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Belgacom Group Financial Report 2007 0

Key figures Income Statement (EUR million) 2005 2006 2007Total revenue before non-recurring items 5,458 6,100 6,065Non-recurring revenue 238 0 0Total revenue 5,696 6,100 6,065EBITDA (1) before non-recurring items 2,214 2,149 2,077EBITDA (1) 2,098 2,149 2,031Depreciation and amortization -726 -802 -774Operating income (EBIT) 1,372 1,347 1,256Net finance revenue 64 104 1Income before taxes 1,436 1,451 1,258Tax expense -339 -358 -300Minority interests 139 121 0Net income (Group share) 959 973 958

Cash Flow and Capital Expenditures (EUR million) 2005 2006 2007Cash flows from operating activities 1,883 1,643 1,581Capital expenditures -696 -676 -625Cash flows from / (used in) other investing activities 389 -2,279 255Free cash flow (2) 1,575 -1,313 1,210Cash flows used in financing activities -1,102 751 -720Net increase / (decrease) of cash and cash equivalents 473 -562 490

Balance sheet (EUR million) 2005 2006 2007Balance sheet total 5,831 7,300 7,325Non-current assets 3,808 5,504 5,072Investments, cash and cash equivalents 884 327 785Shareholders' equity 2,221 2,391 2,520Minority interests 370 8 6Liabilities for pensions, other post-employment benefits and termination benefits 1,010 886 831Net financial position 534 -1,636 -1,167

Data per share 2005 2006 2007Basic earnings per share (EUR) 2.78 2.87 2.87Diluted earnings per share (EUR) 2.77 2.87 2.87Dividend per share, gross (in EUR) 1.52 1.60 1.68Interim/special dividend per share, gross (in EUR) 0.00 0.29 0.50Weighted average number of ordinary shares 345,406,186 338,621,113 334,017,553

Data on employees 2005 2006 2007Number of employees (full-time equivalents) 16,335 18,180 17,833Average number of employees over the period 16,388 18,163 17,920Total revenue before non-recurring items per employee (EUR) 333,034 335,869 338,434Total revenue per employee (EUR) 347,577 335,869 338,434EBITDA (1) before non-recurring items per employee (EUR) 135,103 118,294 115,880EBITDA (1) per employee (EUR) 128,010 118,294 113,317

(1) Earnings Before Interests, Taxes, Depreciation and Amortization.(2) Cash flow before financing activities.

Year ended 31 December




As of 31 December



Content

2> Management Report

2> Comments on consolidated figures

6> Comments on business segment figures

12> Quarterly results

15> Other information

17> Consolidated financial statements

18> Consolidated income statement

19> Consolidated balance sheet

20> Consolidated cash flow statement

21> Consolidated statement of changes in equity

22> Notes to the consolidated financial statements

72> Report of the Auditor

75> Extract from the Belgian GAAP non-consolidated financial statements of Belgacom SA under public law

76> Income statement

78> Balance sheet after appropriation

80> Appropriation statement



Management report Comments on consolidated figures Income statement

Total revenue of the Belgacom Group slightly decreased by 0.6% year-over-year to EUR 6,065 million.

The Group’s operating income before depreciation and amortization decreased 5.5% to EUR 2,031 million. However, excluding non-recurring expenses1 recorded in 2007, the Group EBITDA decreased 3.3% (EUR 72 million) to EUR 2,077 million.

Revenue per business segment

Variance 2006/2007

(EUR million) (%) (EUR million) (%) (EUR million) (%)

Fixed Line Services 2,961 54% 3,630 59% 3,603 59% -0.7%Mobile Communications Services 2,181 40% 2,136 35% 2,054 34% -3.8%International Carrier Services 713 13% 736 12% 746 12% 1.4%Inter-segment eliminations -396 -7% -401 -7% -339 -6% -15.5%Total 5,458 100% 6,100 100% 6,065 100% -0.6%Non-recurring revenue 238 0 0Total 5,696 6,100 6,065 -0.6%

2005 2006 2007

Fixed Line Services revenue decreased 0.7% compared to 2006. This is mainly explained by a decline in traditional voice services and national wholesale, partially offset by growth from internet, TV and ICT activities.

Mobile Communications Services total revenue declined 3.8% year-over-year, mainly due to the impact of MTR2 and Roaming regulation. Excluding the regulation impact, total revenue increased 0.9%.

International Carrier Services revenue increased 1.4% in one year, thanks to a significant increase in mobile traffic, the MTN3

outsourcing deal and the growth in the mobile data portfolio, partly offset by lower average unit prices.

Operating expenses before depreciation and amortization

(EUR million) 2005 2006 2007Variance

2006/2007

Costs of materials and charges to revenue 1,555 2,005 2,015 0.5%Personnel expenses and pensions 957 1,106 1,120 1.3%Other operating expenses 731 841 853 1.4%Total 3,244 3,952 3,988 0.9%Non-recurring expenses 355 0 46 -Total 3,598 3,952 4,034 2.1%


Costs of materials and charges to revenue Costs of materials and charges to revenue slightly increased by 0.5% (EUR 10 million). This was mainly driven by the Mobile segment where higher commissions and content fees were only partly compensated by lower roaming-out and interconnection costs.

1 In 2007, the Group increased its liability for restructuring programs for an amount of EUR 46 million via the non-recurring expenses, in order to cover the Group’s obligation related to statutory employees who leave the company under a voluntary external mobility program to work for the Belgian State. 2 Mobile Termination Rates. 3 In February 2006, the MTN Group, a leading provider of cellular and communications services in Africa, signed an outsourcing agreement with Belgacom ICS covering MTN’s international voice and data traffic.



Personnel expenses and pensions

(EUR million) 2005 2006 2007Variance

2006/2007

Salaries and wages 717 832 846 1.6%Social security expenses 163 194 199 2.5%Pension costs 16 19 20 3.3%

Post-employment benefits other than pensions and termination benefits 40 31 25 -17.9%Other personnel expenses 21 29 30 5.4%Total 957 1,106 1,120 1.3%

Number of employees at year end (full-time equivalents) (1) 16,335 18,180 17,833 -1.9%

(1) number of full-time equivalents, calculated on the basis of the consolidation percentage of subsidiaries owned less than 100%


Overall personnel expenses and pensions increased over the year 2007 by EUR 14 million or 1.3%.

An annual wage increase, indexation and an increase in severance payments have offset the positive effect of a lower headcount volume. End 2007, the Belgacom Group’s total number of staff amounted to 17,833 full-time equivalents (FTE), showing a decrease of 347 FTE in comparison with 2006. This lower headcount level was driven by restructuring programs (24 FTE) and natural attrition (323 FTE).

Other operating expenses Other operating expenses increased by 1.4% (EUR 12 million). The main drivers of this increase were the higher utility charges (fuel, electricity, etc.) and the higher rental cost related to the Mobile network roll-out.

Operating income before depreciation and amortization (EBITDA)

Variance 2006/2007

(EUR million) (%) (EUR million) (%) (EUR million) (%)

Fixed Line Services 1,147 52% 1,116 52% 1,112 54% -0.4%Mobile Communications Services 1,041 47% 1,000 47% 912 44% -8.8%International Carrier Services 27 1% 33 2% 53 3% 62.0%Inter-segment eliminations -1 0% 0 0% 0 0% 0.0%Total 2,214 100% 2,149 100% 2,077 100% -3.3%Non-recurring revenue 238 0 0Non-recurring expenses -355 0 -46Total 2,098 2,149 2,031 -5.5%

2005


2006 2007

The EBITDA of Fixed Line Services, excluding non-recurring items, showed a limited decrease of 0.4% compared to 2006.

Mobile Communications Services EBITDA declined 8.8% year-over-year, strongly impacted by the revenue decline driven by regulation and the customer acquisition strategy.

International Carrier Services EBITDA increased by EUR 20 million year-over-year as a consequence of volume growth, favorable settlements with foreign operators and cost synergies resulting from the joint venture with Swisscom.

Non-recurring expenses

In 2007, the Group increased its liability for restructuring programs for an amount of EUR 46 million via the non-recurring expenses, in order to cover the Group’s obligation related to statutory employees who leave the company under a voluntary external mobility program to work for the Belgian State.

Depreciation and amortization

Depreciation and amortization decreased from EUR 802 million in 2006 to EUR 774 million in 2007.

Operating income (EBIT)

The Group’s operating income decreased 6.7% to EUR 1,256 million. Excluding non-recurring items, the Group’s operating income decreased 3.3% or EUR 44 million.

The decrease was mainly driven by the lower EBITDA (EUR -72 million), partially compensated by a lower depreciation cost.



Net finance revenue/cost

Net finance revenue decreased from EUR 104 million in 2006 to EUR 1 million in 2007 due to higher interest expenses as a resultof the increased net financial debt following the acquisition of the Vodafone minority stake in Belgacom Mobile in November 2006. The net finance revenue mainly includes gains realized on the disposal of other participating interests. Such gains decreased from EUR 122 million in 2006 (mainly from the disposal of Neuf Cégétel) to EUR 74 million in 2007 (mainly from the disposal of the remaining interests in Mobistar and Eutelsat Communications).

Tax expense

Tax expenses amounted to EUR 300 million in 2007, down from EUR 358 million in 2006. This represents an effective tax rate in 2007 of 23.84%. The effective tax rate is lower than the corporate tax rate of 33.99% because of the realization of tax-free capital gains on the disposal of the shares in Mobistar and Eutelsat Communications, and the application of general principles ofBelgian tax law.

Minority interest

The Group’s main minority interest was Vodafone’s 25% stake in Belgacom Mobile, until this interest was acquired early November2006.

Net income (Group share)

Net income decreased 1.5% to EUR 958 million in 2007, compared to EUR 973 million in 2006. The decrease in EBITDA and Net

Finance Revenue was not fully compensated by the positive effect of the lower taxes and minority interests.

Balance sheet

Goodwill increased by EUR 17 million in 2007 primarily as a result of the acquisition of the Dutch storage company ISIT Group. Intangible assets with finite useful life and property, plant & equipment decreased by EUR 165 million as the amortization charge

and the disposals were superior to the additions of the year.Other participating interests in the balance sheet decreased from EUR 234 million on 31 December 2006 to EUR 1 million followingthe disposal of the stake in Mobistar and in Eutelsat Communications.

Shareholders’ equity increased by EUR 128 million in 2007 resulting primarily from the net income of EUR 958 million, partly offset by the dividend distribution (EUR 701 million), the reversal of positive re-measurements to fair value (EUR 64 million) followingthe disposal of Mobistar and Eutelsat Communications, and the net acquisition of treasury shares. During the period of 13 November 2007 until 31 December 2007, the Group acquired 2,275,112 shares for a total amount of EUR 78 million in the framework of the share buy-back program.

During 2007, Belgacom employees exercised 250,761 stock options and bought 134,649 treasury shares under a discounted share purchase plan offering a discount of 16.67%.

As approved by the Board of Directors on 1 March 2007, Belgacom offered 475,516 stock options to its senior management in April 2007. The exercise price of EUR 32.71 is based on the closing price of 20 April 2007. These options become one-third vestedafter one year, two-thirds vested after two years and fully vested after three years, and are exercisable until 22 April 2014.

On 11 April 2007, the Extraordinary General Meeting of shareholders approved the cancellation of 23,750,000 treasury shares.



Liquidity and capital resources

Cash Flow

(EUR million) 2005 2006 2007

Cash flows from operating activities 1,883 1,643 1,581Capital expenditures -696 -676 -625Cash flows from / (used in) other investing activities 389 -2,279 255Cash flow before financing activities or "free cash flow" 1,575 -1,313 1,210Cash flows used in financing activities -1,102 751 -720Net increase / (decrease) of cash and cash equivalents 473 -562 490


In 2007, cash flow from operating activities decreased by 3.8% to EUR 1,581 million, primarily due to the EBITDA decrease. Year-over-year, capital expenditures decreased 7.6% to EUR 625 million.

In 2006, other investing activities consumed a significant amount of cash (EUR 2,279 million), mainly due to the acquisition ofTelindus Group and the acquisition of Vodafone’s 25% stake in Belgacom Mobile, partially compensated by the disposal of Neuf Cégétel. On the other hand, a considerable amount of cash (EUR 255 million) was generated in 2007, mainly due to the disposal of the remaining interests in Mobistar and Eutelsat Communications more than offsetting the EUR 13 million paid to acquire ISITGroup in April 2007. As a result, the cash flow before financing activities, or “free cash flow”, increased by EUR 2,523 million in 2007, reaching EUR 1,210 million.

After financing activities, especially the payment of a dividend of EUR 1.60 per share and an interim dividend of EUR 0.50 per share, and the net acquisition of treasury shares, cash and cash equivalents increased by EUR 490 million. The net financial debtdecreased to EUR 1,167 million.

Capital expenditures

(EUR million)Variance

2006/2007

Fixed Line Services 488 70% 448 66% 453 73% 1.2%Mobile Communications Services 195 28% 214 32% 154 25% -28.1%International Carrier Services 19 3% 15 2% 18 3% 24.3%Inter-segment eliminations -6 -1% 0 0% 0 0%Total 696 100% 676 100% 625 100% -7.6%

2005


20072006

In 2007, capital expenditures of Fixed Line Services amounted to EUR 453 million, including a EUR 91 million investment related to Belgacom TV and EUR 109 million for the deployment of fiber into the access network (Broadway project).

Mobile Communications Services capital expenditures decreased 28.1% year-over-year to EUR 154 million, primarily in the network area. In 2007, the 3G investments slowed-down driven by the overall high population coverage which achieved 84.4%. End 2007, 3G investments amounted to EUR 48 million.

International Carrier Services capital expenditures increased year-over-year by EUR 3.6 million. In order to sustain the growth in voice, mobile data and capacity products, higher investments were made mainly in the European part of the transmission network.

Capital resources As a rule, the Group mainly finances its development with the cash flows from its operations. The Group also has a USD 2.5 billion Euro Medium Term Note (“EMTN”) program and a EUR 1 billion Commercial Paper (“CP”) program. At 31 December 2007, there was an outstanding balance of EUR 1,650 million under the EMTN program, corresponding to the unsubordinated debentures issued in 2006 to finance the acquisition of minority interests in Belgacom Mobile, with an average remaining maturity of 6 years. At 31 December 2007, there was no outstanding balance under the CP Program. The Group is also backed by long-term credit facilities of EUR 526 million and short-term credit facilities of EUR 565 million. These facilities are provided by a diversified group of banks. At 31 December 2007, there was no outstanding balance under the long-term facilities and an outstanding balance of EUR 34 million under the short-term facilities.



Comments on business segment figures

Fixed Line Services (FLS)

(EUR million) 2006 2007 Variance

TOTAL SEGMENT REVENUE 3,630 3,603 -0.7%

Costs of materials and charges to revenue -1,038 -979 -5.7%Personnel expenses and pensions -938 -956 1.9%Other operating expenses -538 -556 3.5%TOTAL OPERATING EXPENSES before depreciation & amortization -2,514 -2,492 -0.9%

TOTAL SEGMENT RESULT (1) 1,116 1,112 -0.4%Segment result margin 30.7% 30.8% 0.1p.p.

Non-recurring expense 0 -46

OPERATING INCOME before depreciation & amortization 1,116 1,066 -4.5%

Depreciation and amortization -568 -548 -3.5%

OPERATING INCOME 547 517 -5.5%

(1) Operating income before depreciation and amortization


Segment Revenue Total FLS revenue slightly decreased by 0.7% year-over-year (EUR 27 million). This is mainly explained by a decline in traditional voice services and national wholesale which was not fully offset by the growth in Internet, ICT and Belgacom TV.

Segment revenue detail4

EUR million 2006 2007 Variance % Variance

Voice Access 739 726 -1.8% -14

Voice Traffic 659 584 -11.4% -75

Internet 454 506 11.5% 52

Data Connectivity 174 164 -5.5% -9

Terminals 148 141 -4.8% -7

ICT 741 797 7.5% 55

Belgacom TV 15 43 180.8% 28

National Wholesale 449 402 -10.6% -48

Other* 249 240 -3.6% -9

Total revenue 3,630 3,603 -0.7% -26


* Other: turnover from international activities, directory services, other fixed business subsidiaries and other operating income from all fixed entities

The Voice Access revenue evolution improved from -5.3% end of 2006 to -1.8% in 2007. The revenue decline was mainly driven by a continued voice access line loss, partially offset by an ARPU increase of 2.4%.

The 2007 Voice Traffic revenue shows a decline of -11.4% compared to 2006, primarily driven by a lower Voice Traffic ARPU (-7.0%).

