110

105

425

Data

332

339

208

235

71 1,133

Terminals (excl. TV) Scarlet From Mobile

265

279

280

1,104

281

282

292

278

Voice

139

147

143

136

565

130

123

133

120

505

Data

369

102

100

398

Terminals (excl. TV)

116

Tango

107

114

Other Costs of materials and charges to revenues

-149

-158

-168

-624

-162

-182

-157

-166

-666

Personnel expenses and pensions

-83

-85

-86

-87

-340

-90

-88

-92

-88

-359

Other operating expenses

-70

-74

-71

-84

-299

-74

-73

-77

-86

-310

Segment result Segment Contribution margin

264

271

257

233

1,025

251

232

261

242

986

46.7%

46.8%

45.0%

40.8%

44.8%

43.5%

40.4%

44.5%

41.6%

42.5%

Consolidated Financial Statements www.belgacom.com/annualreport

Financial info

98 - belgacom ANNUAL REPORT 2012 CBU - Operationals

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

FROM FIXED Number of access channels (thousands)

3,028

3,006

2,977

2,974

2,938

2,926

2,918

2,912

Voice

1,896

1,870

1,839

1,818

1,780

1,758

1,737

1,718

Broadband

1,131

1,136

1,138

1,156

1,159

1,169

1,181

1,193

Traffic (millions of minutes)

1,061

977

936

1,036

4,011

1,086

1,027

965

1,060

4,138 3,053

875

795

765

821

3,256

828

754

703

768

Fixed to Mobile

National

123

402

164

179

170

187

701

International

352

104

383

TV (thousands)

1,029

1,087

1,139

1,211

1,254

1,301

1,340

1,386

TV - households

879

925

963

1,021

1,057

1,093

1,125

1,156

of which multiple settop boxes

149

162

176

190

196

209

216

230

ARPU (EUR) ARPU Voice

20.2

20.0

19.7

19.8

19.9

20.2

19.7

20.0

19.9

ARPU broadband

27.6

27.0

26.7

26.1

26.8

26.9

26.4

26.5

26.1

26.5

ARPU Belgacom TV

19.4

19.2

17.8

17.5

18.4

17.6

18.1

18.2

17.9

Number of active customers (thousands)

3,723

3,726

3,774

3,805

3,811

3,748

3,643

Prepaid

2,117

2,096

2,111

2,116

2,071

1,992

1,923

1,606

1,630

1,663

1,690

1,739

1,756

1,720

21.3%

20.4%

25.2%

21.8%

20.4%

19.9%

25.8%

36.0%

25.9%

FROM MOBILE (1)

Postpaid Annualized churn rate (blended) (2) Net ARPU (EUR) Prepaid

14.1

15.3

14.4

14.9

14.7

14.0

14.2

13.6

14.4

14.0

Postpaid

29.2

30.0

28.6

29.5

27.9

27.3

28.9

26.6

27.7

Blended

20.5

21.6

21.1

20.7

21.0

20.1

20.8

20.1

20.3

Blended voice

12.7

13.4

12.9

12.2

12.8

11.6

11.1

12.0

11.1

11.5

Blended data UoU (units)

7.8

8.2

8.5

8.2

8.5

9.0

8.7

9.0

8.8

338.0

357.5

335.4

373.3

351.6

377.9

391.7

357.5

389.9

379.1

MoU (min)

102.2

106.6

103.6

103.8

104.3

101.5

104.7

100.5

101.7

102.1

SMS (units)

238.7

254.1

235.1

273.0

250.5

279.8

291.3

262.1

294.2

281.7

(1) Prepaid includes Mobisud customers that were previously reported as MVNO customers (2) Q4 2011 impacted by clean-up of inactive prepaid cards. This clean-up has no impact on the number of active customers & prepaid net adds.

Consolidated Financial Statements www.belgacom.com/annualreport

Belgacom ANNUAL REPORT 2012 - 99

EBU - Financials

(EUR million) Revenues

Q111 593

Q211 593

Q311 572

Q411 591

2011 2,349

Q112 579

Q212 576

Q312 560

Q412 579

2012 2,294 1,633

From Fixed

420

417

398

420

1,655

408

409

398

418

Voice

128

125

121

122

496

124

120

118

119

481

Data

389

388

Terminals ICT

175

177

163

182

697

167

172

167

186

692

From Mobile

169

171

169

168

677

166

162

158

155

640

Voice

115

110

108

448

106

102

100

403

Data

223

216

Terminals

Other

-162

-160

-154

-164

-639

-149

-157

-150

-163

-619

-94

-98

-93

-96

-381

-100

-103

-101

-407

Costs of materials and charges to revenues Personnel expenses and pensions Other operating expenses

-37

-34

-36

-144

-40

-39

-41

-160

Segment result

300

298

291

296

1,185

289

277

267

274

1,108

50.6%

50.3%

50.9%

50.0%

50.4%

50.0%

48.1%

47.8%

47.4%

48.3%

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

Segment Contribution margin EBU - Operationals

FROM FIXED Number of access channels (thousands)

1,861

1,849

1,834

1,820

1,841

1,824

1,815

1,799

Voice

1,425

1,412

1,400

1,385

1,394

1,379

1,370

1,356

Broadband

436

434

446

445

444

443

Traffic (millions of minutes)

782

National

526 165 90

732 485 160 86

672 445 147 80

716 476 160 80

2,901 1,932 633 336

754 502 167 84

699 459 161 79

636 416 147 73

686 451 160 75

2,775 1,828 635 311

29.1 39.6

28.9 39.3

28.1 39.1

28.6 38.9

28.7 39.2

28.9 39.5

28.4 39.0

27.9 39.1

28.6 38.8

28.5 39.1

1,327 1,327 11.1%

1,357 1,357 10.8%

1,380 1,380 9.4%

1,408 1,408 10.2%

1,408 1,408 10.3%

1,413 1,413 11.7%

1,449 1,449 11.0%

1,470 1,470 10.8%

1,486 1,486 16.8%

1,486 1,486 12.7%

41.8 29.2 12.6 356.5 317.1 83.7

41.9 28.7 13.2 369.6 328.3 90.1

40.6 26.9 13.8 343.3 305.0 87.3

39.5 25.9 13.7 363.4 322.8 95.6

41.0 27.6 13.3 358.8 318.9 89.4

38.7 25.3 13.5 375.8 327.8 106.6

37.2 23.7 13.5 377.0 326.6 111.7

35.5 22.9 12.6 339.9 293.3 104.7

33.9 21.6 12.2 366.8 314.3 118.1

36.3 23.3 12.9 364.7 315.4 110.3

Fixed to Mobile International ARPU (EUR) ARPU Voice ARPU broadband FROM MOBILE Number of active customers (thousands) Postpaid Annualized churn rate (blended - variance in p.p.) Net ARPU (EUR) Postpaid Postpaid voice Postpaid data UoU (units) MoU (min) SMS (units)