Internet revenue grew 11.5% year-over-year as a result of the broadband volume growth of 108,667 lines (+9.6% year-over-year) in combination with a 2.0% positive ARPU evolution. This is the result of a price increase on ADSL tariffs, resulting in a ADSL residential ARPU of EUR 32.2 for 2007.

4 The revenue detail has been restructured to reflect the business reality in which Telindus is fully integrated in the Belgacom Group. The “ICT” product group includes mainly revenue generated by Telindus-Belgacom ICT as well as Belgacom Integration services transferred from the “Data” product group and Security & Application services from the “Internet” group. What remains in the “Data Connectivity” product group are Belgacom connectivity services such as Frame Relay, ATM, IP, Leased Lines.



Data connectivity revenue decreased 5.5% year-over-year, mainly driven by the decrease of leased line revenue due to the migration to BiLAN and Explore solutions.

Revenue from ICT, generated by the Telindus Group as well as by the Belgacom ICT products, increased 7.5% compared to 2006. Part of this growth comes from the revenue contribution of the newly acquired Dutch subsidiary ISIT.

Belgacom TV revenue showed a EUR 28 million growth compared to 2006 thanks to a larger customer base (+119%) and an ARPU improvement (+33.8%).

Compared to 2006, National Wholesale revenue declined 10.6%, mainly because of the impact of lower Mobile Termination Rates and less Mobile transit traffic.

The decrease in other revenue was mainly due to lower gains realized on disposals of buildings during 2007 and lower revenue following the disposal of the satellites activities during the last quarter of 2007.

Operating expenses before depreciation and amortization FLS operating expenses before depreciation and amortization decreased 0.9% year-over-year (EUR 22 million). This is entirely due to the lower costs of materials and charges to revenue. The lower Mobile Termination Rate and the lower national wholesalecosts related to mobile transit traffic had a positive impact on costs.

However, this was partially cancelled out by the evolution in personnel expenses (+1.9%) due to the annual wage increase, the indexation and an increase in severance payments, in combination with the 3.5% increase in other operating expenses.

Operating income before depreciation and amortization (EBITDA) In 2007, excluding non-recurring expenses related to restructuring programs, FLS managed to limit the year-over-year EBITDA decrease to 0.4% at EUR 1,112 million while keeping the EBITDA margin stable at 30.8%.

Including non-recurring expenses, FLS EBITDA decreased year-over-year by 4.5% to EUR 1,066 million.

Operating income (EBIT) The operating income of FLS was impacted by the non-recurring expense of EUR 46 million, partially offset by the EUR 20 milliondecrease in depreciation and amortization leading to a total EBIT of EUR 517 million or a decrease of 5.5%. The decrease of depreciation and amortization relate to network equipment, the customer bases and trade names acquired in business combinations.

Operationals In 2007, the pressure on voice access lines continued mainly due to the migration to DSL-only solutions and competitive actions. The line loss mostly affected the residential segment.

Voice access ARPU grew 2.4% year-over-year to EUR 14.6 thanks to the price increase that came into effect on 1 January 2007. The ARPU improvement partially offset the revenue loss caused by the line loss.

The 2007 Voice Traffic ARPU declined 7.0% to EUR 12.0. This decline was driven by the success of price packages (domestic & international), the Fixed to Mobile tariff decrease as from 1 May 2007 and the tariff decrease for calls to alternative5 fixed networks that came into effect on 1 July 2007.

Thanks to the success of the packs and the extended offer, FLS was able to add 165,654 new Belgacom TV customers in 2007. This brought the total number of customers to 305,319 at the end of 2007, with an ARPU of EUR 16.1 over the full year.

5 Telenet and Versatel.



2006 2007 Variance

Number of access channels (thousands)ResidentialPSTN 2,920 2,736 -6.3%ISDN 360 348 -3.4%ADSL, VDSL 985 1,082 9.8%Total 4,265 4,166 -2.3%

BusinessPSTN 247 238 -3.4%ISDN 584 577 -1.2%ADSL, VDSL 142 155 8.7%Total 973 970 -0.3%

Traffic (millions of minutes)ResidentialNational 5,374 5,223 -2.8%Fixed to Mobile 778 713 -8.3%International 344 425 23.5%Total 6,496 6,360 -2.1%

BusinessNational 1,801 1,648 -8.5%Fixed to Mobile 484 459 -5.1%International 369 353 -4.4%Total 2,654 2,459 -7.3%

Belgacom TVTV customers (thousands) 140 305 118.6%

ARPU (EUR)ARPU Voice Access 1 14.2 14.6 2.4%ARPU Voice Traffic 2 13.0 12.0 -7.0%ARPU ADSL Residential3 31.6 32.2 2.0%ARPU Net Belgacom TV4 12.0 16.1 33.8%


(1) ARPU Voice Access is equal to total voice access revenue, excluding activation revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period.

(2) ARPU Voice Traffic is equal to total voice traffic revenue, excluding payphone traffic revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period.

(3) ARPU ADSL Residential is equal to 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, for the residential segment.

(4) Net ARPU Belgacom TV: includes only customer-related revenue and takes into account promotional offers.



Mobile Communications Services (MCS)

(EUR million)2006 2007 Variance

TOTAL SEGMENT REVENUE 2,136 2,054 -3.8%

Costs of materials and charges to revenue -683 -692 1.3%Personnel expenses and pensions -147 -144 -2.3%Other operating expenses -305 -307 0.3%TOTAL OPERATING EXPENSES before depreciation & amortization -1,136 -1,142 0.6%

TOTAL SEGMENT RESULT (1) 1,000 912 -8.8%Segment result margin 46.8% 44.4% -2.4p.p.


OPERATING INCOME 786 703 -10.7%



EUR million 2006 2007 Variance % Variance

Voice services (1) 1,786 1,675 -6.2% -111Data services (1) 406 518 27.6% 112Other service revenue (2) 0 3Credits and discounts -162 -248 53.2% -86

Net Service revenue 2,030 1,949 -4.0% -81

Handsets 86 84 -2.3% -2Other revenue 20 22 8.5% 2

Total revenue 2,136 2,054 -3.8% -82

(1) Including roaming-in(2) Including wholesale and subsidiaries


Segment revenue The total revenue of MCS decreased 3.8% compared to 2006. However, when excluding the regulation impact (Mobile Termination Rate cuts on 1 November 2006 and 1 May 2007, wholesale roaming as of September and retail roaming as of October 2007), revenue increased by 0.9%.

Net service revenue declined 4.0%. MTR and Roaming regulation was the main driver of the Voice services revenue evolution (-6.2%), fully offsetting the positive impact of the increased customer base and the improved customer portfolio. Excluding theimpacts of regulation, net service revenue increased by 1.0%. The revenue increase was driven by a higher postpaid customer base and growth of data revenue, especially from advanced data services.

Data revenue, including advanced data services - before deduction of free traffic - grew 27.6% and, at the end of 2007, represented just over 25% of the total MCS revenue. The launch of new pricing schemes positively impacting the SMS traffic and the growth in services such as Mobile Solutions and Network Services were the main drivers of the data revenue evolution.

Credits and discounts on voice and data services increased as a result of the success of the new pricing plans, both in the postpaid and prepaid segments.

In 2007, revenue from handsets was 2.3% lower than in 2006. This was mainly due to lower average prices.

Operating expenses before depreciation and amortization Year-over-year, MCS operating expenses before depreciation and amortization increased 0.6% due to higher cost of materials and charges to revenue. This increase was mainly driven by higher commissions, leased lines and content fees, partly offset by lowerroaming charges and termination costs as a consequence of the MTR and Wholesale roaming regulation.

Operating income before depreciation and amortization (EBITDA) Both regulation and customer acquisition impacted the EBITDA negatively. Compared to 2006, MCS EBITDA decreased 8.8% to EUR 912 million, with an EBITDA margin of 44.4%.

Operating income (EBIT) MCS operating income decreased 10.7% year-over-year to EUR 703 million.



Operationals Thanks to the success of its customer acquisition strategy, Proximus added 308,796 active customers in 2007, reaching a total of4,620,232 customers. As most of the acquisitions were postpaid customers (348,463), Proximus managed to improve its customer portfolio, achieving a postpaid/prepaid ratio of 51/49. Proximus was able to maintain the churn rate at an outstanding 15.7%.

At year-end 2007, the blended ARPU amounted to EUR 39.4 for the active customer base, compared to EUR 40.9 at the end 2006, or a decrease of 3.5% year-over-year.

The blended net ARPU (ARPU minus Credits and Discounts), reached EUR 34.8 in 2007 compared to EUR 37.7 a year ago, or a decrease of 7.8%. The decrease in blended net ARPU was primarily driven by the impact of the MTR cuts in November 2006 and May 2007, the retail roaming regulation (impact of EUR 1.7) and the success of the new tariffs plans. Excluding the regulation impact, the net ARPU decreased by 3.3%.

In 2007, a Proximus customer sent 76.6 SMS per month, or an increase of 39.7% compared to last year. This is mainly explained by the fact that this number includes free SMS that are part of the new pricing plans launched in the framework of the customeracquisition strategy (e.g. Pay&Go Generation, Smile Freetime, etc). Excluding these free SMS, the number of SMS per customer increased by approximately 3%.

2006 2007 Variance

Number of active customers(1) (in thousands) 4,311 4,620 7.2% Prepaid 2,327 2,246 -3.5% Postpaid 1,985 2,333 17.6% MVNO 0 41Active customers as a percentage of total customers(2) 98.2% 98.1% -0.1 ppAnnualized churn rate 3) (blended - variance in pp) 15.8% 15.7% -0.1 ppARPU(4) (in EUR)

Prepaid 19.6 20.7 5.7% Postpaid 68.4 59.1 -13.6% Blended 40.9 39.4 -3.5% Blended voice 33.2 30.0 -9.6% Blended data 7.6 9.4 22.8%Net ARPU(5) (in EUR)

Prepaid 17.6 15.7 -10.3% Postpaid 63.8 54.7 -14.2% Blended 37.7 34.8 -7.8%Market share of active customers (6)

Prepaid 43.0% 38.4% -4.6 pp Postpaid 48.8% 50.1% 1.3 pp Total 45.5% 43.8% -1.7 ppValue Share 50.1% 50.1% 0.0 ppUoU(7) (units) 218.9 242.5 10.8%MoU(8) (min) 164.1 165.9 1.1%SMS(9) (units) 54.8 76.6 39.7%


(1) Active customers are customers who have made or received at least one call or sent or received at least one SMS in the last three months.

(2) Percentage based on total number of Belgacom Mobile SIM cards in circulation. (3) Annualized churn is 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.

(4) ARPU has been calculated on the basis of monthly averages for the period indicated. Monthly blended ARPU is total service revenues, excluding roaming-in and activation revenues, divided by Belgacom Mobile’s active postpaid and prepaid customer base for that period.

(5) Net ARPU is equal to ARPU minus credits and discounts. (6) 2006 Belgacom Mobile estimate replaced by actual figure. (7) UoU (Units of use): voice minutes of use + SMS (where 1 SMS equals 1 minute) per active customer per month. (8) MoU (Minutes of Use): duration of all calls from or to Proximus, per active customer and per month (9) SMS: number of SMS messages per active customer per month (including free SMS)



International Carrier Services (ICS)

(EUR million) 2006 2007 Variance

TOTAL SEGMENT REVENUE 736 746 1.4%

Costs of materials and charges to revenue -641 -634 -1.1%Personnel expenses and pensions -20 -20 0.9%Other operating expenses -41 -38 -7.9%TOTAL OPERATING EXPENSES before depreciation & amortization -703 -692 -1.5%

TOTAL SEGMENT RESULT (1) 33 53 62.0%Segment result margin 4.5% 7.2% 2.7p.p.


OPERATING INCOME 13 37 -



Segment revenue

EUR million 2006 2007 Variance

Voice 693 693 0.1%Non Voice 43 53 22.1%

Total revenues 736 746 1.4%


Voice volumes in billion of minutes 2006 2007 Variance

TOTAL 12.21 13.84 13.4%Total to fixed destinations 6.10 6.46 5.9%Total to mobile destinations 6.11 7.38 20.9%

BICS volumes included at 100%


In 2007, ICS revenue increased 1.4% compared to the previous year.

Voice revenue was quite similar to last year’s as the positive impact from the growth in volumes was mostly offset by lower average unit prices resulting mainly from the mobile termination rates decrease in Europe. The volumes increase was primarily attributable to major transit traffic volume growth with mobile operators, inbound traffic growth for traffic termination into Belgium and Switzerland, and to the agreement with MTN6. Non-voice revenue increased 22.1% thanks to a significant increase of mobile data revenues, mainly driven by SMS transit traffic and signaling products.

Operating expenses before depreciation and amortization ICS operating expenses before depreciation and amortization decreased year-over-year by 1.5%, chiefly due to lower charges to revenue as a consequence of a positive evolution of the product portfolio, the mobile termination rate decrease in Europe and the favorable settlements with foreign operators. Compared to 2006, personnel expenses decreased 0.9% and other operating expenses decreased 7.9% as the joint-venture synergies7 fully materialized in 2007.

Operating income before depreciation and amortization (EBITDA) In 2007, ICS achieved an EBITDA result of EUR 53 million, an increase of 62% compared with the previous year. The favorable product mix evolution between voice and data products was the main contributory factor to the improvement of the EBITDA margin to 7.2%, along with the reduction in other operating expenses.

Depreciation and amortization In addition to the year-over-year improvement in EBITDA performance, depreciation was lower, as depreciation in 2006 was impacted by the useful life review of some assets to reflect new technologies.

Operating income (EBIT) ICS operating income grew from EUR 13 million to EUR 37 million.

6 In February 2006, the MTN Group, a leading provider of cellular and communications services in Africa, signed an outsourcing agreement with BICS covering MTN’s international voice and data traffic. 7 Effective 1 July 2005, Swisscom Fixnet AG contributed its international carrier activities to Belgacom International Carrier Services SA (BICS), in exchange for a 28% ownership stake and joint control with the Belgacom Group. Since that date, revenues and expenses of the ICS segment have been proportionally consolidated at 72%.



Quarterly results (EUR million)

1 2 3 4 1 2 3 4 1 2 3 4

Group financialsTotal revenue before non-recurring items 1,339 1,370 1,388 1,361 1,507 1,525 1,535 1,533 1,515 1,524 1,512 1,514Non-recurring revenue 238 0 0 0 0 0 0 0 0 0 0 0Total revenue 1,577 1,370 1,388 1,361 1,507 1,525 1,535 1,533 1,515 1,524 1,512 1,514EBITDA (1) before non-recurring items 575 578 557 503 545 565 536 502 536 543 528 470EBITDA (1) 814 578 557 149 545 565 536 502 536 543 528 424Depreciation and amortization -168 -174 -189 -195 -196 -203 -200 -203 -189 -195 -197 -193Operating income (EBIT) 646 404 369 -47 349 362 337 299 347 348 331 230Net finance revenue 13 42 0 9 5 -1 60 41 54 -15 -21 -16Income before taxes 659 446 369 -37 354 361 396 340 401 332 310 214Tax expense -128 -122 -112 23 -103 -104 -91 -59 -83 -87 -78 -52Net Income 532 323 257 -14 251 257 305 281 319 245 232 162Minority interests 38 37 33 32 36 37 37 11 0 0 0 0Net income (Group share) 494 286 224 -45 215 219 268 270 319 245 232 162

Total revenue per business segmentFixed Line Services 753 746 724 739 909 905 890 925 916 907 869 911Mobile Communications Services 530 555 553 543 527 542 547 520 512 524 519 500International Carrier Services 158 175 200 180 172 178 199 187 183 178 200 185Inter-segment eliminations -102 -106 -89 -100 -101 -100 -101 -99 -96 -85 -75 -82Total 1,339 1,370 1,388 1,361 1,507 1,525 1,535 1,533 1,515 1,524 1,512 1,514

EBITDA per business segmentFixed Line Services 300 298 294 256 277 292 267 280 284 290 278 260Mobile Communications Services 272 272 253 244 264 266 258 213 241 241 236 194International Carrier Services 4 9 11 3 5 7 12 10 11 12 14 16Inter-segment eliminations 0 0 0 0 0 0 0 0 0 0 0 0Total 575 578 557 503 545 565 536 502 536 543 528 470

Capital expenditures per business segmentFixed Line Services 53 74 200 161 74 117 105 152 90 108 98 157Mobile Communications Services 47 49 35 64 46 47 48 73 32 45 28 49International Carrier Services 7 2 2 9 0 2 5 7 1 4 2 12Inter-segment eliminations -6 0 0 0 0 0 0 0 0 0 0 0Total 101 125 237 234 120 166 158 232 122 157 128 218

Quarters 2005 Quarters 2006 Quarters 2007

Fixed line Services – financials

(EUR million)Q1

2006Q2

2006Q3

2006Q4

2006 2006Q1

2007Q2

2007Q3

2007Q4

2007 2007

TOTAL SEGMENT REVENUE 909 905 890 925 3,630 916 907 869 911 3,603

Costs of materials and charges to revenue -269 -248 -254 -267 -1,038 -253 -244 -227 -255 -979Personnel expenses and pensions -236 -230 -236 -237 -938 -247 -243 -235 -232 -956Other operating expenses -127 -136 -132 -142 -538 -133 -129 -130 -165 -556TOTAL OPERATING EXPENSES before depreciation & amortization -632 -614 -623 -646 -2,514 -632 -617 -591 -652 -2,492

TOTAL SEGMENT RESULT (1) 277 292 267 280 1,116 284 290 278 260 1,112Segment result margin 30.5% 32.2% 30.0% 30.2% 30.7% 31.0% 32.0% 31.9% 28.5% 30.8%

Non-recurring revenue 0 0 0 0 0 0 0 0 0 0Non-recurring expenses 0 0 0 0 0 0 0 0 -46 -46

OPERATING INCOME before depreciation & amortization 277 292 267 280 1,116 284 290 278 214 1,066

Depreciation and amortization -135 -146 -143 -145 -568 -133 -138 -137 -140 -548

OPERATING INCOME 142 146 124 135 547 151 152 140 74 517

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

EUR million 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007

Voice Access 187 187 183 182 739 184 183 180 178 726

Voice Traffic 172 166 158 163 659 162 147 135 139 584

Internet 108 113 115 118 454 122 125 129 130 506

Data Connectivity 44 43 44 43 174 43 41 40 40 164

Terminals 38 36 38 37 148 37 34 34 36 141

ICT 191 174 179 197 741 189 201 187 219 797

Belgacom TV 2 4 4 5 15 8 9 12 15 43

National Wholesale 112 113 112 113 449 108 104 93 97 402

Others 57 70 57 66 249 63 63 57 58 240

Total revenue 909 905 890 925 3,630 916 907 869 911 3,603



Fixed line Services – operationals Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Number of access channels (thousands) 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007ResidentialPSTN 3,042 2,988 2,951 2,920 2,920 2,883 2,835 2,785 2,736 2,736ISDN 368 366 363 360 360 357 353 351 348 348ADSL, VDSL 895 922 948 985 985 1,017 1,029 1,053 1,082 1,082Total 4,305 4,276 4,262 4,265 4,265 4,257 4,218 4,189 4,166 4,166

BusinessPSTN 252 250 249 247 247 246 242 240 238 238ISDN 585 584 585 584 584 583 580 578 577 577ADSL, VDSL 130 135 138 142 142 147 147 149 155 155Total 967 969 972 973 973 975 969 967 970 970

Traffic (millions of minutes)ResidentialNational 1,406 1,326 1,259 1,382 5,374 1,399 1,289 1,214 1,320 5,223Fixed to Mobile 198 203 187 190 778 185 186 169 173 713International 90 87 82 85 344 91 107 107 119 425Total 1,694 1,616 1,529 1,657 6,496 1,675 1,582 1,490 1,613 6,360

BusinessNational 492 454 414 442 1,801 451 415 378 404 1,648Fixed to Mobile 127 123 113 120 484 122 116 106 115 459International 98 93 87 91 369 94 88 84 86 353Total 717 670 614 653 2,654 667 619 568 605 2,459

ARPU (EUR)ARPU Voice Access 14.2 14.3 14.2 14.2 14.2 14.5 14.6 14.6 14.6 14.6ARPU Voice Traffic 13.3 13.0 12.5 13.0 13.0 13.1 12.0 11.2 11.7 12.0ARPU ADSL Residential 30.7 31.8 31.8 31.7 31.6 31.5 32.3 32.7 32.2 32.2ARPU Net Belgacom TV 11.9 10.1 12.4 12.6 12.0 13.4 15.7 17.5 16.6 16.1

Due to a system error that occurred in the course of the third quarter of 2007, national traffic minutes for Q307 have been corrected.

Mobile communications services – financials

(EUR million)Q1

2006Q2

2006Q3

2006Q4

2006 2006Q1

2007Q2

2007Q3

2007Q4

2007 2007

TOTAL SEGMENT REVENUE 527 542 547 520 2,136 512 524 519 500 2,054

Costs of materials and charges to revenue -163 -168 -181 -171 -683 -169 -172 -173 -178 -692Personnel expenses and pensions -35 -37 -36 -40 -147 -36 -37 -36 -35 -144Other operating expenses -65 -71 -72 -97 -305 -66 -74 -73 -93 -307TOTAL OPERATING EXPENSES before depreciation & amortization -263 -276 -289 -307 -1,136 -271 -283 -283 -306 -1,142

TOTAL SEGMENT RESULT (1) 264 266 258 213 1,000 241 241 236 194 912Segment result margin 50.0% 49.1% 47.1% 40.9% 46.8% 47.1% 46.0% 45.5% 38.8% 44.4%


OPERATING INCOME 209 214 205 159 786 189 188 181 145 703

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4EUR million 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007

Voice services (1) 441 461 456 428 1,786 421 430 419 405 1,675Data services (1) 92 96 103 116 406 116 125 138 140 518Other service revenue (2) 0 0 0 0 0 0 1 1 2 3Credits and discounts -33 -43 -35 -50 -162 -49 -59 -63 -77 -248

Net Service revenue 500 514 523 493 2,030 488 497 495 469 1,949

Handsets 22 23 18 22 86 18 22 19 26 84Other revenue 4 5 6 5 20 6 5 5 6 22

Total revenue 527 542 547 520 2,136 512 524 519 500 2,054

(1) Including roaming-in(2) Including wholesale and subsidiaries



Mobile communications services – operationals Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2006 2006 2006 2006 2006 2007 2007 2007 2007 2007

Number of active customers (in thousands) 4,260 4,253 4,240 4,311 4,311 4,346 4,416 4,494 4,620 4,620 Prepaid 2,447 2,407 2,346 2,327 2,327 2,268 2,252 2,233 2,246 2,246 Postpaid 1,813 1,846 1,894 1,985 1,985 2,079 2,161 2,248 2,333 2,333 MVNO 0 0 0 0 0 0 3 13 41 41Active customers as a percentage of total customers 98.2% 97.9% 97.9% 98.7% 98.2% 98.2% 97.8% 98.2% 97.9% 98.1%Annualized churn rate (blended - variance in pp) 15.6% 15.1% 16.7% 16.2% 15.8% 15.9% 14.8% 15.9% 16.5% 15.7%ARPU (in EUR)

Prepaid 18.3 20.2 20.0 20.0 19.6 19.8 20.6 20.9 21.6 20.7 Postpaid 69.3 69.7 69.7 65.1 68.4 61.4 60.9 59.6 54.9 59.1 Blended 39.8 41.5 41.9 40.3 40.9 39.3 40.2 40.0 38.3 39.4 Blended voice 32.9 34.3 34.1 31.7 33.2 30.7 31.0 30.0 28.4 30.0 Blended data 6.9 7.2 7.8 8.7 7.6 8.6 9.1 9.9 9.8 9.4Net ARPU (in EUR)

Prepaid 17.1 17.9 18.4 16.8 17.6 16.5 16.1 15.6 14.6 15.7 Postpaid 64.8 65.0 65.4 60.3 63.8 57.0 56.5 55.5 50.3 54.7 Blended 37.2 38.2 39.1 36.4 37.7 35.5 35.7 35.3 32.6 34.8Market share of active customers Prepaid 46.3% 46.0% 45.2% 43.0% 43.0% 41.8% 41.1% 39.6% 38.4% 38.4% Postpaid 50.1% 48.9% 47.9% 48.8% 48.8% 49.0% 49.0% 49.7% 50.1% 50.1% Total 47.9% 47.3% 46.4% 45.5% 45.5% 45.0% 44.7% 44.2% 43.8% 43.8%UoU (units) 208.6 218.6 211.9 230.7 218.9 232.6 247.1 242.1 260.3 242.5MoU (min) 160.6 169.1 160.3 164.3 164.1 163.2 171.5 163.4 172.9 165.9SMS (units) 48.0 49.5 51.6 66.4 54.8 69.4 75.5 78.7 87.4 76.6

International carrier services – financials

(EUR million)Q1

2006Q2

2006Q3

2006Q4

2006 2006Q1

2007Q2

2007Q3

2007Q4

2007 2007

TOTAL SEGMENT REVENUE 172 178 199 187 736 183 178 200 185 746

Costs of materials and charges to revenue -151 -155 -172 -163 -641 -158 -152 -171 -154 -634Personnel expenses and pensions -5 -5 -5 -5 -20 -5 -5 -6 -5 -20Other operating expenses -11 -10 -10 -10 -41 -10 -9 -9 -10 -38TOTAL OPERATING EXPENSES before depreciation & amortization -167 -171 -187 -178 -703 -172 -166 -186 -169 -692

TOTAL SEGMENT RESULT (1) 5 7 12 10 33 11 12 14 16 53Segment result margin 2.7% 3.9% 5.8% 5.2% 4.5% 6.1% 6.8% 7.2% 8.5% 7.2%


OPERATING INCOME -2 2 8 5 13 7 8 10 11 37

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4EUR million 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007

Voice 163 167 187 176 693 171 167 186 169 693Non Voice 9 10 12 11 43 12 11 14 16 53

Total revenues 172 178 199 187 736 183 178 200 185 746

International carrier services – operationals Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Voice volume in billion of minutes 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007

TOTAL 2.87 2.92 3.18 3.24 12.21 3.30 3.34 3.62 3.58 13.84Total fixed 1.55 1.47 1.50 1.58 6.10 1.58 1.58 1.60 1.69 6.46Total mobile 1.31 1.45 1.68 1.66 6.11 1.72 1.76 2.02 1.88 7.38

BICS volumes included at 100%



Other information

Rights, commitments and contingencies as of 31 December 2007

Disclosures related to rights, commitments and contingencies are reported in note 34 of the consolidated financial statements.

Use of financial instruments

Disclosures related to the use of financial instruments are reported in note 21 of the consolidated financial statements.

Research and development activities

In 2007, research and development activities mainly focused on:

Creating new services concretizing the fixed-mobile convergence; Improving existing services such as:

o Television over IP through high-definition television, additional content and functionalities; o 3G services through the deployment of HSDPA technology (High-Speed Downlink Packet Access)

to increase the downstream bandwidth on the 3G network; o Voice over IP through new services and a study for a second-generation platform, i.e. IMS - IP

Multimedia Subsystems. Increasing the DSL coverage for Fast Internet through the deployment of a new technology known as Reach Extended ADSL; Creating added-value services on the GSM network, such as “Pay via SMS” for bus and parking lot tickets; Introducing new technologies such as VDSL2 for IP TV; Studying opportunities arising from IP technology, which is becoming ubiquitous in all types of networks and services. Potential new customer experiences, product and operational simplifications are also being examined. Assessing the opportunities of new technologies such as Femtocells, dual phones, FTTH (Fiber To The Home) and HSUPA (High-Speed Uplink Packet Access for 3G) which increases upstream bandwidth.

Belgacom is collaborating with universities, industrial partners and several bodies, such as the IBBT (Interdisciplinary Institute for Broadband Technology), on mobile TV (MADUF Maximizing DVB Usage in Flanders), home networking and home gateway projects.

Treasury shares

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

Major risks and uncertainties

Belgacom’s operating income and net profit may decline if growth in the Belgian telecommunications market continues to slow down. The persistent strong competition in Belgium’s fixed line market from Fixed Voice challengers and from Mobile operators pushing their ‘cut the fixed line’ strategy, may result in loss of market share.

However, Belgacom is taking the necessary measures to stay competitive. These measures may lead to lowered tariffs, whether through supplementary promotional offers or otherwise. Belgacom will also continue its strict cost policy.

In addition, Belgacom is developing new products and services, including broadband and TV services, in order to retain existingcustomers and attract new ones. Because of the necessity to develop and implement new technologies, Belgacom may have to make substantial additional investments.

Some of the tariffs for fixed lines and mobile telephony are subject to approval from or are determined by the BIPT (the Belgiantelecom regulator), which may influence pricing, turnover and operating profit.

Transactions between the Company and its board members, its executive managers and the Belgian State

A general policy on conflicts of interest is applicable within the company. It prohibits the possession of financial interests that may affect one’s 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 that he had a conflict of interest in connection with the Employee Incentive Plans item of the agenda of the Board of Directors’ meeting of 1March 2007. He is in fact a beneficiary of the Short & Long Term Incentives Plan 2006. Mr. Bellens has informed the Belgacom’s auditor of this conflict of interest and has voluntarily decided not to participate in the deliberation and voting on such items on the agenda. The minutes of the related Board of Directors’ meeting are the following :

Before starting the next deliberation, the President & CEO, Mr. D. Bellens, makes the following conflict of interest statement,which is recorded in the minutes, upon which he leaves the room: In accordance with article 523 of the Belgian Companies Code, Mr. Didier Bellens declares to have a conflict of interest in connection with the Employee Incentive Plans item of the agenda of the present Board meeting and more especially on the determination of the Short & Long Term Incentives granted to him under the Plan 2006.



Mr. D. Bellens requests the Board to take note of his statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2007. Mr. D. Bellens shall also inform the auditor of Belgacom of this conflict of interest. Mr. D. Bellens voluntarily decides not to participate in the deliberation and voting on such items on the agenda and leaves themeeting for the agenda items impacted by this conflict of interest statement and situation. The Board decides to grant to the President & CEO an amount of 765,759 € for the short term incentive: The Board also decides to grant an amount of 448,523 € or 40 % of the monthly gross salary x 11 for the long term incentive. For 2007, the Board mandates the Chairman to discuss the objectives that will determine the individual performance.

In accordance with Article 523 of the Belgian Companies Code, Mrs. M. Durez, Chairman of the Board of Directors of La Poste/De Post, which is a shareholder of Certipost, declared that she had a conflict of interest in connection with the Certipost item of the agenda of the Board of Directors’ meeting of 20 December 2007. Mrs. Durez has informed Belgacom’s auditor of this conflict of interest and has voluntarily decided not to participate in the deliberation and voting on such items on the agenda. The minutes of the related Board of Directors’ meeting are the following :

In accordance with article 523 of the Belgian Companies Code, Mrs. M. Durez declares to have a conflict of interest in connection with the Certipost item. Mrs. M. Durez requests the Board to take note of her statement in this respect and to include the necessary statements in the management report of Belgacom relating to accounting year 2007. Mrs. M. Durez shall also inform the auditor of Belgacom of this conflict of interest. Mrs. M. Durez voluntarily decides not to participate in the deliberation and voting on this item and leaves the meeting for the agenda item impacted by this conflict ofinterest statement and situation. The Board unanimously decides:

to authorize a sale of the 50% participation of Belgacom in Certipost to the Post for a price of EUR 7 million; to authorize the President & CEO, with power of subdelegation, to perform all actions and sign all documents, including powers of attorney, required in connection with the above decision.

No conflict of interest under Article 524 of the Belgian Companies Code needs to be reported for 2007.

Capital management

The purpose of the Group in its capital management is to maintain net financial debt and equity ratio’s that allow for liquidity at all times via flexible access to the capital markets, to be able to finance strategic projects and to offer an attractive remuneration to its shareholders. The latter is based on a dividend ratio between 50% and 60% of the net income (Group Share). During the years2005 to 2007, the free cash flow has enabled the Group to offer an additional shareholders’ remuneration to its shareholders through increased dividends and share buy-backs while maintaining the net financial debt at an acceptable level.

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

Post-balance sheet events

Disclosures related to post-balance sheet events are reported in note 42 of the consolidated financial statements.