Financial info

100 - belgacom ANNUAL REPORT 2012

SDE&W - Financials

(EUR million) Revenues (1) Costs of materials and charges to revenues Personnel expenses and pensions

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

318

304

-9

-36

-9

-10

-37

-49

-50

-199

-43

-44

-47

-43

-177

Other operating expenses

-52

-33

-48

-42

-175

-48

-50

-41

-48

-187

Segment result

-29

-12

-30

-21

-92

-23

-26

-21

-26

-97

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

Voice (1)

Broadband (1)

SDE&W - Operationals

FROM FIXED Number of access channels (thousands)

FROM MOBILE Number of active Mobile customers (thousands) Retail (1)

MVNO

Q211 7

Q311 25

Q411 8

2011 47

Q112 9

Q212 7

Q312 7

Q412 11

2012 34

(1) i.e. Belgacom retail products sold via SDE&W (OLOâ&#x20AC;&#x2122;s own usage and reselling

S&S - Financials

(EUR million) Revenues Costs of materials and charges to revenues Personnel expenses and pensions

Q111 8 0

-1

-2

-39

-40

-160

-38

-39

-41

-39

-156

Other operating expenses

-47

-41

-66

-61

-215

-51

-49

-67

-218

Segment result

-79

-74

-81

-95

-328

-79

-83

-82

-97

-341

Q111 372

Q211 388

Q311 401

Q411 401

2011 1,562

Q112 382

Q212 409

Q312 424

Q412 430

2012 1,645 -1,400

ICS - Financials

(EUR million) Revenues

-320

-333

-342

-1,338

-326

-347

-361

-367

Personnel expenses and pensions

Costs of materials and charges to revenues

-10

-9

-37

-10

-11

-43

Other operating expenses

-18

-17

-15

-16

-65

-18

-17

-20

-73

Segment result Segment EBITDA margin

122

129

6.5%

7.5%

8.7%

8.3%

7.8%

7.3%

8.4%

8.3%

7.3%

7.8%

ICS - Operationals

Volumes (in million)

Q111

Q211

Q311

Q411

2011

Q112

Q212

Q312

Q412

2012

Voice

6,574

6,997

6,853

7,018

27,442

6,907

6,984

6,934

7,556

28,382

230

253

276

315

1,074

323

361

428

445

1,557

Non-Voice (SMS/MMS)

Belgacom ANNUAL REPORT 2012 - 101

Risk management This section presents an overview of the Group’s Risk Management including a description of its major risks and uncertainties and its main mitigation efforts.

Principal risks

Description

Mitigation factors and control measures

Competitive market dynamics

New market entrant or disruptive competitor behaviour might reduce market value, pressure Belgacom’s market share and negatively impact revenue and profit.

Rational pricing strategy Simplified and improved postpaid offering Focus on convergence strategy Keep leadership in mobile network quality Innovative products and services.

Business model evolution

Alternative communications driven by new technology and customer demand requires rapid internal innovation while coming at lower margin, potentially impacting revenue and profit.

Belgacom pioneers new technologies and offers customers the emerging advantage of convergence. In the Enterprise business segment too, new business models have been developed. ICS proactively explores new territories, geographically and technologically.

Rightfully skilled and motivated personnel

Constant shifts in demand for skills could leave Belgacom with an inadequate pool of talent. Introducing a cap by law on executive remuneration would place Belgacom at a disadvantage against its competitors.

Belgacom has a good reputation as an employer, applies customized programs such as Strategic Workforce planning and continuously invests in professional education via internal training. Young employees are attracted through the “Young Potential Program”.

Dependency on equipment and technology

Network systems could be impacted by damage, computer viruses, natural disasters and unauthorized access which could lead to loss of business and liability claims.

Technology spread across different locations. Ageing legacy copper cables have been gradually replaced by fibre technology since 2003. Legacy systems are being phased out and replaced by integrated systems. Strict monitoring of contractual SLA’S and liabilities terms & conditions with suppliers and vendors. Adequate insurances for damage caused by network failures, computer viruses, security breaches and the like.

Belgacom believes that risk management is fundamental to corporate governance and the development of sustainable business. The Group has adopted a risk philosophy that is aimed at maximizing business success and shareholder value by effectively balancing risk and reward. The objective of risk management is not only to safeguard the Group’s assets and financial strength but also to protect Belgacom’s reputation. Financial risk management objectives and policies are reported in note 32 of the consolidated financial statements. Risks related to important ongoing claims and judicial procedures are reported in note 34 of these statements. The major other risks are the enterprise risks and financial reporting risks. These risks are detailed below, as are the related mitigating factors and control measures.

Financial info

102 - belgacom ANNUAL REPORT 2012

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

Competitive market dynamics Belgium is a small country with only a few large telecom players, among which Belgacom is the incumbent. In such circumstances, market value is vulnerable to disruptive behavior among competitors. Moreover, Belgacom’s main competitors Mobistar, BASE and Telenet, are subsidiaries of large international operators, respectively France Telecom, KPN, and Liberty Global. A new market entrant or radical price competition could cost Belgacom market share and negatively impact revenue and profit. For instance, the new Belgian telecom law applicable, since 1 October 2012, might result in a greater and longer-than-expected increase in customer churn. Continued aggressive competitor mobile pricing might cause additional customer churn and could lead to a further decrease of Belgacom’s mobile market share. Furthermore, competition in the mobile market may become more intense in the South of Belgium if the respective cable competitors were to launch an aggressive mobile offer. In case of greatly reduced competitor prices, Belgacom could be forced to revise its mobile pricing plans accordingly, which might result in lower mobile revenue. Belgacom, however, has always

adopted a rational pricing strategy and will continue to be as disciplined as possible in its customer offerings, vigilant as not to trigger further destruction of market value. Belgacom has reviewed and simplified its mobile postpaid offer, increasing value for its customers. Furthermore, Belgacom’s convergence strategy gives the company a solid foundation to compete, providing attractive multi-play offers to its customers while reducing churn. Belgacom also conti nues to invest in its networks, to maintain its leadership in network quality and to be recognized as innovative operator. As such, Belgacom was the first Belgian operator to provide LTE-services to its customers. As for other telecom providers, the value of Belgacom of mobile voice services might become increasingly challenged by OTT (Over-The-Top) players such as Skype on mobile. Belgacom is deliberately differentiating itself from the OTT competition, by leveraging its virtualized entertainment offers in the private market and its cloud computing services for professionals. At the same time, Belgacom is continuing to develop its broadband coverage to give its customers the best Internet experience. Belgacom has also drawn inspiration from

OTT players, launching a content offer adapted to “Connected TVs”, which is available to non-Belgacom customers as well. In the international carrier services market, voice margins per minute have been under significant pressure over the past few years as a result of price competition, consolidation of the competitors and the ease with which customers are able to change providers. If pressure on voice margins should continue and/ or if the Group does not offset price decreases with increased volume, Belgacom’s ICS growth rate, operating revenue and net profit could come under pressure. In addition, the pressure on the mobile data market might increase and therefore affect the growth profile of the International Carrier Services.