Consolidated financial statements prepared under International Financial Reporting Standards for each of the three years ended 31 December 2007, 2006 and 2005

18> Consolidated income statement

19> Consolidated balance sheet

20> Consolidated cash flow statement

21> Consolidated statement of changes in equity

22> Notes to the consolidated financial statements

22> Note 1. Corporate information

22> Note 2. Significant accounting policies

29> Note 3. Goodwill

31> Note 4. Intangible assets with finite useful life

32> Note 5. Property, plant and equipment

33> Note 6. Investments in subsidiaries and joint ventures

38> Note 7. Other participating interests

39> Note 8. Income taxes

40> Note 9. Assets and liabilities for pensions, other post-employment benefits and termination benefits

45> Note 10. Other non-current assets

45> Note 11. Trade receivables

46> Note 12. Other current assets

46> Note 13. Investments

46> Note 14. Cash and cash equivalents

47> Note 15. Equity

48> Note 16. Interest-bearing liabilities

49> Note 17. Provisions

50> Note 18. Other non-current payables

50> Note 19. Other current payables

50> Note 20. Derivatives

51> Note 21. Financial risk management objectives and policies

54> Note 22. Net revenue

54> Note 23. Other operating revenue

54> Note 24. Non-recurring revenue

54> Note 25. Costs of materials and charges to revenue

55> Note 26. Personnel expenses and pensions

55> Note 27. Other operating expenses

55> Note 28. Non-recurring expenses

56> Note 29. Depreciation and amortization

56> Note 30. Net finance income / (costs)

57> Note 31. Earnings per share

57> Note 32. Dividends paid and proposed

58> Note 33. Related party disclosures

60> Note 34. Rights, commitments and contingent liabilities

62> Note 35. Cross-border lease arrangements

62> Note 36. Net financial position of the Group

63> Note 37. Additional disclosures on financial instruments

67> Note 38. Share-based payment

68> Note 39 Relationship with the auditors

68> Note 40. Segment reporting

71> Note 41. Recent IFRS pronouncements

71> Note 42. Post balance sheets events



Consolidated income statement

(EUR million) Note 2005 2006 2007

Net revenue 22 5,384 6,022 5,987Other operating revenue 23 74 78 77Non-recurring revenue 24 238 0 0

Total revenue 5,696 6,100 6,065

Costs of materials and charges to revenue 25 -1,555 -2,005 -2,015Personnel expenses and pensions 26 -957 -1,106 -1,120Other operating expenses 27 -731 -841 -853Non-recurring expenses 28 -355 0 -46Total operating expenses before depreciation and amortization -3,598 -3,952 -4,034

Operating income before depreciation and amortization 2,098 2,149 2,031

Depreciation and amortization 29 -726 -802 -774

Operating income 1,372 1,347 1,256

Finance revenue 90 154 112Finance costs -26 -50 -111Net finance revenue 30 64 104 1

Income before taxes 1,436 1,451 1,258

Tax expense 8 -339 -358 -300

Net income 1,098 1,093 958

Minority interests 15 139 121 0

Net income (group share) 959 973 958

Basic earnings per share (in EUR) 31 2.78 EUR 2.87 EUR 2.87 EURDiluted earnings per share (in EUR) 31 2.77 EUR 2.87 EUR 2.87 EURWeighted average number of ordinary shares 31 345,406,186 338,621,113 334,017,553Weighted average number of ordinary shares for diluted earnings per share 31 345,572,258 338,774,209 334,343,683




Consolidated balance sheet


ASSETS

NON-CURRENT ASSETS 3,808 5,504 5,072Goodwill 3 0 1,760 1,777Intangible assets with finite useful life 4 602 590 482Property, plant and equipment 5 2,497 2,527 2,470Other participating interests 7 198 234 1Deferred income tax assets 8 440 351 312Pension assets 9 5 5 5Other non-current assets 10 65 36 25

CURRENT ASSETS 2,022 1,796 2,253Inventories 61 83 99Trade receivables 11 947 1,207 1,158Current income tax assets 8 67 97 117Other current assets 12 64 81 92Investments 13 86 91 59Cash and cash equivalents 14 798 236 726Assets classified as held for sale 0 0 2

TOTAL ASSETS 5,831 7,300 7,325

LIABILITIES AND EQUITY

EQUITY 15 2,591 2,399 2,525Shareholders' equity 15 2,221 2,391 2,520Issued capital 1,000 1,000 1,000Treasury shares -564 -754 -178Restricted reserve 100 100 100Remeasurement to fair value 68 68 4Stock compensation 4 5 5Retained earnings 1,614 1,972 1,586Foreign currency translation 0 1 2Minority interests 15 370 8 6

NON-CURRENT LIABILITIES 1,542 3,053 2,990Interest-bearing liabilities 16 296 1,917 1,895Liability for pensions, other post-employment benefits 9 1,010 886 831and termination benefitsProvisions 17 193 208 229Deferred income tax liabilities 8 42 38 33Other non-current payables 18 1 4 2

CURRENT LIABILITIES 1,698 1,848 1,810Interest-bearing liabilities 16 111 71 69Trade payables 1,038 1,086 1,079Income tax payables 8 202 189 165Other current payables 19 347 502 495Liabilities associated with assets classified as held for sale 0 0 2

TOTAL LIABILITIES AND EQUITY 5,831 7,300 7,325

As of 31 December



Consolidated cash flow statement


Cash flow from operating activitiesNet income (group share) 959 973 958Adjustments for: Minority interests 15 139 121 0 Depreciation and amortization on intangible assets and property, plant and equipment 4, 5 726 802 774 Increase of impairment on intangible assets and property, plant and equipment 4, 5 5 16 4 Increase of provisions 21 36 38 Deferred tax expense 8 39 75 32 Fair value adjustments on financial instruments 3 -12 -7 Gain / (loss) on disposal of consolidated companies 6 -249 0 1 Gain on disposal of other participating interests and enterprises accounted for using the equity method

30 -63 -122 -74

Gain on disposal of property, plant and equipment -12 -15 -11 Other non-cash movements 3 2 4Operating cash flow before working capital changes 1,570 1,876 1,718

Decrease / (increase) in inventories -10 12 -15Decrease / (increase) in trade receivables -169 -22 51Increase in current income tax assets -17 -26 -19Decrease / (increase) in other current assets -13 5 -9Increase / (decrease) in trade payables 336 -70 -10Decrease in income tax payables -18 -16 -24Increase / (decrease) in other current payables -23 36 -38Increase / (decrease) in net liability for pensions, other post-employment benefits 9 249 -128 -55and termination benefitsDecrease in other non-current payables and provisions -22 -24 -19Decrease / (increase) in working capital, net of acquisitions and disposals of subsidiaries

313 -234 -138

Net cash flow provided by operating activities (1) 1,883 1,643 1,581

Cash flow from investing activities

Purchase of intangible assets and property, plant and equipment 3, 4, 5 -696 -676 -625Cash paid for acquisitions of other participating interests -9 0 0Cash paid for consolidated companies, net of cash acquired 0 -2,592 -14Dividends received from non-consolidated companies 30 0 7 0Cash received from sales of consolidated companies, net of cash disposed of 6 237 0 0Cash received from sales of intangible assets and property, plant and equipment 26 34 28Cash received from sales of other participating interests and enterprises accounted for using the equity method and from other non-current assets

136 272 240

Net cash used in investing activities -308 -2,955 -371

Cash flow before financing activities 1,575 -1,313 1,210

Cash flow from financing activities

Dividends paid to shareholders 32 -679 -614 -682Dividends paid to minority interests 15 -176 -8 -2Net acquisition of treasury shares -292 -191 -67Purchase of investments -9 -4 33Increase of shareholders' equity 1 0 2Issuance / (repayment) of long term debt -56 1,635 -2Issuance / (repayment) of short term debt 110 -67 -1Net cash provided by / (used in) financing activities -1,102 751 -720

Net increase / (decrease) of cash and cash equivalents 473 -562 490

Cash and cash equivalents at 1 January 325 798 236Cash and cash equivalents at 31 December 14 798 236 726

(1) Net cash flow from operating activities includes the following cash movements :Interest paid -21 -23 -91Interest received 22 18 26Income taxes paid -316 -313 -281




Consolidated statement of changes in equity (EUR million) Issued

capitalTreasury shares

Restricted reserve

Remeasure-ment to fair

value

Foreign currency

translation

Stock Compen-

sation

Retained Earnings

Shareholders' Equity

Minority interests

Total Equity

Balance at 1 January 2005 1,000 -271 100 59 0 2 1,332 2,223 407 2,630

Equity changes not recognised in the income statement 0 0 0 8 0 0 0 8 0 8Net income 0 0 0 0 0 0 959 959 139 1,098

Total recognized income and expense 0 0 0 8 0 0 959 967 139 1,106

Dividends to shareholders (relating to 2004) 0 0 0 0 0 0 -679 -679 0 -679Dividends of subsidiaries to minority interests 0 0 0 0 0 0 0 0 -176 -176Treasury shares

Exercise of stock options 0 4 0 0 0 0 0 4 0 4Acquisition of treasury shares 0 -300 0 0 0 0 0 -300 0 -300Sale of treasury shares under a discounted share purchase plan 0 3 0 0 0 0 1 4 0 4

Stock optionsStock options granted and accepted 0 0 0 0 0 1 0 1 0 1Deferred stock compensation 0 0 0 0 0 -1 0 -1 0 -1Amortization deferred stock compensation 0 0 0 0 0 2 0 2 0 2Exercise of stock options 0 0 0 0 0 -1 1 0 0 0

Total transactions with equity holders 0 -292 0 0 0 1 -677 -968 -176 -1,145

Balance at 31 December 2005 1,000 -564 100 68 0 4 1,614 2,221 370 2,591

Fair value changes in available-for-sale investments 0 0 0 1 0 0 0 1 0 1Currency translation differences 0 0 0 0 1 0 0 1 0 1

Equity changes not recognised in the income statement 0 0 0 1 1 0 0 1 0 1Net income 0 0 0 0 0 0 973 973 121 1,093

Total recognized income and expense 0 0 0 1 1 0 973 974 121 1,095

Dividends to shareholders (relating to 2005) 0 0 0 0 0 0 -517 -517 0 -517Interim dividends to shareholders (relating to 2006) 0 0 0 0 0 0 -97 -97 0 -97Dividends of subsidiaries to minority interests 0 0 0 0 0 0 0 0 -8 -8Acquisition of minority interests 0 0 0 0 0 0 0 0 -474 -474Treasury shares

Exercise of stock options 0 6 0 0 0 0 0 5 0 5Acquisition of treasury shares 0 -200 0 0 0 0 0 -200 0 -200Sale of treasury shares under a discounted share purchase plan 0 4 0 0 0 0 0 4 0 4


Total transactions with equity holders 0 -191 0 0 0 1 -614 -804 -482 -1,286


Fair value changes in available-for-sale investments 0 0 0 -64 0 0 0 -64 0 -64Currency translation differences 0 0 0 0 1 0 0 1 0 1

Equity changes not recognised in the income statement 0 0 0 -64 1 0 0 -63 0 -63Net income 0 0 0 0 0 0 958 958 0 958

Total recognized income and expense 0 0 0 -64 1 0 958 895 0 895

Dividends to shareholders (relating to 2006) 0 0 0 0 0 0 -535 -535 0 -535Interim dividends to shareholders (relating to 2007) 0 0 0 0 0 0 -166 -166 0 -166Dividends of subsidiaries to minority interests 0 0 0 0 0 0 0 0 -2 -2Treasury shares

Exercise of stock options 0 7 0 0 0 0 0 6 0 6Acquisition of treasury shares 0 -78 0 0 0 0 0 -78 0 -78Sale of treasury shares under a discounted share purchase plan 0 4 0 0 0 0 1 4 0 4Cancellation 0 644 0 0 0 0 -644 0 0 0


Total transactions with equity holders 0 577 0 0 0 1 -1,344 -766 -2 -769




Notes to the consolidated financial statements

Note 1. Corporate information

The consolidated financial statements of Belgacom SA (hereafter “the Group”) at 31 December 2007 were approved by the Board of Directors on 28 February 2008.

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

The main activities of the Group are: Fixed Line Services, Mobile Communications Services and International Carrier Services. Further information concerning the business segments is included under note 40.

The number of employees of the Group (in full time equivalents) amounted to 17,833 at 31 December 2007, 18,180 at 31 December 2006 and 16,335 at 31 December 2005. For the year 2007, the average number of headcount of the Group was 121 management personnel, 16,333 employees, 2,569 workers and 20 of other categories.

Note 2. Significant accounting policies

Basis of preparation The accompanying consolidated financial statements as of 31 December 2007 and for the year then ended have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union. The Group did notearly adopt any IASB standards or interpretations.

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

Changes in accounting policies The accounting policies applied are consistent with those of the previous financial years except that the Group applied the new or revised IFRS standards and interpretations as adopted by the European Union that became mandatory on or after 1 January 2007. Some minor changes in accounting policies resulted from the revised IAS 1 (“Presentation of Financial Statements”), IFRS 7 (“Financial Instruments: Disclosures”), and the new interpretations, IFRIC 7 (“Applying the Restatement Approach under IAS 29”),IFRIC 8 (“Scope of IFRS 2”), IFRIC 9 (“Reassessment of Embedded Derivatives”) and IFRIC 10 (“Interim Financial Reporting and Impairment”). The initial application of these new standards, revisions or new interpretations had no significant effect on thefinancial statements for the current period or each other period presented. They did however give rise to additional disclosures.

Basis of consolidation The consolidated financial statements comprise the financial statements of Belgacom SA and its subsidiaries and joint ventures aswell as the Group’s share of results in associates. Note 6 list the Group’s subsidiaries and joint ventures. The Group doesn’t own any associates for each of the three periods presented.

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

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

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

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

JudgmentsIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements:



Cross-border lease arrangements The Group holds several cross-border lease arrangements with foreign investors relating to part of its fixed and mobile switchesequipment. The Group determined that these arrangements in substance do not involve a lease and that the related debts and deposits must not be recognized in the financial statements because they do not meet the definition of an asset and a liabilityunder IFRS. More details are given in note 35.

Acquisition of minority interests in Belgacom Mobile The Group acquired in 2006 the remaining minority interests in Belgacom Mobile SA. The Group elected to record the excess of the acquisition price over the balance of minority interests at acquisition date as goodwill in the balance sheet.

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

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed in note 3 (Goodwill) and note 9 (Assets and liabilities for pensions, other post-employment benefits and termination benefits).

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

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

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

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

Goodwill The excess of consideration paid over the Group’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities acquired in business combinations (“Goodwill”) is recognized as an asset. Goodwill arising from business combinations that occurred prior to 31 March 2004 have been amortized until 31 December 2004 over their estimated lifetime varying from 5 years to 15 years. Such goodwill is stated at cost less accumulated amortization and impairment losses. As of 2005, this goodwill is no longer amortized but is subject to an annual impairment test.

Goodwill arising from business combinations that occurred after 31 March 2004 is stated at cost less accumulated impairment losses.

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

The Group capitalizes certain costs incurred in connection with developing or purchasing software for internal use when they meet the criteria set out in IAS 38. Capitalized software costs are included in internally generated and other intangible assets and are amortized over three to five years.

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

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

The useful life of the GSM and UMTS intangible assets has been determined based on the license terms.

The useful life of football rights and broadcasting rights has been determined based on the term of the individual underlying contracts.



The useful lives are assigned as follows:

Useful life (years)

GSM / UMTS licenses 15 to 20 Customer bases and trade names acquired 3 to 5 Other intangible assets and internally generated assets, including software 3 to 20

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

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

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

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

The useful lives are assigned as follows:

Useful life (years)Land and buildings

Land indefinite Buildings and constructions 5 to 33

Technical and network equipment

Switches 3 to 10 Cables and Operational support systems 4 to 20 Transmission 4 to 10 Equipment installed at client premises 2 to 5 Equipment for data transfer business and for commercial use 3 to 5 Mobile antennas 6

Furniture and vehicles

Furniture and office equipment 3 to 10 Vehicles 4 to 5

Other tangible assets 2 to 33

Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the lease.

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

Costs of material, personnel expenses and other operating expenses are shown net of work performed by the enterprise that is capitalized in respect of the construction of property, plant and equipment. Interests incurred during the construction process of assets are not capitalised but immediately expensed.

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

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

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

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

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



Deferred taxation Deferred taxation is provided for all temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet and their respective taxation bases. Deferred taxation is not provided on differences relating to goodwill for which amortization is not deductible for taxation purposes.

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

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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

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

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

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

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

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

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

Financial instruments

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

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

Criteria for initial recognition and for de-recognition of financial assets and liabilities Financial instruments are initially recognized when the Group becomes party to the contractual terms of the instruments. Normalpurchases and sales of financial assets are accounted for at their settlement dates.

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



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

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

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

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

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

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

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

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

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

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

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

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

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

Cash and cash equivalents are carried at amortized cost.

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



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

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

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

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

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

Impairment losses on available-for-sale equity instruments are not reversed in income statement. If, as a result of an impairment test, it appears that an existing impairment loss has to be reversed, reversal will be recorded in equity, as a re-measurement to fair value.

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

After initial recognition, debts not hedged are measured at amortized cost using the effective interest rate method, with amortization of discounts or premiums through the income statement.

Debts that are hedged with interest rate swaps (IRS) and interest rate and currency swaps (IRCS) for fair value hedge purposes are re-measured to the extent of the risk being hedged. The gain or loss attributable to the hedged risk resulting from re-measurement to fair value is recognized in income statement.

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

The Group uses IRS and IRCS to reduce its exposure to interest rate and foreign currency fluctuations on long-term debts. The interest coupons receivable and payable under the terms of these swaps are accrued over the period to which the coupon relates.

The table below summarizes the relationship between hedged items and hedging instruments:

Hedging instrument Hedged item Type of hedge Risk(s) being hedgedrelationship

Interest rate and currency swap

Fixed rate debt in foreign currency

Fair valueCurrency and interest rate

risk

Interest rate swapFuture issuance of fixed

rate debt Cash flow Interest rate risk

Most of these swaps qualify as fair value hedges and remain within the effectiveness limits of 80% - 125%, so their revaluationmatches the revaluation of the hedged items that both are recorded via the income statement.

Some IRS qualify as cash flow hedge. In this case, the effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while any ineffective portion is recognized immediately in the income statement. Amounts taken to equity aretransferred to the income statement when the hedged transaction affects the income statement.

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

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

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

Reassessment of embedded derivatives The Group assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the Group first becomes a party to this contract. The Group does not reassess further this issue of separation of embedded derivative, unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is performed.



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

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

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

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

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

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

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

LeasesLeases through which the Group acquires the right to use assets and the leasing company retains substantially all the risks andthe benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term.

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

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

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

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

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

Revenue from wireline, carrier and mobile traffic is recognized on usage. Revenue from connection fees and installation fees is recognized in income at the time of connection or installation. Revenue from sales of communication equipment is recognized upon delivery to the third party distributors or upon delivery by the own Belgacom shops to the end-customer. Revenues relating to the monthly rent or access fees, which are applicable to wireline and mobile revenues are recognized in the period in which the services are provided. Subscription fees are recognized as revenue over the subscription period on a pro-rata basis. Prepaid revenue such as revenue from pre-paid fixed and mobile phone cards is deferred and recognized based on usage of the cards. Maintenance fees are recognized as revenue over the maintenance period on a pro-rata basis. Revenue is recognised net of expenses when the Group acts as an agent, i.e. when the Group does not support inventory risk and credit risk, does not set the prices nor change or perform part of the services and has no latitude in the supplier’s selection. The cost of loyalty programs in respect of third party products granted is recorded in the income statement on the line item “cost of materials and charges to revenue”. Accruals for loyalty programs are recorded at cost at balance sheet date.The revenue from sales arrangements with multiple deliverables are allocated to the different components of the arrangements based on their relative fair values.



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

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

Costs for commissions to dealers, advertising costs and other marketing costs are expensed as incurred.

Non-recurring revenues and operating expenses include gains or losses on the disposal of consolidated companies exceeding individually EUR 5 million in a particular year and costs of restructuring programs.

Note 3. Goodwill

(EUR million) Goodwill

As of 1 January 2005 net of accumulated 30amortization and impairment

Disposal of subsidiary -19Reclassifications -11

As of 31 December 2005 net of accumulated 0amortization and impairment

Acquisition of Telindus Group 231Acquisition of minority stake in Belgacom Mobile 1,519Other acquisitions 10

As of 31 December 2006 net of accumulated 1,760amortization and impairment

Acquisition of ISIT Group 18Subsidiary held for sale -1

As of 31 December 2007 net of accumulated 1,777amortization and impairment

(EUR million) Goodwill

As of 31 December 2005Cost 10Accumulated amortization and impairment -10Net carrying amount 0

As of 31 December 2006Cost 1,770Accumulated amortization and impairment -10Net carrying amount 1,760

As of 31 December 2007Cost 1,787Accumulated amortization and impairment -10Net carrying amount 1,777

Goodwill decreased in 2005 due to the disposal of 100% of the shares of Belgacom Directory Services SA to Promedia Comm.V. (see note 6.3), and due to reclassifications to intangible assets with finite useful life.

The purchase of the 25% minority stake of Vodafone BV in Belgacom Mobile SA led to a significant increase of goodwill in 2006 resulting from the difference between the acquisition cost (EUR 2,001 million) and the minority interests in the balance sheet atacquisition date (EUR 482 million).

The acquisition of Telindus Group and some other entities in 2006 also resulted in an increase of goodwill of respectively EUR 231 million and EUR 10 million (see note 6.3).

The acquisition of ISIT Group in 2007 resulted in an increase of goodwill of EUR 18 million (see note 6.3).

Goodwill has been tested for impairment at the primary segment level because the performance, financial position (including goodwill) and capital expenditures within the Group are monitored at primary segment level.



The carrying amount of goodwill is allocated to the primary segments as follows:

(EUR million) 2005 2006 2007

Fixed Line Services 0 236 253Mobile Communication Services 0 1,524 1,524Total 0 1,760 1,777

As of 31 December

The recoverable amount at segment level (including goodwill) is based on the value in use estimated through a discounted cash flow model. For the years 2008 to 2012, the free cash flows are based on the Five Year Plan as approved by the management and Board of Directors. For subsequent years, the data of the Five Year Plan are extrapolated based on a growth rate varying between0.5% and 2% per year. Free cash flows of each segment are discounted at a specific post-tax weighted average cost of capital comprised between 7.7% and 8.7%. Pre-tax weighted average cost of capital, derived from the post-tax weighted average cost of capital via an iterative method, is comprised between 11.4% and 11.9%. The results of this analysis led to the conclusion that none of the goodwill is impaired at 31 December 2007.

Sensitivity analysis demonstrates that the value in use still exceeds the net carrying value of the cash generating units (segments) if key assumptions (discount rate, long term growth rate and five year business plan assumptions) would deteriorate significantly.



Note 4. Intangible assets with finite useful life

(EUR million) GSM and UMTS

licenses

Internally generated

assets

Customer bases and

trade names acquired

Other intangible

assets

Total

As of 1 January 2005 net of accumulated 223 96 0 151 471amortization and impairment

Additions 0 44 0 211 255Acquisition of subsidiary 0 0 0 20 20Disposals 0 0 0 -2 -3Disposal of subsidiary 0 0 0 -4 -4Reclassifications 0 0 0 20 20Impairment charge 0 0 0 -4 -4Amortization charge for the year -24 -27 0 -102 -153

As of 31 December 2005 net of accumulated 199 113 0 290 602amortization and impairment

Additions 0 41 0 90 130Acquisition of subsidiary 0 6 73 9 88Disposals 0 0 0 -1 -1Reclassifications 0 0 0 3 3Impairment charge 0 0 0 -14 -14Amortization charge for the year -24 -55 -28 -113 -220


Additions 0 41 0 72 113Acquisition of subsidiary 0 0 6 0 6Reclassifications 0 0 6 -6 0Impairment charge 0 0 0 -3 -3Amortization charge for the year -24 -57 -23 -120 -223


(EUR million) GSM and UMTS

licenses

Internally generated

assets

Customer bases and

trade names acquired

Other intangible

assets

Total

As of 31 December 2005Cost 377 283 0 810 1,470Accumulated amortization and impairment -177 -170 0 -520 -867Net carrying amount 199 113 0 290 602

As of 31 December 2006Cost 377 320 73 921 1,690Accumulated amortization and impairment -201 -215 -28 -656 -1,100Net carrying amount 175 105 45 265 590

As of 31 December 2007Cost 377 360 87 962 1,785Accumulated amortization and impairment -225 -271 -53 -753 -1,303Net carrying amount 151 89 34 208 482

The license fees relate to the Global System for Mobile communication (“GSM”) and Universal Mobile Telecommunication System (“UMTS”). In 1994, the Group acquired a GSM license in Belgium for an amount of EUR 226 million. Amortization started in 1995 over the useful life of the license (15 years). In March 2001, the Group acquired an UMTS license in Belgium for an amount of EUR 150 million. Amortization started in June 2004 over the useful life of the license, that is scheduled to end in 2020.

Customer bases and trade names acquired include intangible assets recognized as part of business combinations (see note 6.3).

Other intangible assets mainly include football rights and broadcasting rights acquired, purchased software and rights of use forcables.

Most of the acquisitions and additions for each of the three years presented have been realized in Western Europe.



Note 5. Property, plant and equipment

(EUR million) Land and buildings

Technical and

network equipment

Furnitureand

vehicles

Other tangible assets

Assets under construction

Total

As of 1 January 2005 net of accumulated 596 1,797 35 128 102 2,658depreciation and impairment

Additions 14 292 8 10 117 441Acquisition of subsidiary 0 6 0 0 0 6Disposals -11 0 0 0 0 -11Disposal of subsidiary 0 -13 0 0 0 -13Reclassifications 0 78 0 10 -97 -9Impairment 0 -1 0 0 0 -1Depreciation charge for the year -40 -489 -15 -29 0 -573

As of 31 December 2005 net of accumulated 560 1,669 27 119 122 2,497depreciation and impairment

Additions 12 355 13 6 160 546Acquisition of subsidiary 56 26 3 3 2 89Disposals -7 -5 0 -4 -1 -18Reclassifications 0 148 0 -64 -87 -3Impairment 0 -1 0 -1 0 -2Depreciation charge for the year -41 -512 -13 -15 0 -582


Additions 19 351 10 7 126 513Disposals -7 -9 -1 0 0 -17Reclassifications 0 80 -1 0 -79 0Impairment 0 -1 0 0 0 -1Depreciation charge for the year -41 -484 -12 -14 0 -551


(EUR million) Land and buildings

Technical and

network equipment

Furnitureand

vehicles

Other tangible assets

Assets under construction

Total

As of 31 December 2005Cost 756 8,963 140 272 122 10,253Accumulated depreciation and impairment -196 -7,294 -113 -153 0 -7,756Net carrying amount 560 1,669 27 119 122 2,497



The increase in 2006 resulting from acquisition of subsidiary relates primarily to the acquisition of Telindus Group, Infrasystems Group and Euremis SA (see note 6.3).

During the period from 1996 through 2001, the Group entered into several cross-border lease arrangements of technical and network equipment (see note 35). Part of these arrangements is still operational.

Most of the acquisitions and additions for each of the three years presented have been realized in Western Europe.



Note 6. Investments in subsidiaries and joint ventures

Note 6.1. Investments in subsidiaries The consolidated financial statements include the financial statements of Belgacom SA and the subsidiaries listed in the followingtable.

Name Registered office Country ofincorporation 2005 2006 2007

Belgacom SA under Public Law Bld du Roi Albert II 27 Belgium1030 BruxellesVAT BE 0202.239.951

Belgacom Mobile SA Rue du Progrès 55 Belgium 75% 100% 100%1210 BruxellesVAT BE 0453.918.428

Belgacom Finance SA Rue de Merl 74 Luxemburg 100% 100% 100%2146 Luxembourg

Belgacom Group International Services SA Geldenaaksebaan 335 Belgium 100% 100% 100%3001 HeverleeVAT BE 0466.917.220

Finbel Re SA Rue de Merl 74 Luxemburg 100% 100% 100%2146 Luxembourg

Connectimmo SA Bld du Roi Albert II 27 Belgium 100% 100% 100%1030 BruxellesVAT BE 0477.931.965

Citius Belgium SA Bld du Roi Albert II 27 Belgium (2) 100% 100% -1030 BruxellesVAT BE 0458.333.512

Belgacom Skynet SA Rue Carli 2 Belgium 100% 100% 100%1140 EvereVAT BE 0460.102.672

Skynet iMotion Activities SA Rue Carli 2 Belgium 100% 100% 100%1140 EvereVAT BE 0875.092.626

WIN SA Rue Marie-Henriette 60 Belgium 100% 100% 100%5000 NamurVAT BE 0464.163.014

Belgacom Invest SARL Rue de Merl 74 Luxemburg 100% 100% 100%2146 Luxembourg

Extenseo SPRL Rue Louis Marcx 23 Belgium (3) - 100% 100%1160 BruxellesVAT BE 0464.699.779

Telindus Group NV Geldenaaksebaan 335 Belgium - 100% 100%3001 HeverleeVAT BE 0422.674.035

Telindus NV Geldenaaksebaan 335 Belgium (1) - 100% 100%3001 HeverleeVAT BE 0442.257.642

Telindus Sourcing SA Parc Scientifique - Bld Initialis 1 Belgium (1) - 100% 100%7000 MonsVAT BE 0457.839.802

Telindus BV Savannahweg 19 The Netherlands (1) - 100% 100%3542 AW Utrecht

Telindus International BV Savannahweg 19 The Netherlands (1) - 100% 100%3542 AW Utrecht

Telindus Networks SA Chemin des Primevères 45 Switzerland (1) - 100% 100%1701 Fribourg

Telindus SA Chemin des Primevères 45 Switzerland (1) - 100% 100%1701 Fribourg

Telindus SPA Via della Maglianella 65/D Italy (1) - 100% 100%00166 Roma

Telindus GMBH Hammerbrookstrasse 90 Germany (1) - 100% 100%20097 Hamburg

Netconcept GmbH Dieselstrasse 5 Germany (1) - 100% 100%61476 Kronberg

Telindus SA Plaza Ciudad de Viena 6 Spain (1) - 100% 100%28040 Madrid

Telindus SA Route d’Arlon 81– 83 Luxemburg (1) - 65% 65%8009 Strassen

Telectronics SA 2 Rue des Mines Luxemburg (1) - 65% 65%4244 Esch sur Alzette

Beim Weissenkreuz SA Route d’Arlon 81– 83 Luxemburg (1) - 65% 65%8009 Strassen

Telindus PSF SA 2 Rue des Mines Luxemburg (1) - 65% 65%4244 Esch sur Alzette

Telindus LTD Hatchwood Place - Farnham Road United Kingdom (1) - 100% 100%Odiham, Hants RG29 1AB

Telindus Surveillance Solutions Ltd Brookmount Court, Unit D - Kirkwood Road United Kingdom (1) - 100% 100%CB4 2QH Cambridge

Telindus France SA ZA de Courtaboeuf- 10, Avenue de Norvège France (1) - 100% 100%91962 Les Ulis

Groupe Telindus France SA ZA de Courtaboeuf- 10, Avenue de Norvège France (1) - 100% 100%91962 Les Ulis

Telindus Ltd (Thailand) Bond Street 473 - Muang Thong Thani 3 Thailand (1) - 100% 100%Pakkred, Nonthaburi 11120 Bangkok

Telindus Comunicacoes e Servicos SA Torre de Monsanto - Rua Alfonso Praça 30 Portugal (1) - 100% 100%1495-061 Algés

Telindus Ltd Three Exchange Square 9th floor China (1) - 100% 100%Central Hong Kong

Yunnan Telindus Technology Co Ltd Room C22-23 Innovation Park - Jinkai Road 3 China (1) - 100% 100%Kunming Nation-class Economic & Technological Development ZoneKunming, Yunnan

Group's participating interests

Mother company



Name Registered office Country ofincorporation 2005 2006 2007

Telindus Hungary Ltd Záhony U. 7 - Graphisoft Park Hungary (1) - 75% -1031 Budapest

Infrasystems Sverige AB Svetsarvägen 8 Sweden (2) - 100% -171 41 Solna

Telindus Sweden AB Svetsarvägen 8 Sweden (1) - 100% 100%171 41 Solna

Infrasystems Solutions Väst AB Ringögatan 12 Sweden (2) - 100% -417 07 Göteborg

ISit BV Gooimeer 14 The Netherlands (1) - - 100%1411 DE NAARDEN

ISit ICT Services BV Gooimeer 14 The Netherlands (1) - - 100%1411 DE NAARDEN

ISit Education & Support BV Gooimeer 14 The Netherlands (1) - - 100%1411 DE NAARDEN

ISit NV Culliganlaan 1B Belgium (1) - - 100%1831 DIEGEM

Euremis SA Chaussée de Nivelles 81 Belgium - 56% 78%1420 Braine-l'AlleudVAT BE 0477.133.397

Belgacom Development SA Rue de Merl 74 Luxemburg - 100% 100%2146 Luxembourg

Belgacom Opal SA Bld du Roi Albert II 27 Belgium 100% 100% 100%1030 BruxellesVAT BE 0861.583.672