Changing business model As a telecom company, Belgacom operates in a dynamic, rapidly changing environment driven by new technological developments and ever-changing customer demand. In response, Belgacom’s business model is changing too. It is moving further away from its traditional business, dominated by voice services with high margins. Instead, it is increasingly embracing alternative communica-

Belgacom ANNUAL REPORT 2012 - 103

tions such as Wi-Fi, Mobile Internet and VoIP. This development could potentially impact Belgacom’s future revenue and profit from voice minutes or SMS. The International Carrier Services segment too is subject to this changing business model, and could see its revenue from Voice traffic come under pressure as IP technology makes inroads into traditional communications. The rapid pace of the technological change requires internal innovation to be fast as well, which may be hampered by long internal development times, hence stalling the launch of new services. To mitigate any negative effect on the Belgacom Group revenue and its business segments, Belgacom has chosen to pioneer new technologies and to offer customers the emerging advantage of convergence - for example by deploying a country-wide hotspot network in partnership with FON. Belgacom has introduced new pricing plans that match its customers’ demand for these new ways of communicating – for example with packages including unlimited SMS together with voice and mobile data capacity. In the Enterprise business segment too, where Voice business is contracting, new business models have been developed to compensate for this,

such as cloud computing. ICS is also proactively exploring new territories, geographically and technologically.

Dependency on rightfully skilled and motivated personnel Belgacom depends heavily on the people who work for it: key management, technical employees with the right skills, and well-trained sales people with detailed knowledge of the Belgacom’s products and services. The introduction of a cap by law on executive remuneration applicable on new contracts, as set out in a draft proposal of the minister for Public Enterprises, would restrict Belgacom in attracting and retaining highly qualified top management. Reduced flexibility in executive remuneration would place Belgacom at a disadvantage compared to its main competitors in the Belgian market and could eventually lead to reduced business performance and, by extension, reduced income. Rapid changes in technology and the unceasing evolution in products and services imply constant shifts in demand for skills, and without effective provisions being made, could leave Belgacom with an inadequate pool of talent. Within the Enterprise segment, for instance,

the focus on delivering full end-to-end services and the increasing complexity of customer deals requires staff with specific skills and expertise. Lack of IT-skilled employees could hamper EBU in winning complex customer deals and slow EBU’s growth strategy in solution centricity. Belgacom’s future success will be influenced by its overall ability to attract and retain highly qualified employees. Consequently, to tackle new needs in skills, the Human Resources department has developed customized programs, such as Strategic Workforce planning, and the program for young potentials. Furthermore, Belgacom continuously invests in the professional education of its employees via internal training. Overall, Belgacom enjoys a good reputation as an employer. At Belgacom Group level, about one in three employees is statutory, benefitting from substantially higher protection against dismissal than private-sector employees. This may restrict Belgacom’s ability to improve efficiency and increase flexibility to levels comparable to those of its competitors.

Dependence on equipment and technology Belgacom’s business is highly dependent on technical infrastructure such as telecommunication equipment and IT-platforms. Belgacom is only able to deliver services insofar as it can protect its network systems against damage from telecommunication failures, computer viruses, natural disasters and unauthorized access. Any system failure, incident, or security breach that causes interruptions in Belgacom’s operations, or parts thereof, could impair Belgacom’s ability to provide services to all or some of its customers and could potentially have financial consequences and a reputational impact. To mitigate the risks related to incidents affecting technical buildings (e.g. fire), Belgacom has spread its technology across different locations and buildings (e.g. 3 data centers, splitting corporate ICT services and customer ICT services), 10 network services nodes and hundreds of local exchanges. Belgacom’s service portfolio is becoming increasingly dependent on numerous IT platforms. To preserve the quality of service delivered to its customers, Belgacom needs to guarantee stability, processing time and agility. Any disruption or security breach resulting in loss or

Financial info

104 - belgacom ANNUAL REPORT 2012

damage to customers’ data or applications, or leading to inappropriate disclosure of confidential information, may result in Belgacom incurring liability. In addition, the Group may incur additional costs to remedy the damage caused by such disruptions or security breaches. Belgacom possesses errors and omissions insurance, business interruption insurance and insurance guarding specifically against certain losses resulting from, for instance, computer viruses and security breaches. Nonetheless, in the event of network or IT interruptions Belgacom has multiple measures in place to remedy problems within the shortest time possible. Firstly, Belgacom has an extensive monitoring center in place allowing very fast detection and identification of any possible problem that could jeopardizes the proper functioning of its operations Secondly, Belgacom has elaborate and well-prepared procedures in place to deal with and remediate high-impact incidents as quickly as possible through Emergency Response Teams. These operate 24/7 and include the best experts in their fields. Belgacom has a nation-wide access network, part of which part has been in place for a long time – the so-called

legacy copper network. Ageing copper cables could increase fault rates and decrease performance. The Mobile network might be subject to technical failures, affecting the quality of service or causing temporary service interruptions, leading to customer dissatisfaction. Another priority is the network transformation program, which could be subject to delayed implementation and consequently delayed savings from the outphasing of technical buildings. Belgacom heavily invests to further improve its network. Rolling out a fibreto-the-curb network has been one of Belgacom’s key priorities over the past few, while old copper cables are being replaced and new technologies are showing a promising evolutionary path for the last mile in copper. Belgacom continues to invest in stability improvements for both its fixed and mobile core network by putting new architectures into place that enable higher redundancy. In addition, elaborate network resilience programs have been set up to further boost the ability to keep the network in operation in the event of failures. A similar resilience plan will be put in place as from 1 January 2013 for some critical IT applications. Furthermore, to prevent problems in the supply chain,

Belgacom strictly monitors contractual SLA’S and liabilities terms & conditions with its suppliers and vendors.

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

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

Belgacom ANNUAL REPORT 2012 - 105

the evolution in the area of evolving standards (both local GAAP and IFRS). Changes are identified, and the impact on the Belgacom financial reporting is proactively analysed. For every new type of transaction (e.g. new product, new employee benefit, business combination), an in depth analysis from a financial reporting, risk management, treasury and tax point of view is performed. In addition, the development requirements for the financial systems are timely defined and compliance with internal and external standards is systematically analysed. Emphasis is on the development of preventive controls and setting up reporting tools that enable posteriori controls. On a regular base, the Audit and Compliance Committee (A&CC) is informed about new upcoming financial reporting standards and their potential impact on the Belgacom Group financials.

Changes in tax law and regulations: Changes in tax laws and regulations (corporate income tax, VAT...) or in their application by the tax authorities could significantly impact the financial statements. To ensure compliance, it is often required to set up, in a short timeframe,

additional administrative processes to collect relevant information or to implement updates to existing IT systems (e.g. billing systems). The tax department continuously follows potential changes in tax law and regulations as well as interpretations of existing tax laws by the tax authorities. Based on laws, doctrine, case law and political statements as well as draft laws available etc., an impact analysis is made from a financial perspective as well as from an operational point of view.

Financial statement closing process: The delivery of timely and reliable financial statements remains dependent from an adequate financial statement closing process. Clear roles and responsibilities in the closing process of the group financial statements have been defined. During the monthly, quarterly, half-yearly and annual financial statement closing processes, there is a continuous monitoring on the different steps. In addition, different controls are performed to ensure quality and compliance with internal and external requirements and guidelines. For Belgacom and its major affiliates, a very detailed closing calendar is estab-

lished, which includes in detail crossdivisional preparatory meetings, deadlines for ending of specific processes, exact date and hours when IT sub-systems are locked, validation meetings and reporting deliverables. For every process and sub-process, different controls are performed, including preventive controls, where information is tested before being processed, as well as detective controls, where the outcome of the processing is being analysed and confirmed. Specific attention is given to reasonableness tests, where financial information is being analysed by more underlying operational drivers, and coherence tests, where financial information from different areas is brought together to confirm results or trends, etcâ&#x20AC;Ś Tests on individual accounting entries are performed for material or nonrecurrent transactions and on a sample basis for others. The combination of all these tests provides sufficient assurance on the reliability of the financials.

Financial info

106 - belgacom ANNUAL REPORT 2012

The regulatory framework

Cable regulation For many years, only the Belgacom network has been regulated, whereas cable operators have been exempt from any obligation to share their network with other actors. On 1 July 2011, the Belgian telecom and media regulators (BIPT, CSA, Medienrat and VRM) decided to regulate the dominant cable operators in their respective coverage areas and to require them to resell analogue TV, to open up their digital TV platform, and to resell broadband. Belgacom can only obtain access to analogue TV. The regulators’ decisions were appealed by the cable operators in September 2011. The Court first took into consideration the suspension cases and rejected the claims of all the cable operators in the second half of 2012. These court rulings have paved the road for the effective implementation of their obligations. Regulators are currently preparing draft decisions approving the reference offers of the cable operators. These decisions are expected in the first half of 2013, followed by an implementation period of six months for the cable operators. The court will now treat the cases on the merits and a judgment is not expected before the second half of 2013. Belgacom also filed an annulment request

against its exclusion as beneficiary from digital TV and broadband access in the broadcast decisions.

fixed interconnection, a BIPT decision of 2 March 2012 confirmed the end of the tariff asymmetry as from April 2012.

Wholesale services & prices

The BIPT maintains a strong focus on non-discrimination and “Operational Excellence” for wholesale services. After a first audit performed in 2009, BIPT has announced a new audit of Belga-

The BIPT market analysis decision on wholesale broadband of 1 July 2011 obliges Belgacom to provide a “multicast” functionality in the bitstream offer to be used for broadcast. Belgacom’s reference offer was approved by BIPT on 4 October 2012 for the non-pricing aspects. A decision on pricing is still pending. The multicast functionality will be operational by April 2013. The current prices of the unbundled lines (LLU) and wholesale broadband lines (bitstream/WBA) were set by a BIPT decision of 2010. These rates remained unchanged in 2012. BIPT is currently developing new models to evaluate the wholesale prices of Belgacom in the course of 2013. The European Commission has announced in 2012 its intention to stabilize the price of the copper lines in a range between 8 and 10 EUR/ month in real terms as well as to allow more pricing flexibility for fibre based networks. In this respect, the Commission will in 2013 submit draft guidelines that will apply at least until 2020. For

com’s operational wholesale process in 2013. The European Commission, while announcing some relaxation of the rules concerning the wholesale access prices, also announced tougher non-discrimination rules (mechanism ensuring that competing operators get the same inputs, on equal terms and of equal quality as the incumbent’s own retail operations).

MTR-Glidepath

EUR cent

Before*

01-Aug-10*

01-Jan-11*

01-Jan-12*

Proximus

7.20

4.62

3.94

2.62

1.18

Mobistar

9.02

5.05

4.29

2.79

1.18

Base % change

01-Jan-13*

11.43

5.81

4.90

3.11

1.18

Before*

01-Aug-10*

01-Jan-11*

01-Jan-12*

01-Jan-13*

Proximus

-36%

-15%

-34%

-55%

Mobistar

-44%

-15%

-35%

-58%

Base

-49%

-16%

-36%

-62% 01-Jan-13*

Asymmetry

Before*

01-Aug-10*

01-Jan-11*

01-Jan-12*

Mobistar-Prox

25%

Base-Prox

59%

26%

24%

19%

* Rates with inflation

Belgacom ANNUAL REPORT 2012 - 107

International roaming

Voice roaming (eur cent per minute) 50

Retail outgoing Wholesale outgoing Retail incoming

Mobile termination rates (mtr) Belgacom had to operate many years in an asymmetrical regulatory environment for mobile termination. Belgacom had to pay, to Mobistar and KPN/BASE, much higher termination rates than what it received itself. On 29 June 2010, BIPT finally decided to reduce gradually the tariff asymmetry and to abolish it at the end of the glide path period. Since 1 January 2013, MTR in Belgium are fully symmetric at a rate of 1.18 eurocents/ min (incl. inflation). In 2013, BIPT intends to develop a new bottom-up cost model to determine MTR tariffs for the period 2013-2016. This model will have to present the costs of a hypothetical efficient operator and of the new entrant Telenet/ Tecteo Bidco as full MVNO or mobile network operator. BIPT will also evaluate if the reintroduction of a MTR asymmetry for such new entrant would be justified. On 14 July 2010, Mobistar and KPN Group/BASE each filed a separate appeal against the BIPT decision of 29 June before the Brussels Appeal Court, both asking the Court to suspend and annul the decision. After rejecting the request for suspension on 15 February 2011, the Appeal Court also dismissed the substantial arguments in the case on the merits on 16 May 2012. The Court

accepted the argument that BIPT failed to consult the Communities Regulators on the matter. Having no other choice than to annul the decision, the Court nevertheless held that the annulment on procedural grounds should be limited in time and asked the Constitutional Court whether it has the powers to maintain temporarily the current regulation in place while BIPT consults the Communities regulators and reconsiders its decision. Whilst the judgment of the Constitutional Court is outstanding, the current MTR rates remain fully valid.