(1) Subsidiaries of the Group Telindus(2) Merged into another subsidiary of the Group in 2007(3) Classified as held for sale in 2007


Note 6.2. Investments in joint ventures

The Group has a joint-venture interest in the following companies. Name Registered office Country of

incorporation 2005 2006 2007

Certipost SA Centre Monnaie Belgium 50% 50% 50%1000 BrusselVAT BE 0475.396.406

Certipost BV Siriusdreef 10 The Netherlands 50% 50% 50%2132 WT Hoofddorp

Allo Bottin SA 101/109, rue Jean-Jurès France 50% 50% 50%92300 Levalloi-Perret

Belgacom International Carrier Services SA Rue Lebeau 4 Belgium 72% 72% 72%1000 BrusselsVAT BE 0866.977.981

Belgacom International Carrier Services Deutschland GMBH Mendelssohnstrasse 87 Germany 72% 72% 72%60325 Frankfurt

Belgacom Deutschland G.m.b.H. Mendelssohnstrasse 87 Germany (4) 72% 72% -60325 Frankfurt

Belgacom International Carrier Services UK Ltd Great Bridgewaterstreet 70 United Kingdom 72% 72% 72%M15ES Manchester

Belgacom UK Ltd 1,City Square United Kingdom 72% 72% 72%Leeds - LS1 2 DP

Belgacom International Carrier Services Nederland BV Prinses Beatrixlaan, 21 The Netherlands 72% 72% 72%4001 AG TIEL

Belgacom International Carrier Services North America Inc Corporation trust center - 1209 Orange street United States 72% 72% 72%USA - 19801 Willington Delaware

Belgacom Incorporated Corporation trust center - 1209 Orange street United States (5) 72% 72% -USA - 19801 Willington Delaware

Belgacom International Carrier Services Asia Pte Ltd 8 Cross Street - # 11-00 PWC Building Singapore 72% 72% 72%Singapore 048624

Belgacom International Carrier Services (Portugal) SA Edificio Monumental Portugal 72% 72% 72%Avenida Praia da Vitoria n° 71 A - 11°P-1069-006 Lisboa

Belgacom International Carrier Services Italia Srl Via San Vito 7 Italy 72% 72% 72%20123 Milano

Belgacom International Carrier Services Spain SL Plaza Pablo Ruiz Picasso Spain 72% 72% 72%Torre Picasso s/n - Planta 4a28020 Madrid

Belgacom International Carrier Services Switzerland AG Papiermülhestrasse 69 Switzerland 72% 72% 72%3014 Bern

Belgacom International Carrier Services Austria GMBH Teinfaltstrasse, 4 Austria 72% 72% 72%1010 Wien

Belgacom International Carrier Services Sweden AB Drottninggaton 30 Sweden 72% 72% 72%41114 Goteborg

Belgacom International Carrier Services JAPAN KK 9th Floor, Prudential Tower Japan 72% 72% 72%13-10 Nagata-cho 2-chromeChiyoda-ku - Tokyo 100-0014

Belgacom International Carrier Services China Ltd Three Pacific Place - Level 28 China 72% 72% 72%1, Queen's road EastHong Kong

Belgacom International Carrier Services France SAS Rue du Colonel Moll 3 France 72% 72% 72%75017 Paris

E-Port Communications Systems SA Slijkensesteenweg 2 Belgium (3) - 50% 50%8400 OostendeVAT BE 0864.818.940

Beltey SA Bld du Roi Albert II 27 Belgium - - 50%1030 BruxellesVAT BE 0886.320.078

Belgacom Présence sas (1) 72% - -Belgacom International Carrier Services Italia Srl Italy (2) 72% - -(1) Merged in 2006 with Belgacom International Carrier Services France SAS(2) Merged in 2006 with Belgacom International Carrier Services Italia Srl(3) Joint ventures of the Group Telindus(4) Merged in 2007 with Belgacom International Carrier Services Deutschland GMBH(5) Merged in 2007 with Belgacom International Carrier Services North America Inc




The share of the assets, liabilities, income and expenses of the jointly controlled entities which are included in the consolidated financial statements, are detailed as follows:

(EUR million) 2005 2006 2007

Non-current assets 70 62 63Current assets 277 229 204Total assets 348 292 267

Non-current liabilities 4 4 5Current liabilities 278 272 242Total liabilities 282 276 248

As of 31 December

(EUR million) 2005 2006 2007

Total revenue 713 686 696

Total operating expenses before depreciation and amortization -686 -669 -657Depreciation and amortization -20 -20 -17Net finance revenue 1 0 0Income / (loss) before taxes 8 -3 22Tax expense -2 -3 -11Net income / (loss) 6 -6 10


Note 6.3. Acquisitions and disposal of subsidiaries and joint ventures

Joint-venture with Swisscom Fixnet AG in 2005 In the first half of 2005, Belgacom and Swisscom Fixnet AG (“Swisscom”) agreed to combine their respective international carrierbusinesses effective 1 July 2005 into Belgacom International Carrier Services (“BICS”) SA that would carry on the combined business.

To this purpose, Belgacom transferred on 1 January 2005 its international carrier branch of activity at historical book value to its 100% subsidiary BICS. Effective 1 July 2005, Swisscom contributed its international carrier assets to BICS in exchange for a 28%ownership in BICS and subsidiaries. These assets were contributed by Swisscom at fair value and comprised mainly non-current assets notably its international carrier customer base and indefeasible rights of use and technical network equipment in Switzerland and other countries. No cash was contributed and no goodwill was recognized as a result of this transaction. The dilution of the Group’s interest in BICS from 100% to 72% resulted in the disposal of net assets for an amount of EUR 18 millionand the recognition of a dilution gain of € 4 million (disclosed as other operating revenue).

Prior to 1 July 2005, BICS was a 100% subsidiary of Belgacom and hence fully consolidated. Effective 1 July 2005, BICS is proportionally consolidated because Belgacom and Swisscom established joint control.

In January 2005, the Group sold 100% of its shares of Belgacom Directory Services SA to Promedia Comm.V. which resulted in the recognition of a gain of EUR 238 million classified as non-recurring revenue in the income statement.

The disposal of net assets in respect of these transactions of the year 2005 amounted to approximately EUR 34 million summarised as follows:

(EUR million) Disposals of 2005

Non-current assets disposed of 38Current assets disposed of, excluding cash and cash equivalents 72Cash and cash equivalents disposed of 28Non-current liabilities disposed of -1Current liabilities disposed of -103Net assets disposed of 34

Consideration received 282

Gain on disposal (including non-recurring revenue) 249

The net cash inflow on disposal is as follows:

Cash received 264Cash and cash equivalents disposed of with the subsidiaries -28Net cash inflow 237



Acquisition of Telindus Group in 2006 In early January 2006, the Group acquired all outstanding shares and warrants of the Telindus Group, a leading provider of network-based ICT solutions and services, with its headquarters in Belgium and quoted on Euronext Brussels. On 14 March 2006, Belgacom asked the Brussels Euronext stock-market authority to delist the Telindus Group share.

The total acquisition costs amounted to EUR 605 million. No equity instruments were or can be issued as part of the cost. The net amount of cash paid for the acquisition is EUR 584 million (after the deduction of cash acquired).

The fair value of the identifiable assets and liabilities of the Telindus Group at the date of acquisition and the correspondingcarrying amounts immediately prior to the acquisition were :

(EUR million) Fair value recognised on

acquisition

Carrying value

Goodwill acquired (see note 3) 0 83Intangible assets with finite useful life (see note 4) 84 20Property, plant and equipment (see note 5) 89 85Other participating interests (see note 8) 196 196Deferred income tax assets (see note 9) 22 22Other non-current assets 1 1Inventories 35 35Trade receivables (see note 12) 236 236Current income tax assets 4 4Other current assets (see note 13) 22 22Investments and cash and cash equivalents (see note 14) 21 21

710 726

Minority interests (see note 16) -8 -6Non-current interest-bearing liabilities (see note 17) -29 -29Liability for pensions and termination benefits (see note 10) -5 -3Provisions and contingent liabilities -2 -2Deferred income tax liabilities (see note 9) -31 -2Current interest-bearing liabilities -26 -26Trade payables -118 -118Income tax payables -3 -3Other current payables (see note 20) -117 -115

-337 -302

Net assets acquired 373 424

Goodwill arising on acquisition (see note 3) 231

Consideration 605

The consideration is detailed as follows: (EUR million)

Cash paid to shareholders 601Costs associated with the acquisition 4Consideration 605

The cash outflow on acquisition is as follows: (EUR million)

Consideration paid 605Net cash acquired of the subisidary -21Net cash outflow 584

The goodwill mainly represents the future synergies with the Belgacom Group, the know-how of Telindus Group employees, and revenue protection.

The acquisition took place early in January 2006. Therefore, the revenue and expenses of the Telindus Group have been incorporated into the Belgacom Group financial statements from 1 January 2006.

Other acquisitions of 2006 On 5 July 2006, Telindus acquired InfraSystems Group, a network and systems specialist established in Sweden, enabling Telindusto gain unique skills in the unified communication sector and a geographical presence in this country.

On 29 September 2006, Belgacom Mobile acquired the control of Euremis SA, the leading Belgian provider of mobile sales force solutions to the mid-market segment. This acquisition enables Belgacom Mobile to answer to the evolution of its customers’ needsand expand its product offering towards end-to-end mobile solutions.

The fair value of the identifiable assets and liabilities of Infrasystems Group and Euremis at the date of acquisition and the corresponding carrying amounts immediately prior to the acquisition were:




acquisition

Carrying value

Total assets 7 4Total minority interests and liabilities -6 -4



Consideration 11

The consideration is detailed as follows:

Cash paid to shareholders 7Cash to be paid to shareholders 4Costs associated with the acquisition 0Consideration 11

The cash outflow on acquisition is as follows:

Consideration paid 11Net cash acquired of the subisidary 0Net cash outflow 11

Acquisition of ISIT Group in 2007 In April 2007, Telindus acquired all shares of the ISIT Group (established in the Netherlands). ISIT is specialized in network related storage solutions, storage area networks, centralized back up/restore solutions and archiving. ISIT Group is consolidated starting 1 April 2007, contributing EUR 26 million to total revenue and EUR 4 million to EBITDA.

The fair value of the identifiable assets and liabilities of ISIT at the date of acquisition and the corresponding carrying amounts immediately prior to the acquisition were:


acquisition

Carrying value

Total assets 18 13Total minority interests and liabilities -14 -13



Consideration 23

The consideration is detailed as follows:

Cash paid to shareholders 18Cash to be paid to shareholders 5Consideration 23

The cash outflow on acquisition is as follows:

Consideration paid 18Net cash acquired of the subisidary -5Net cash outflow 13

The purchase accounting of ISIT is final at balance sheet date.

No other significant acquisitions, disposals or changes in participating interests of subsidiaries or joint ventures occurred in each of the three years presented.



Note 7. Other participating interests

Other participating interests only include participating interests for which the Group does not exercise control, joint control or significant influence. Other participating interests comprise the following interests:

(EUR million) 2005 2006 2007

Neuf Cégétel 138 - -Other unlisted shares 1 1 1

Unlisted shares 138 1 1

Eutelsat Communication SA 57 68 -Mobistar SA - 165 -Other listed shares 2 - -

Listed shares 59 233 -

Total 198 234 1

As of 31 December

The net carrying amount of other participating interests evolved on the following way:


Net carrying amount as of 1 January 211 198 234

Additions 11 0 0Acquisition of subsidiary 0 196 0Dividends deducted from cost 0 -7 0Disposals -35 -152 -168

To equity 66 18 0Transfer to profit or loss on sale 37 -55 -19 -65

Net carrying amount as of 31 December 198 234 1

As of 31 December

(EUR million) 2005 2006 2007

Cost 223 178 10Accumulated re-measurements to fair value 66 65 0Accumulated impairment losses -92 -9 -9Net carrying amount 198 234 1

As of 31 December

In 2005, the Group divested several participating interests, primarily participating interests in satellite business, in exchange of EUR 87 million cash consideration resulting in a gain of EUR 52 million in finance revenue (see note 30) including the transfer to profit and loss of the cumulative positive re-measurements to fair value of EUR 55 million (see note 37).

Following the merger of Neuf telecom SA and Cégétel SA into Neuf Cégétel SA in May 2005, the fair value of this participating interest was determined to be in the range between EUR 130 million and EUR 165 million at 31 December 2005 (taking into account “EBITDA” and sales multiples, business metrics including cash flow valuation using a 10.5% discount rate and publicly available information of the combined entity) compared to EUR 120 million carrying amount net of cumulative impairment losses at 31 December 2004. As a result, impairment losses for EUR 18 million have been reversed directly through equity in 2005, as positive re-measurement to fair value.

In 2006, the Group divested several participating interests, primarily the Group’s interest in Neuf Cegetel and part of the Mobistar shares acquired with the acquisition of Telindus Group (see note 6.3), in exchange of an aggregate amount of EUR 272 million cash resulting in a gain of EUR 122 million in finance revenue (see note 30) including the transfer to profit and loss of the cumulative positive re-measurements to fair value of EUR 19 million (see note 37).

In 2007, the Group divested its remaining interest in Eutelsat Communications and in Mobistar for an aggregate amount of EUR 240 million resulting in a gain of EUR 74 million in finance revenue (see note 30) including the transfer to profit and loss of the cumulative positive re-measurements to fair value of EUR 65 million (see note 37).



Note 8. Income taxes

Gross deferred income tax assets / (liabilities) relate to the following:

(EUR million) 2005 2006 2007

Deferred income tax liabilitiesAccelerated depreciation for tax purposes -25 -30 -6Remeasurement of financial instruments to fair value -1 -1 -1Deferred taxation on sales of property, plant and equipment -6 -6 -6Other -30 -20 -22Gross deferred income tax liabilities -62 -57 -35

Deferred income tax assetsAccelerated depreciation for tax purposes 0 4 4Remeasurement of financial instruments to fair value 10 5 3Post-employment and termination benefits 28 22 33Tax losses carried forward 404 315 251Capital losses on investments in subsidiaries 2 2 1Other 16 21 22Gross deferred income tax assets 460 370 314

Net deferred income tax assets / (liabilities), when grouped per taxable entity, are as follows :

Net deferred income tax liability -42 -38 -32Net deferred income tax asset 440 351 311

As of 31 December

The Group has tax losses carried forward arising in Belgium that are available indefinitely to offset future taxable profits of the companies in which these losses arose.

Belgacom SA has accumulated tax losses amongst others as a result of the non-recurring expenses related to employee restructuring programs and the non-recurring expenses related to the transfer of the pension obligations for statutory employeesin 2003. Based on the current business plan of Belgacom SA, future taxable profit will be available against which the tax lossescan be further utilized.

Deferred tax assets have not been recognized in respect of the losses of subsidiaries that have been loss-making for several years. Cumulative tax losses carried forward and tax credits available for such companies amounted to EUR 43 million at 31 December 2005, EUR 160 million at 31 December 2006 and EUR 175 million at 31 December 2007.

Belgacom’s share in the undistributed retained profit of subsidiaries amounts to EUR 3,740 million at 31 December 2007 and is taxable at an effective tax rate of 1.7% upon remittance to the parent company. No deferred tax liability is recorded for suchundistributed earnings since they are not intended to be distributed to the parent company in the foreseeable future.

In the income statement, deferred tax income/ (expense) relate to the following:

(EUR million) 2005 2006 2007

Relating to deferred income tax liabilitiesAccelerated depreciation for tax purposes 6 27 26Other -4 12 -2

Relating to deferred income tax assetsAccelerated depreciation for tax purposes 0 -1 0Remeasurement of financial instruments to fair value 1 -5 -2Post-employment and termination benefits 5 -6 10Tax losses carried forward 24 -107 -64Capital losses on investments in subsidiaries -67 0 -1Other -4 5 1

Deferred tax expense of the year -39 -75 -31


The consolidated income statement includes the following tax expense:

(EUR million) 2005 2006 2007

Current income taxCurrent income tax expense -301 -284 -268Adjustments in respect of current income tax of previous periods 2 2 -1

Deferred income taxExpense resulting from changes in temporary differences -39 -76 -31Income resulting from a reduction in income tax rates - 1 0Income tax expense reported in consolidated income statement -339 -358 -300




The reconciliation of income tax expense applicable to income before taxes at the statutory income tax rate to income tax expense at the group's effective income tax rate for each of the three years ended is as follows:

(EUR million) 2005 2006 2007

Income before taxes 1,436 1,451 1,258

At Belgian statutory income tax rate of 33.99% 488 493 427Lower income tax rates of other countries 0 0 -3Effect of reduction in income tax rates on closing balance of deferred income tax 0 -1 0Income tax consequences of disposal of subsidiaries and other participating interests -105 -42 -25Income tax consequences of capital losses on investments in subsidiaries 0 0 -1Non-taxable income from subsidiaries -58 -95 -119Non-deductible expenditures for income tax purposes 17 18 21Other -3 -16 -1Income tax expense 339 358 300

Effective income tax rate 23.57% 24.65% 23.84%


In 2005, the income tax consequences of the disposal of subsidiaries and other participating interests mainly relate to the gain on the sale of Belgacom Directory Services’ shares and of the Group’s interests in satellite companies. In 2006, the income tax consequences of the disposal of other participating interests mainly relate to the gain on the sale of Neuf Cégétel and Mobistarshares. In 2007, the income tax consequences of the disposal of other participating interests mainly relate to the gain on the sale of shares in Mobistar and Eutelsat Communications SA.

The non-taxable income from subsidiaries primarily relates to the income of Belgacom Group International Services, which is subject to a tax regime that is not based on taxable income, and to the notional interest deduction applicable in Belgium as from2006.

Non-deductible expenditures for income tax purposes primarily relate to various expenses that are disallowed for tax purposes and unrecognized tax losses carried forward.

Note 9. Assets and liabilities for pensions, other post-employment benefits and termination benefits

The Group has several plans that are summarized below:

(EUR million)

Termination benefits and additional compensations in respect of restructuring programs 810 687 627Defined benefit plans for complementary pension plans (net liability) 13 5 5Post-employment benefits other than pensions 165 172 179Other liabilities 21 22 20Net liability recognized in the balance sheet 1,010 886 831Defined benefit plans for complementary pension plans (net asset) -5 -5 -5

Net asset recognized in the balance sheet -5 -5 -5

2005 2006 2007As of 31 December

The calculation of the net liability is based on the assumptions established at the balance sheet date. The assumptions for thevarious plans have been determined based on both macro-economic factors and the specific terms of each plan relating to the duration and the beneficiary population, in order to apply the most relevant measure of estimated outflow of resources.

Note 9.1. Termination benefits and additional compensations in respect of restructuring programs Termination benefits and additional compensations included in this chapter relate to employee restructuring programs. No plan assets are accumulated for these benefits.

In 2002, Belgacom SA implemented the Belgacom E-Strategic Transformation (“BeST”) employee restructuring program. Under the terms of the plan, the Group will pay guaranteed salary allowances until the year 2012.

In 2004, the Group implemented an external mobility offer whereby statutory employees could voluntarily apply for permanent or temporary outplacement to the e-ID cards and emergency call centre projects of the Ministry of Internal Affairs. Under the termsof the offer, the Group will pay benefits until the year 2008.

In 2005, the Group approved a collective agreement for Belgacom SA.

Through this agreement, 362 employees who could not be redeployed left the company in accordance with agreed upon provisions as of 31 December 2005. Under the terms of this agreement, statutory employees became immediately inactive, until they officially retire (at 60 years), in return for a guaranteed minimum monthly payment and continued entitlement on all post-employment benefits. Contractual employees were dismissed prior to 31 December 2005 in return for a leave package.

The agreement also included an innovative career out-phasing program (tutorship), allowing the oldest and most experienced employees to gradually build of their career, whilst transferring their experience and knowledge to the younger employees. 2,792employees, or 84% of the target population, signed up irrevocably for the program prior to 31 December 2005. Statutory employees gradually reduce their work time to zero from the age of 55 until 58 and stop working at the age of 58 until they officially retire at 60 years.



To cover the financial obligations of the Group under the terms of this collective agreement, the Group recognised in 2005 a liability for termination benefits, additional compensation and other post-employment benefits for an amount of EUR 350 million.This amount, together with the related impacts on other employee benefit accruals (EUR 5 million) is disclosed as non-recurringexpenses in the income statement (see note 28). Under the terms of the plan, the Group will pay benefits until the year 2015.

In 2007, the Group increased its liability for restructuring programs by an amount of EUR 46 million, disclosed as non-recurringexpenses (see note 28), to cover the Group’s obligation related to a new voluntary external mobility program to the Belgian State. Under the terms of this plan, statutory employees can, since 1 September 2007, volunteer for a definitive transfer to Belgian State services after participation in a selection process and a trial period. The Group guarantees salary compensation during thetrial period, a leave premium and continued entitlement to all post-employment benefits. At 31 December 2007, 887 employees had volunteered to start the selection process. Based on experience data of the selection process since 1 September 2007, the Group determined the liability at 31 December 2007 on the basis that 200 employees will be hired by the Belgian State. The actual number of hires will depend on the outcome of the ongoing selection process and trial periods.

Any subsequent re-measurement of the liability for termination benefits and additional compensations is recognized immediately in the income statement.

(EUR million)

Defined Benefit Obligation 810 687 627Plan assets at fair value 0 0 0Benefit obligation in excess of plan assets 810 687 627

2005 2006

The funded status of the plans for termination benefits and additional compensations is as follows :As of 31 December

2007

(EUR million)

Interest cost 18 28 25Actuarial loss recognized 8 -2 -4

Expense recognized in the income statement, before curtailment, settlement and special termination benefits 25 26 22Special termination benefits 346 0 46Expense recognized in the income statement 372 26 67

The components of the expense recognized in the income statement are as follows :Year ended 31 December

200720062005

(EUR million)

At the beginning of the year 580 810 687Expense for the period 372 26 67Actual employer contribution -141 -149 -127At the end of the year 810 687 627

As of 31 DecemberThe movement in the net liability recognized in the balance sheet is as follows :

20072005 2006

(EUR million)

At the beginning of the year 0 0 0Actual employer contribution 141 149 127Distributions to beneficiaries -141 -149 -127At the end of the year 0 0 0

2007As of 31 December

Change in plan assets :

2005 2006

(EUR million)

At the beginning of the year 580 810 687Interest cost 18 28 25Actuarial (gain) / loss recognized 8 -2 -4Special termination benefits 346 0 46Distributions to beneficiaries -141 -149 -127At the end of the year 810 687 627

Change in the defined benefit obligation :As of 31 December

2005 2006 2007

Discount rate 3.8% - 4.50% 3.8% - 4.50% 4.50%Future price inflation 1.8% - 2.00% 1.8% - 2.00% 1.84% - 2.00%

20072005 2006As of 31 December

The liability for termination benefits and additional compensations was determined using the following assumptions:



Sensitivity analysis An increase or decrease of 0.5% in the effective discount rate involves a fluctuation of the liability by approximately EUR 8 million.

The Group expects to pay an amount of EUR 134 million for termination benefits and additional compensations in 2008.

Note 9.2. Defined benefit plans for complementary pensions Belgacom SA and some subsidiaries have a joint complementary defined benefit pension plan for their employees. This plan provides pension benefits for services as of 1 January 1997. The related separately administrated pension fund was created in 1998.

Belgacom Mobile, a subsidiary of Belgacom, has a complementary defined benefit pension plan for its employees. The related separately administered fund was created in 2001.

Telindus BV, a subsidiary of Telindus Group established in the Netherlands, has a complementary defined benefit pension plan forits employees financed through an insurance company.

(EUR million)

Defined Benefit Obligation 101 128 149Plan assets at fair value -92 -132 -147Deficit / (surplus) 9 -4 3Unrecognized actuarial gain / (loss) -2 4 -3Deficit / (surplus) after unrecognized actuarial gain / (loss) composed of : 7 0 0Net liability recognized in the balance sheet 13 5 5Net assets recognized in the balance sheet -5 -5 -5

As of 31 DecemberThe funded status of the pension plans is as follows :

2005 2006 2007

(EUR million)

Defined Benefit Obligation 101 128 149Plan assets at fair value -92 -132 -147Deficit / (surplus) 9 -4 3

Experience adjustment on plan liabilities : gain / (loss) 2 5 8

Experience adjustments on plan assets : gain / (loss) 7 1 -14


2006

The history of the experience adjustments is as follows :

2005

(EUR million)

Current service cost - employer 17 22 23Interest cost 5 6 7Expected return on plan assets -6 -8 -11Expense recognized in the income statement 16 19 20

2006 20072005Year ended 31 December

The components of the expense recognized in the income statement are as follows :

(EUR million)

At the beginning of the year 3 7 0Expense for the period 16 19 20Acquisition of subsidiary 0 2 0Actual employer contribution -12 -29 -20

Deficit / (surplus) after unrecognized actuarial gain / (loss) composed of : 7 0 0Net liability at the end of the year 13 5 5Net assets at the end of the year -5 -5 -5

2006

The movement in the net liability/(assets) recognized in the balance sheet is as follows :


(EUR million)

At the beginning of the year 67 92 132Expected return on plan assets 6 8 11Actuarial gains / (losses) on plan assets 7 1 -14Actual employer contribution 12 29 20Acquisition of subsidiary 0 4 0Benefits payments and expenses -1 -2 -2At the end of the year 92 132 147



2005 2006



(EUR million)

At the beginning of the year 82 101 128Service cost 17 22 23Interest cost 5 6 7Acquisition of subsidiary 0 6 0Benefits payments and expenses -1 -2 -2Actuarial loss / (gain) -2 -5 -8At the end of the year 101 128 149


20062005

Change in the defined benefit obligation :

Discount rate 5.50% 4.25% - 5.50% 5.50%Expected rate of return on plan assets 7.70% 4.25% - 7.70% 4.25% - 7.70%Future price inflation 2.00% 2.00% 2.00%Nominal future salary increase 4.50% - 4.75% 4.00% - 4.75% 4.00% - 4.75%Nominal future baremic salary increase 3.95% 3.95% 3.95%

As of 31 December2005

The pension liability was determined using the following assumptions :

2006 2007

The expected return on plan assets is an assumption based on market data, historical returns of other Belgian pension plans andfuture long term expectations. It takes into account the asset allocation of the respective pension plans that may evolve overtime depending on achieved and future expected returns.

The assets of the pension plans are detailed as follows:

Equities 60% 55% 56%Bonds 40% 43% 41%Insurance deposits (for the plan of Telindus BV) - 3% 3%


2007

The actual return on plan assets is as follows:

(EUR million)

Actual return on plan assets 13 9 -3

2005 2006 2007As of 31 December

The Group expects to contribute an amount of EUR 20 million to these pension plans in 2008.

Note 9.3. Post-employment benefits other than pensions Historically, the Group grants to its retirees post-employment benefits other than pensions in the form of train ticket discounts, hospitalization insurance, reimbursement of medical expenses and a socio-cultural aid premium. All post-employment benefits other than pensions are directly paid by the Group to the retirees and therefore no plan assets are accumulated for such benefits. In 2005, the employer cost assumptions in respect of hospitalization insurance premiums have significantly increased, which resulted in additional unrecognized actuarial losses for an amount of EUR 45 million.

(EUR million)

Defined Benefit Obligation 222 226 233Plan assets at fair value 0 0 0Benefit obligation in excess of plan assets 222 226 233Unrecognized actuarial loss -54 -52 -51Unrecognized past service cost -3 -3 -3Net liability recognized in the balance sheet 165 172 179


The funded status of the plans is as follows :

20062005

(EUR million)

Defined Benefit Obligation 222 226 233Plan assets at fair value 0 0 0Benefit obligation in excess of plan assets 222 226 233

Experience adjustment on plan liabilities : gain / (loss) -50 -1 -2

The history of the experience adjustments is as follows :As of 31 December

20072005 2006

(EUR million)

Current service cost - employer 2 2 2Interest cost 10 12 12Actuarial loss recognized 0 2 2Expense recognized in the income statement, before curtailment, settlement and special termination benefits 11 17 17Special termination benefits 7 0 0Expense recognized in the income statement 19 17 17

2007

The components of the expense recognized in the income statement are as follows :

2005 2006Year ended 31 December



(EUR million)

At the beginning of the year 155 165 172Expense for the period 19 17 17Actual employer contribution -8 -10 -10At the end of the year 165 172 179

As of 31 December2006 20072005

The movement in the net liability recognized in the balance sheet is as follows :

(EUR million)

At the beginning of the year 0 0 0Actual employer contribution -8 -10 -10Distributions to beneficiaries 8 10 10At the end of the year 0 0 0



(EUR million)

At the beginning of the year 161 222 226Service cost 2 2 2Interest cost 10 12 12Special termination benefits 7 0 0Distributions to beneficiaries -8 -10 -10Actuarial (gain)/loss 50 1 2At the end of the year 222 226 233

As of 31 December2005 2006

Change in the defined benefit obligation :

2007

Discount rate 5.50% 5.50% 5.50%Future cost trend 3.04% 3.04% 2.00% - 4.00%Future price inflation 2.00% 2.00% 2.00%

As of 31 December2005 2006 2007

The liability for post-employment benefits other than pensions was determined using the following assumptions :

The liability for post-employment benefits other than pensions is determined using the Belgian official mortality tables, adjustedfor mortality experience of the statutory retirees.

Sensitivity analysis An increase or decrease of 1% in the medical cost trend would result in an increase of EUR 18 million respectively a decrease ofEUR 15 million of the defined benefit obligation, and in an increase or decrease of the expense (service and interest cost) of the year of EUR 1 million.

The Group expects to contribute an amount of EUR 12 million to these plans in 2008.

Note 9.4. Other liabilities The Group has a legal obligation to pay child allowance benefits to a limited number of statutory retirees and to the beneficiaries of the employee restructuring programs.

Telindus Group has a legal obligation to pay a one-time post-employment benefit in accordance with local law in France and in Italy.

Those amounts are directly paid by the Group and therefore no plan assets are accumulated for such benefits. Any subsequent re-measurement of the liability is recognized immediately in the income statement.

(EUR million)

Defined Benefit Obligation 21 22 20Plan assets at fair value 0 0 0Net liability recognized in the balance sheet 21 22 20

Discount rate 5.00% 4.00% - 5.00% 4.00% - 5.00%Future price inflation 1.80% 1.80% - 2.00% 1.84% - 2.00%


2007

2005 2006The liability was determined using the following assumptions :

2007

The funded status is as follows :

2005



Note 10. Other non-current assets


Derivatives held-for-hedging 20 49 16 3Other derivatives 20 1 1 1Non-current investments 7 7 7Other financial assets 8 12 14Total 65 36 25

As of 31 December

Note 11. Trade receivables

(EUR million) 2005 2006 2007

Gross receivables 1,066 1,340 1,295Allowance for doubtful debtors -119 -133 -138

Total 947 1,207 1,158

As of 31 December

Most of trade receivables are non-interest bearing and are usually on 30-90 days terms. Terms are somehow longer for the receivables of the International Carrier Services segment, since major part of its trade receivables on other Telco operators arepaid via netting agreements and compensation Chambers.

The analysis of trade receivables that were past due but not impaired is as follows:

As of 31 December Net carrying

amount

Neither past due nor impaired

(EUR million) < 30 days 30-60 days 60-90 days 90-180 days 180-360 days > 360 days

2005 947 726 91 24 16 27 15 462006 1,207 959 112 41 18 21 19 372007 1,158 883 165 29 15 19 19 30

Past due but not impaired

As of 31 December 2005, 2006 and 2007, 77%, 79% and 76 % respectively of the total of trade receivables were neither past due nor impaired.

On the three years presented, no trade receivables were pledged as collaterals. In 2007, Belgacom Group received collaterals ofEUR 23 million (in 2006 EUR 14 million; in 2005 EUR 12 million) as securities for the payment of outstanding invoices. Collateralsare either cash collaterals such as bank guarantees or financial instruments readily convertible into cash such as parent guarantees, as soon as the payment of receivables is past due. At balance sheet date, these cash collaterals have neither been sold nor transferred as collaterals.

The evolution of the allowance for doubtful debtors is as follows:


As of 1 January -140 -119 -133

(Increase) / decrease posted in operating expenses 27 8 10 -4Acquisition of subsidiary 0 -7 0Disposal of subsidiary 13 0 0Other movements 0 -18 0

As of 31 December -119 -133 -138

In 2006, allowances for doubtful debtors directly offset net revenues for EUR 18 million, as the conditions set up by IAS 18 forrevenue recognition were not met.