30 20 10 0 July’09

July’10

July’11

July’12

July’13

July’14

SMS roaming (eur cent per sms) 12

Retail Wholesale

10 8 6 4

MTR-Glidepath (eur cent)

2 12

Base

Mobistar

Proximus

0 July’09

July’10

July’11

July’12

July’13

July’14

Data roaming (eur cent per Mb)

6 4

100

Retail Wholesale

0 Before*

01-Aug-10*

01-Jan-11*

01-Jan-12*

01-Jan-13*

60 40

* Rates with inflation 20 0 July’09

July’10

July’11

July’12

July’13

July’14

The first Roaming Regulation of 2007 introduced caps on retail and wholesale voice roaming prices. In July 2009, the EU authorities adopted revised rules (Roaming II Regulation) that cut roaming charges further for voice, SMS and wholesale data roaming in 2010 and 2011. The Roaming III Regulation that entered into force on 1 July 2012 will cover a ten-year period until 30 June 2022. It imposes further price cuts and introduces two so-called “structural measures” to encourage competition: (i) MVNO wholesale access from 1 July 2012 and (ii) de-coupling, i.e. separate selling of roaming services from domestic mobile services, from 1 July 2014. The Regulation also lays down rules aimed at increasing price transparency and improving the provision of information on charges to roaming customers. Awaiting the full effects of the structural measures, the Regulation imposes a further lowering of the existing regulated retail and wholesale price caps (from 35 eurocents on 30 June 2012 to 19 eurocents for retail outgoing calls and from 11 eurocents to 6 eurocents for retail SMS by 1 July 2014) and extends the Roaming Regulation to retail data as from July 2012 (70 eurocents on 1 July 2012 decreasing to 20 eurocents as from 1 July 2014).

Financial info

108 - belgacom ANNUAL REPORT 2012

Mobile licenses A law of 25 March 2010 has required the mobile operators to pay for the tacit extension of their 2G licenses until 2015. The amount of EUR 74 million for Belgacom for this extension corresponds to the original 2G license fees proportionate to the spectrum quantity and duration. The mobile operators appealed this law before the Constitutional Court. In June 2011, the Court submitted a certain number of questions to the European Court of Justice in order to ascertain whether the Belgian law complies with the EU directives. By judgment issued on 21 March 2013, the EU Court of Justice confirmed, following the opinion of the advocate-general, that imposing a fee for the renewal of a license is in conformity with the directives, subject to scrutiny from the national judge to assess whether the imposed fees (both the one-off licence fee and the an annual fee for making the frequencies available) effectively aim to ensure the optimal use of the spectrum resources and comply with the other conditions of the directive. It is now for the Constitutional Court to assess the arguments invoked by the three operators in light of this interpretation of the ECJ and to pronounce itself on the other arguments which are unrelated to EU law. Beside this annulment proce-

dure, Belgacom initiated on 7 October 2010 an action against the Belgian State and BIPT before the Civil Court to ensure the possibility to recover the license fees undue in case of annulment. In the meantime, Belgacom will comply with the payment obligations with all due reserves. Belgacom has opted for annual payments. On 22 December 2010, 2G licenses were also extended until 15 March 2021. An additional payment for the period 2015 - 2021 will also be due except if the Constitutional Court decides otherwise.

20 MHz duplex continuous that can be used to deploy LTE.

During the auction of 28 November 2011, Belgacom acquired a license in the 2.6 GHz spectrum for an amount of EUR 20.22 million. The authorization was formally granted to Belgacom on 1 July 2012 and the concession fee was paid on 16 July. Belgacom has decided to make the payment in one shot.

The law of 10 July 2012 modifying the law of 13 June 2005 on electronic communication to transpose the revised EU telecom framework has strengthened the consumer protection rules and introduced new measures related to contract regulation imposing (i) contract duration of 24 months maximum for consumers and obligation to propose a 12 month maximum contract to all customers, (ii) possibility of early termination of fixed term contracts after 6 months (without any penalty except potential reimbursement of residual value of a free device) for consumers and small enterprises and (iii) specific conditions applicable to the replacement of an existing contract by a new fixed term contract (in particular after distant selling). The new provisions

A BIPT decision of November 2011 reviewed the allocation of the 1800 MHz spectrum to allow Belgacom and Mobistar to have a continuous block of 2x20 MHz (previously 2x15 MHz) from 1 July 2012. This allows optimum use of the LTE technology in this band. Mobistar complied with its deadline and shifted its 1800 MHz band by 1 July 2012. Each of the 3 mobile operators has now at least

On 1 February 2013, the Government approved in first reading the draft conditions for the upcoming auction of the 800 MHz band (resulting from the digital dividend). Three lots of 2x10 MHz will be auctioned for a minimum price of EUR 120 million per lot for 20 years (EUR 360 million in total). The auction process is expected to be completed by the end of 2013.

Consumer protection

entered into force on 4 August 2012. A transitory period until 1 October has been foreseen for the measures related to contract termination. The new provisions are applicable to new and existing contracts. In addition, the new law foresees: (i) the publication and distribution of standard information sheets per price plan to enable comparison between different offers, (ii) free warnings to consumers in case of abnormal or excessive consumptions and (iii) number portability in one day. Information about speed of a broadband connection must also be provided to the customers.

Universal service Since 1998, Belgacom has been subject to a broad universal service obligation (USO) which is the most extensive regime in Europe. The new law implementing the revised EU framework opts for a new organisation of the USO and BIPT has been appointed to prepare the modernisation of the current USO content. The designation of Belgacom as “default provider” under a transitory regime will end in August 2013 for payphones, directory enquiry services, directories and geographical USO (100% coverage). BIPT or the government can decide to abolish certain obligations depending on market

Belgacom ANNUAL REPORT 2012 - 109

offer conditions. On 26 February 2013, BIPT has proposed not to impose any further universal service obligation for the payphones, the directory inquiry service and the paper and electronic directories. The final decision for the directory inquiry service and the directories must be confirmed by a Royal Decree. The notion of functional Internet access has been extended to include broadband provisioning and BIPT will have to determine the required minimum speeds that Belgian citizens are entitled to. BIPT will then have to examine the Belgian market conditions in view of assessing the need for designation. The legislator has however, as far as broadband is concerned, expressed a preference for a formula with a consortium of operators, rather than a designation of one particular operator. The social tariff regime has also been subject to modifications. The new law restricts the obligation to offer the legal social tariffs to the fixed and mobile operators with a turnover exceeding EUR 50 million. Smaller operators can provide these tariffs on a voluntary basis, provided that they are willing to commit for five years. The categories of beneficiaries remain unchanged. They get a wider choice to spend their legal reduction since all tariff plans inclusive packs are concerned and their choice extends

now also to broadband subscription but not in addition to a reduction on a phone subscription. So far, Belgacom has never been compensated for providing the USO services. The former funding system set in 2005 was withdrawn following appeals introduced by competitors before the Belgian and EU Courts. The new law of 10 July 2012 has modified the financing system of social tariffs and foresees calculation of the net cost and a potential financing as from mid-2005. Belgacom renewed its request for compensation immediately after the entering into force of the new law. Mobistar and KPN/BASE jointly filed a request for annulment of the new legal provisions before the Belgian Constitutional Court regarding the inclusion of the social tariffs for mobile voice and internet subscriptions in the universal service obligations compensation system and the retro-activity of the right to ask for compensation for the net costs related to the offer of social tariffs.

EU roaming Regulation III 1 July 2011

1 July 2012

1 July 2013

1 July 2014

Voice roaming rates (eurocents per minute) Retail Outgoing

Retail incoming

Wholesale

SMS roaming rates (eurocents per SMS) Retail SMS

Wholesale SMS

Data roaming rates (eurocents per MB) Retail data Wholesale data

None

GLOSSARY

110 - belgacom ANNUAL REPORT 2012

GLOSSARY 2G – Mobile network of the second generation (GSM), allowing both voice and data transmission with low throughput 3G – Mobile network of the third generation (UMTS – Universal Mobile Tele communications System), allowing both voice and data transmission with higher throughput Annualized mobile churn rate – The total annualized number of SIM cards disconnected from the Belgacom Mobile network (including the total number of port-outs due to mobile number portability) during the given period, divided by the average number of customers for that same period Belgacom TV ARPU – Includes only customer-related revenue and takes into account promotional offers, divided by the number of households with Belgacom TV

Broadway project – Project launched end 2003, deploying a fiber network (fiber-to-the-street cabinet) and VDSL, which today allows for speeds up to 30 Mbps. As such this project is an important enabler for fast Internet and Belgacom TV

EBITDA – Earnings before Interest, Taxes, Depreciation, and Amortization

CBU – The Consumer Business Unit takes care of our residential customers

EMF – Electromagnetic Fields. Propagation of electric and magnetic energy through the air

CEP – Code of Ethical Purchasing Cloud computing – The word “computing” refers to the technology which helps to manage information better and the term “cloud” refers to the storage of the data on the Internet. The computer systems which once used to be installed within the company itself now operate from outside it at external data centers. This means that companies only use the services available on these computer systems, without having to worry about maintaining the equipment themselves

BIPT – Belgian Institute for Postal services and Telecommunications

CRF – Corporate Research Foundation

Broadband ARPU – Total ADSL revenue, divided by the average number of ADSL lines for the period considered, divided by the number of months in that same period

CWS – Carrier and Wholesale Technologies

Broadband lines CBU – Includes the Belgian residential lines of Scarlet as from Q1 2009

The FSC label provides a credible link between responsible production and consumption of forest products, enabling consumers and businesses to make purchasing decisions that benefit people and the environment as well as providing ongoing business value

CSR – Corporate Social Responsibility

DECT – Digital Enhanced Cordless Tele phone – home cordless phone DSL – Digital Subscriber Line (DSL) is a family of technologies that provides digital data transmission over the wires of a local telephone network

EBU – The Enterprise Business Unit provides services to our professional customers ELIx – Employee Loyalty Index

ETNO – European Telecommunications Network Operators’ Association is the principal policy group for European electronic communications network operators. ETNO’s primary purpose is to establish a constructive dialogue between its member companies and decision-makers and other actors involved in the development of the European Information Society to the benefit of users Fixed Voice ARPU – Total voice revenue, excluding activation and payphone-related revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period FSC – Forest Stewardship Council is an international NGO and a certification system that provides internationally recognized standard-setting, trademark assurance and accreditation services to companies, organizations, and communities interested in responsible forestry.

GeSI – Global e-Sustainability Initiative brings together leading ICT companies – including telecommunications service providers and manufacturers as well as industry associations – and non-governmental organizations committed to achieving sustainability objectives through innovative technology. GeSI fosters global and open cooperation, informs the public of its members’ voluntary actions to improve their sustainability performance, and promotes technologies that foster sustainable development GHG Protocol – The Greenhouse Gas Protocol is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions GRI – Global Reporting Initiative. This framework sets out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance. In addition to the criteria described in the chapter “About our CSR Reporting”, GRI relies on the following criteria:

B alance – The report reflects positive and negative aspects of the organization’s performance to enable a reasoned assessment of overall performance. The report discloses both favorable and unfavorable results and topics

Belgacom ANNUAL REPORT 2012 - 111

Comparability – The reported information is presented in a manner that enables stakeholders to analyze changes in the organization’s performance over time, and could support analysis relative to other organizations. The report and the information contained within it can be compared on a year-to-year basis

T imeliness – Reporting occurs on a regular schedule and information is available in time for stakeholders to make informed decisions

Clarity – Information is made available in a manner that is understandable and accessible to stakeholders using the report

A ccuracy – The reported information should be sufficiently accurate and detailed for stakeholders to assess the reporting organization’s performance

R eliability – Information and processes used in the preparation of a report should be gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to examination and that establishes the quality and materiality of the information

G-Xchange – G-Xchange, Inc. (GXI) is a wholly-owned subsidiary and the mobile commerce arm of Globe Telecoms, a leading telecom service provider in the Philippines HD – High-Definition HDTV – High Definition television HR – Human Resources ICNIRP – International Committee on Non Ionising Radiation Protection ICT – Information and Communication Technologies

IDTV – Interactive Digital Television

M2M – Machine-to-Machine

IP network – An IP network is a

MaIP – Move to All IP

computer network made of devices that support the Internet Protocol (IP)

Mobile active customers – Includes voice and data cards. Active customers are customers who have made or received at least one call or sent or received at least one SMS message in the last three months. Prepaid customers and MVNO customers are fully segmented as CBU customers.

IPP – Investors in People: standard making it possible to build up a complete picture of how a business is managing its people and where it can make improvements IPTV – Internet Protocol Television is a system through which digital television service is delivered using the architecture and networking methods of the Internet Protocol Suite over a packet-switched network infrastructure IPX – Internetwork Packet Exchange ISAT – The Interactive online Self Assessment Tool is a tool that enables employees to measure their stress level, determine the factors that cause and maintain stress, and thus help them, with their managers, to solve the issue ISO 14001 – Standard that provides the requirements for an environmental management system ISO 27001 – Security Management Standard: the basic objective of the standard is to help establish and maintain an effective information management system, using a continual improvement approach ISO 9001 – Standard that provides a set of standardized requirements for a quality management system ISP – Internet Service Provider IT – Information Technology LAN – Local Area Network LTE – Long Term Evolution

Monthly net ARPU – Equal to total mobile voice and mobile data revenues, divided by the average number of active mobile customers for that period. The ARPU is calculated on the basis of the monthly averages for the period indicated. MoU (Minutes of Use) – Duration of all calls from or to Proximus, per active voice customer, per month MTN – The MTN Group Limited is a multinational telecommunications group, operating in 21 countries across Africa and the Middle East

S&S – The Staff & Support Unit brings together all the horizontal functions that support the Group’s activities SAR – Specific Absorption Rate: unit for measuring the quantity of electromagnetic energy that is absorbed by the human body when a mobile phone is used. The maximum allowed SAR in Europe is 2 W/kg in accordance with the ICNIRP guidelines SDE&W – Service Delivery Engine & Wholesale groups together the network and IT services and offers services to other operators and suppliers SIP – Session Initiation Protocol SME – Small and Medium Enterprises UoU (Units of Use) – Voice minutes of use + SMS (where one SMS equals one minute) per active customer per month USO – Universal Service Obligation

MTR – Mobile Termination Rate

VDSL & VDSL2 – Very High Rate Digital Subscriber Line is a high-speed broadband access technology which uses the existing copper wire infrastructure. VDSL2 is the successor of VDSL

NFC – Near Field Communication

VOD – Video On Demand

NGO – Non-governmental organization. Legally constituted, non-governmental organizations are created by natural or legal persons with no participation or representation of any government

VoIP – Voice over Internet Protocol

PUE – Power Usage Effectiveness is a metric used to determine the energy efficiency of a data center. PUE is determined by dividing the amount of power entering a data center by the power used to run the computer infrastructure within it. PUE is therefore expressed as a ratio, with overall efficiency improving as the quotient decreases toward 1

WAN – Wide Area Network WEEE – The Waste Electrical and Electronic Equipment Directive (WEEE Directive – EU) aims to reduce the amount of electrical and electronic equipment being produced and to encourage everyone to reuse, recycle and recover it WIFi – Local wireless network

112 - belgacom ANNUAL REPORT 2012

GENERAL INFORMATION Corporate name and legal form

Our report is printed on Satimat Green coated paper, made out of 60% recycled fibers, 40% FSC virgin fibers. Vegetable-based ink and non-solvent adhesives are used. The printing plates and ink recipients are recycled. The waste paper is collected and then compressed and recycled by authorized bodies. The printer is FSC and PEFC certified.

Editor-in-chief: Philip Neyt Vice President Public Affairs and M&A Bd du Roi Albert II/ Koning Albert II-laan, 27 B - 1030 Brussels Conception and coordination: Anne-Françoise Streel Corporate Communication Project Manager Design and prepress: Chris Communications www.chriscom.be Printing: PAG Pictures: Jean-Michel Byl, Getty images, Corbis, Reporters and Belgacom

Visit Belgacom’s website: www.belgacom.com Belgacom’s annual report is also published in Dutch and in French.

The autonomous public-sector company Belgacom is a Société anonyme de droit public/Naamloze vennootschap van publiek recht (limited liability company under public law) as defined by the Law of 21 March 1991 on the reform of certain public-sector commercial undertakings and organized under the laws of Belgium. The Company is subject to the statutory and regulatory provisions of commercial law applicable to companies limited by shares in all matters not expressly determined by (or by virtue of) the Law of 21 March 1991 or specific legislation of any kind.

Registered Office Belgacom SA under public law Bd. du Roi Albert II 27 B-1030 Brussels VAT BE 0202.239.951 Brussels Register of Legal Entities

Consultation of the issuer’s documents

The transformation of Belgacom into a SA of public law was implemented by the Royal Decree of 16 December 1994, which was published in the Belgian Official Gazette on 22 December 1994, and went into effect on the same day.

Objectives of the Company As described in Article 3 of the Articles of Association, the Company’s objects are: 1. to develop services within the field of telecommunications in Belgium or elsewhere; 2. to take all actions aimed at promoting, directly or indirectly, its activities or ensuring optimal use of its infrastructure; 3. to acquire participating interests in bodies, companies or associations – whether existing or to be created, Belgian, foreign or international, and public or private sector – that may contribute, directly or indirectly, to the achievement of its corporate objects;

The public documents concerning the issuer can be consulted at the registered office.

4. to provide radio and television broadcasting services.

Date of constitution

This communication contains forwardlooking statements, including statements about the Company’s beliefs and expectations. These statements are based on the Company’s current plans, estimates and projections, as well as its expectations of external conditions and events. Forward-looking statements involve

The company was established as an autonomous public sector company, governed by the Law of 19 July 1930 setting up the Belgian National Telephone and Telegraph Company, the RTT (Régie des Téléphones et Télégraphes/Regie van Telegraaf en -Telefoon).

Disclaimer

inherent risks and uncertainties and speak only as of the date they are made. The Company undertakes no duty to and will not necessarily update any of them in light of new information or future events, except to the extent required by Belgian law. The Company cautions investors that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements.

For further information: Philip Neyt Vice President Public Affairs and M&A Bd du Roi Albert II/Koning Albert II-laan, 27 B - 1030 Brussels Tel: +32 2 202 86 84 E-Mail: hello@belgacom.be

For CSR information: Anne-Catherine Doumont Corporate Social Responsibility Specialist Bd du Roi Albert II/Koning Albert II-laan, 27 B - 1030 Brussels Tel: +32 2 202 93 51 E-Mail: csr@belgacom.be

For financial information: Nancy Goossens Vice President Investor Relations Bd du Roi Albert II/Koning Albert II-laan, 27 B - 1030 Brussels Tel: +32 2 202 82 41 Fax: +32 2 201 54 94 E-Mail: investor.relations@belgacom.be

Financial Key Figures Income Statement (EUR million)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Total income before non-recurring items

5,454

5,540

5,458

6,100

6,065

5,978

5,990

6,603

6,406

6,462

Total income

5,454

5,540

5,696

6,100

6,065

5,986

6,065

7,040

6,417

6,462

EBITDA (1) before non-recurring items

2,250

2,394

2,214

2,149

2,077

1,990

1,955

1,984

1,912

1,784

-897

-41

-116

-46

-85

444

-15

-18

1,353

2,353

2,098

2,149

2,031

1,905

1,967

2,428

1,897

1,766

Non-recurring items EBITDA (1) Depreciation and amortization Operating income (EBIT)

-787

-742

-726

-802

-774

-743

-706

-809

-756

-748

566

1,611

1,372

1,347

1,256

1,161

1,261

1,619

1,141

1,018 -111

Net finance income / (costs)

-27

104

-109

-117

-102

-106

Income before taxes

535

1,584

1,436

1,451

1,258

1,053

1,144

1,517

1,035

906

-208

-508

-339

-358

-300

-254

-241

-233

-262

-177

Tax expense Non-controlling interests

154

152

139

121

-1

Net income (Group share)

173

922

959

973

958

800

904

1,266

756

711

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Cash flows and Capital Expenditures (EUR million) Cash flows from operating activities Cash paid for acquisitions of intangible assets and property, plant and equipment Cash flows from / (used in) other investing activities

296

1,899

1,883

1,643

1,581

1,552

1,406

1,666

1,551

1,480

-502

-556

-696

-676

-625

-764

-597

-734

-757

-773

389

-2,279

255

-380

-12

-7

-16

-189

1,421

1,575

-1,313

1,210

409

797

980

788

691

Cash flows from / (used in) financing activities

-575

-1,658

-1,102

751

-720

-570

-1,030

-728

-1,051

-809

Net increase / (decrease) of cash and cash equivalents

-764

-237

473

-562

490

-161

-233

252

-264

-118

Free cash flow

(2)

Balance sheet (EUR million)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Balance sheet total

6,009

5,368

5,831

7,300

7,325

7,450

8,511

8,312

8,211

Non-current assets

4,381

3,963

3,808

5,504

5,072

5,564

5,505

6,185

6,217

6,160

604

406

884

327

785

618

408

627

356

285

2,548

2,223

2,221

2,391

2,520

2,271

2,521

3,108

3,078

3,016

Investments, cash and cash equivalents Shareholders' equity Non-controlling interests

446

407

370

235

225

212

Liabilities for pensions, other post-employment benefits and termination benefits

840

760

1,010

886

831

777

677

565

479

402

Net financial position

157

110

534

-1,636

-1,167

-1,835

-1,716

-1,451

-1,479

-1,601

Belgacom share - key figures

2003

2004

2005

2006

2007

2008

2009

2010

2011

Basic earnings per share (EUR)

0.43

2.57

2.78

2.87

2.45

2.82

3.94

2.36

2012 2.24

Diluted earnings per share (EUR)

0.43

2.57

2.77

2.87

2.45

2.82

3.94

2.36

2.23

Dividend per share, gross (in EUR)

0.99

1.38

1.52

1.60

1.68

Interim/special dividend per share, gross (in EUR)

0.00

0.55

0.00

0.29

0.50

0.40

0.50

0.81

Weighted average number of ordinary shares (3) Share buyback (EUR million) Data on employees Number of employees (full-time equivalents) Average number of employees over the period

399,932,160 358,612,854 345,406,185 338,621,113 334,017,553 326,179,820 320,475,553 321,138,048 319,963,423 318,011,049 0

300

200

352

100

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

17,541

16,933

16,335

18,180

17,942

17,371

16,804

16,308

15,788

15,859

17,880

17,108

16,388

18,163

17,995

17,465

16,878

16,270

15,699

15,952

Total income before non-recurring items per employee (EUR)

305,034

323,847

333,034

335,869

337,031

342,291

354,917

405,859

408,046

405,084

Total income per employee (EUR)

305,034

323,847

347,577

335,869

337,031

342,746

359,322

432,685

408,760

405,084

EBITDA (1) before non-recurring items per employee (EUR)

125,839

139,945

135,103

118,294

115,400

113,934

115,849

121,953

121,764

111,863

75,671

137,549

128,010

118,294

112,847

109,058

116,551

149,247

120,834

110,727

EBITDA (1) per employee (EUR)

(1) Earnings Before Interests, Taxes, Depreciation and Amortization. (2) Cash flow before financing activities. (3) i.e. excluding Treasury shares (4) The net income and the Shareholdersâ&#x20AC;&#x2122; equity are adjusted to exclude the non-recurring income /expenses and the related tax impacts. (5) The gross margin is adjusted to exclude non-recurring income.

KEY FINANCIAL EVENTS • I ntegration of Belgacom and some of its subsidiaries in one legal entity – impacting segments but neutral on Group level • Acquisition of Telindus Group • Sale of stake in Neuf Cégétel • Belgacom IPO

• Launch of EUR 1.65 billion bond

• Extensive launch Broadway project (Fibre & VDSL)

• Acquisition of Vodafone’s 25% share in Proximus

2004

• ICS outsourcing deal with MTN

2006

2005

• Launch Belgacom TV

• Exclusive broadcasting rights for Belgian soccer • Disposal of shares in Eutelsat • Belgacom ICS concludes Joint Venture with Swisscom ICS, proportionally consolidated • Belgacom sells Belgacom Directory Services, Expercom and liquidated Infosources

•D ivesture of all non-core presences of Telindus International

•B ICS fully consolidated following acquisition of control, effective as from 1 January 2010

•A cquisition of Scarlet, Tango and Mobile-for

•B elgacom concludes strategic partnerships with OnLive (gaming), Jinni (search engine) and In3Dept systems (3D-gesture recognition)

•E xclusive broadcasting rights for Belgian soccer

2008

2007

• Remaining stake in Mobistar (acquired via Telindus group transaction) sold • Acquisition of Dutch storage specialist ISIT

2009

2010

•B ICS and MTN combine their International Carrier Services •A ctivity of WIN SA sold

• Acquisition of the chain of The Phone House stores • Accounting adjustment for EUR -34 million at the EBITDA level due to the introduction of the new telecom law

2012

2011

• Telindus France acquires Eudasys • Divesture Telindus Spain • Belgacom acquires 4G-license • Belgacom issues new 7-year senior unsecured institutional bond for EUR 500 million • Successful early bond buyback operation, followed by redemption in cash of remaining balance of the November 2011 EUR 775 million notes

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