Note 12. Other current assets

(EUR million) 2005 2006 2007

VAT receivables 14 15 14Prepaid expenses 22 42 59Accrued income 10 11 14Other receivables 17 13 6Total 64 81 92

As of 31 December

Note 13. Investments

(EUR million) 2005 2006 2007

Shares 86 91 59Total 86 91 59

As of 31 December

Shares include sicavs and funds invested mainly in money markets instruments, euro-bonds and equity instruments. On the three years presented, the net carrying amount of investments evolved on the following way:


Net carrying amount as of 1 January 81 86 91

Additions 53 19 18Disposals -44 -16 -52Re-measurements to fair value

To equity 1 2 1Transfer to profit or loss on sale 37 -5 -1 0

Net carrying amount as of 31 December 86 91 59

As of 31 December

(EUR million) 2005 2006 2007

Cost 83 87 54Accumulated re-measurements to fair value 2 4 5Accumulated impairment losses 0 0 0Net carrying amount 86 91 59

As of 31 December

Note 14. Cash and cash equivalents

(EUR million) 2005 2006 2007

Fixed income securities 137 154 498Short-term deposits 18 26 161Cash at bank and in hand 643 56 67Total 798 236 726

As of 31 December

The Group invests part of its liquidities in treasury certificates held-to-maturity. Short-term deposits are made for periods varying between one month and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Cash at bank earns interest at floating rates based on daily bank deposit rates.



Note 15. Equity

Note 15.1. Shareholders’ equity At 31 December 2007, the share capital of Belgacom SA amounted to EUR 1 billion (fully paid up), represented by 338,025,135 shares, with no par value and all having the same rights, provided such rights are not suspended or cancelled in the case of treasury shares. The Board of Directors of Belgacom SA is entitled to increase the capital for a maximum amount of EUR 200 million.

Distribution of retained earnings of Belgacom SA, the parent company, is limited by a restricted reserve built up in prior years in accordance with Belgian Company Law up to 10% of Belgacom’s issued capital.

Belgacom SA has a statutory obligation to distribute 5% of the parent company income before taxes to its employees. In the accompanying consolidated financial statements, this profit distribution is accounted for as personnel expenses.

On 24 February 2005, the Board of Directors decided to conduct a share buy-back for a maximum amount of EUR 300 million and for a share purchase price that must not be more than 5% above the highest and 10% below the lowest closing price in the thirty-day trading period preceding the transaction. The program was launched in May 2005 and completed on 17 August 2005. In total Belgacom bought 10,613,234 shares on the stock exchange at an average price per share of EUR 28.27. On 25 August 2006, the Board of Directors decided to conduct a share buy-back for a maximum amount of EUR 200 million that started on 28 August 2006 and was completed on 11 October 2006. In total 6,782,656 shares were bought back for a total amount of EUR 200 million at an average price per share of EUR 29.49. On 11 April 2007, the Extraordinary General Meeting of shareholders approved the cancellation of 23,750,000 treasury shares, of which 7,450,000 with dividend rights and 16,300,000 without dividend rights. On 18 October 2007, the Board of Directors decided to conduct a share buy-back for a maximum amount of EUR 230 million that started in November 2007. On 31 December 2007, 2,275,112 shares were bought back for a total amount of EUR 78 million at an average price per share of EUR 34.23. On 31 December 2007, the number of treasury shares amounts to 5,953,359, of which 3,192,035 with suspended dividend rights and 2,761,324 without dividend rights. Dividends allocated to treasury shares for which the dividend rights are suspended are accounted for under the caption “Reserves not available for distribution” in the statutory financial statements of Belgacom SA.

In 2005, 2006 and 2007, Belgacom sold respectively 139,198, 138,549 and 134,649 treasury shares to its senior management for EUR 3 million, EUR 4 million, respectively EUR 4 million under discounted share purchase plans at a discount of 16.67% (see note38).

During the years 2005, 2006 and 2007, Belgacom employees exercised respectively 169,435, 211,015 and 250,761 share options. In order to honour its obligation in respect of these exercises, Belgacom used treasury shares (see note 38).

In 2005, Belgacom granted 538,541 share options to its key management and senior management with an exercise price of EUR 29.92. In 2006, Belgacom granted 608,928 share options to its key management and senior management with an exercise price of EUR 25.94. In 2007, Belgacom granted 475,516 share options to its key management and senior management with an exercise price of EUR 32.71 (see note 38).

Number of shares (including treasury shares): 2005 2006 2007

As of 1 January 361,775,135 361,775,135 361,775,135

Cancellation 0 0 -23,750,000

As of 31 December 361,775,135 361,775,135 338,025,135

Number of treasury shares: 2005 2006 2007

As of 1 January 11,075,964 21,380,565 27,813,657Acquisition 10,613,234 6,782,656 2,275,112

Sale under a discounted share purchase plan -139,198 -138,549 -134,649

Exercice of stock option -169,435 -211,015 -250,761

Cancellation 0 0 -23,750,000

As of 31 December 21,380,565 27,813,657 5,953,359

Note 15.2. Minority interests Until October 2006, minority interests included primarily the 25% stake of the minority shareholder Vodafone BV in the equity, net income and dividend payments of Belgacom Mobile SA. As agreed on 24 August 2006 between Belgacom and Vodafone, Belgacom acquired the remaining 25% shares of Belgacom Mobile in early November 2006 following the approval by the Belgian competition authorities end October 2006 (see note 3).



Note 16. Interest-bearing liabilities

Note 16.1. Non-current interest-bearing liabilities


Unsubordinated debentures 263 1,871 1,858Leasing and similar obligations 0 0 2Credit institutions 0 24 20Derivatives held-for-hedging 20 0 0 1Other derivatives 20 33 21 14Total 296 1,917 1,895

As of 31 December

In November 2006, the Group issued three non-current unsubordinated debentures for a total nominal amount of EUR 1,650 million, to finance the acquisition of Vodafone’s minority stake in Belgacom Mobile SA. These debentures are measured at amortized costs and have a carrying amount of EUR 1,639 million at 31 December 2006 and EUR 1,641 million at 31 December 2007.

Non-current interest-bearing liabilities are detailed as follows:

(EUR million) 2005 2006 2007

Nominal amountUnsubordinated debentures Floating rate borrowings EUR 0 300 300 Fixed rate borrowings JPY 217 217 217 EUR 0 1,350 1,350

Credit institutions Fixed rate borrowings EUR 0 24 20

Leasing and similar obligations 0 0 2

Total 217 1,892 1,889

Adjustments to nominal amountFair value remeasurement - loans hedged 46 14 0Unsubordinated debentures - measurement at amortized cost 0 -10 -9

Net carrying amount 263 1,895 1,880

Derivatives held-for-hedging - interest-bearing liabilities 0 0 1Other derivatives 33 21 14

Total 296 1,917 1,895

As of 31 December

All long term debt is unsecured.

Unsubordinated debentures in EUR and in JPY are issued by Belgacom SA. The capital is repayable in full on the maturity date. The foreign currency exposure on liabilities in JPY is fully hedged by interest rate and currency swaps converting these liabilities in JPY into liabilities in EUR (see note 21).

The credit institution in EUR is a loan granted to Telindus NV by a bank for which interests are payable semi-annually and the capital is amortized semi-annually. An amount of EUR 4 million of the total nominal amount is reimbursed annually.

Over the three years presented, interest rate swaps (IRS) and interest rate and currency swaps (IRCS) were used to manage the currency and interest rate exposure on the JPY unsubordinated debentures. The swaps enabled the Group to transform the interest rate on these debentures from a fixed interest rate to a floating interest rate or vice versa.



Taking into account the impact of these IRS and IRCS, non-current interest-bearing liabilities as of 31 December 2007 are summarised as follows:

Carrying amount

Nominal amount

Measurement underIAS 39

Maturity date Interest payment / repriceable

Interest ratepayable

Effective interest rate

(EUR million) (EUR million) (b) (c)

Non-current interest-bearing liabilities

Unsubordinated debentures Floating rate borrowings

EUR 300 300 Amortized cost Nov-09 Quarterly 4.78% 4.81%JPY (a) 73 73 Fair value Dec-26 Semi-annually 4.79% 4.79%

Fixed rate borrowingsEUR 597 600 Amortized cost Nov-11 Annually 4.13% 4.24%EUR 743 750 Amortized cost Nov-16 Annually 4.38% 4.50%JPY (a) 72 73 Fair value Nov-15 Annually 6.18% 6.18%JPY (a) 73 72 Fair value Dec-15 Annually 6.21% 6.21%

Credit institutions Fixed rate borrowings

EUR 20 20 Amortized cost Nov-13 Semi-annually 3.78% 3.78%

Leasing and similar obligations 2 2 Amortized cost 2011 Quarterly 5.57% 5.57%

Total 1,880 1,889(a) converted into a loan in EUR via currency interest rate swap(b) for floating rate borrowings, interest rate is the one prevailing at the last repricing date before 31 December 2007(c) for borrowings at amortized costs, the impact of amortization of transaction costs is included

Note 16.2. Current interest-bearing liabilities

(EUR million) 2005 2006 2007

Credit institutions - current portion 0 5 4Credit institutions 82 45 34Other loans 29 21 31Total 111 71 69

As of 31 December

Current interest-bearing liabilities mainly consist of current account balances with banks and other third parties. These liabilities are issued in EUR and have an average remaining maturity of respectively less than 1 month as of 31 December 2005, less than 2 months as of 31 December 2006 and less than 1 month as of 31 December 2007.

Note 17. Provisions

(EUR million) Worker's accidents

Litigation Illness days Other risks Total

As of 1 January 2005 49 59 39 43 191

Additions 2 16 11 12 42Utilisations -3 -4 -11 -5 -23Withdrawals 0 -3 -6 -6 -16As of 31 December 2005 48 68 32 45 193

Additions 2 27 11 9 49Utilisations -3 -5 -10 -5 -24Withdrawals 0 -8 0 -2 -11As of 31 December 2006 47 82 32 46 208

Additions 2 19 12 11 44Utilisations -2 -1 -10 -3 -16Withdrawals -1 -2 0 -3 -6As of 31 December 2007 45 98 34 52 229

The provision for workers’ accidents relates to compensation that Belgacom SA could pay to members of personnel injured (including professional illness) when performing their job and on their way to work. Until 31 December 2002, according to the law of 1967 (public sector) on labor accidents, compensation was funded and paid directly by Belgacom. This provision (annuities part) is based on actuarial data including mortality tables, compensation ratios, interest rates and other factors defined by the law of 1967 and calculated with the support of a professional insurer. Taking into account the mortality table, it is expected that most of these costs will be paid out until 31 December 2053.

As from 1 January 2003, contractual employees are subject to the law of 1971 (private sector) and statutory employees remain subject to the law of 1967 (public sector). For both the contractual and statutory employees, Belgacom is covered as from 1 January 2003 by insurance policies for workers’ accidents and therefore will not pay directly members of personnel.

The provision for litigation represents management’s best estimate for probable losses due to pending litigation where the Grouphas been sued by a third party or is subject to a judicial or tax dispute. The expected timing of the related cash outflows dependson the progress and duration of the underlying judicial procedures.



The provision for illness days represents management’s best estimate of probable charges related to the granting by Belgacom ofaccumulating non-vesting illness days to its statutory employees. The provision has been determined based on statistical data.

The provision for other risks primarily includes the provision for the incurred risks from the re-insurance company, the expected costs for dismantling and restoration of mobile antenna sites and buildings, environmental risks and sundry risks. It is expectedthat most of these costs will be paid during the period 2008-2024. The provision for restoration costs is estimated at currentprices and discounted using a discount rate that varies between 4.20% and 5.64%, depending when the expenditures are expected to be required to settle the obligation.

Note 18. Other non-current payables

(EUR million) 2005 2006 2007

Other amounts payable 1 4 2Total 1 4 2

As of 31 December

Note 19. Other current payables

(EUR million) 2005 2006 2007

VAT payables 8 40 23Payables to employees 77 93 84Accrual for holiday pay 63 78 75Accrual for social security contributions 35 48 46Taxes withheld on remunerations 19 18 17Deferred income 128 169 174Accrued expenses 11 22 23Other amounts payable 5 34 53Total 347 502 495

As of 31 December

Note 20. Derivatives


Non-current assetsDerivatives held-for-hedging 10 49 16 3Other derivatives 10 1 1 1

Total assets 50 17 4

Non-current liabilitiesDerivatives held-for-hedging - interest-bearing liabilities 16 0 0 1Other derivatives - interest-bearing liabilities 16 33 21 14

Total liabilities 33 21 15

As of 31 December

The Group makes use of derivatives such as interest rate swaps (IRS), interest rate and currency swaps (IRCS), forward foreign exchange contracts and currency options.

The tables below show the positive and negative fair value of derivatives, included in the balance sheet respectively as current/non-current assets or liabilities, together with the notional amounts presented by the term of maturity.

As of 31 December 2005Within 3 - 12 1 - 5 over 5 Total

Positive Negative 2 months months years years

Interest rate and currency swaps 49 217 217Derivatives held as fair value hedges 49 0 0 0 0 217 217

Interest rate swaps -33 144 144Forward foreign exchange contracts 0 12 12Equity options 1 1 1Derivatives not qualifying as hedges 1 -33 12 0 0 145 157

Total 50 -33 12 0 0 362 374

(EUR million)Fair value Notional amount





Interest rate and currency swaps 16 217 217Derivatives held as fair value hedges 16 0 0 0 0 217 217

Interest rate swaps -21 144 144Forward foreign exchange contracts 0 0 36 36Equity options 1 1 1Derivatives not qualifying as hedges 1 -21 36 0 0 145 181

Total 17 -21 36 0 0 362 398




Interest rate and currency swaps 3 -1 217 217Derivatives held as fair value hedges 3 -1 0 0 0 217 217

Interest rate swaps -14 144 144Forward foreign exchange contracts 0 19 3 0 22Equity options 1 1 1Derivatives not qualifying as hedges 1 -15 19 3 1 144 167

Total 4 -15 19 3 1 361 384


Note 21. Financial risk management objectives and policies

The Group’s main financial instruments comprise unsubordinated debentures, trade receivables and trade payables. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and credit risk, while the liquidity risk is mitigated. The Group is also exposed to financial risks associated with forecast transactions.

All financial activities are subject to the principle of risk minimization. To achieve this, all matters related to funding, foreign exchange, interest rate and counterparty risk management is handled by a centralised Group Treasury department. Simulations are performed using different market (including worst case) scenarios to estimate the effects of different conditions on the market.

All financial transactions and financial risk positions are managed in a centralised Treasury system.

Group Treasury operations are conducted within a framework of policies and guidelines approved by the Board of Directors. GroupTreasury is responsible for implementing these policies. According to the policies, derivatives are used to hedge interest rate and currency exposures. Derivatives are used exclusively as hedging instruments, i.e., not for trading or other speculative purposes.Derivatives used by the Group mainly include forward exchange contracts, interest rate swaps, currency interest rate swaps and forward starting swaps.

The Group’s internal auditors review regularly the internal control environment at Group Treasury.

No change occurred during the period 2005-2007 in the exposure of the Group to financial risks nor in the Group’s policies and processes for managing the financial risk.

Interest rate risk The Group’s exposure to the risks of changes in market interest rates relates primarily to the Group’s long-term obligations. GroupTreasury manages the exposure of the Group to changes in interest rates and the overall cost of financing by using a mix of fixed and variable rate debts, determined in accordance with the Group’s financial risk management policy. The aim of the policy is toachieve an optimal balance between cost of funding and volatility of financial results, while taking into account market conditions as well as overall business strategy.

Accordingly, the company entered into several interest rate swaps (IRS) and currency interest rate swaps (IRCS) to transform theinterest rate exposure on the financial liabilities from a fixed interest rate to a floating interest rate or vice versa.

The tables below summarize the non-current interest-bearing liabilities (excluding leasing and similar obligations), the interestrate and currency swap agreements (IRCS), the interest rate swap agreements (IRS) and the net currency obligations of the Group at 31 December 2005, 2006 and 2007.



Notional amount

Weighted average

interest rate

Average time to maturity

Amount payable

(receivable)

Weighted average

interest rate (1)

Average time to

maturity

Amount payable

(receivable)

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)


(EUR million) (in years) (EUR million) (in years) (EUR million) (in years) (EUR million) (in years)

EURFixed 144 6.20% 9.9 144 6.20% 9.9Variable 217 2.43% 13.6 (144) 2.48% 9.9 73 2.32% 20.9

JPYFixed 217 4.99% 13.6 (217) 4.99% 13.6 0

Total 217 4.99% 13.6 0 0 217 4.89% 13.6

As of 31 December 2005

Direct borrowing IRCS agreements IRS agreements Net currency obligations

Notional amount

Weighted average

interest rate (1)

Average timeto maturity

Amount payable

(receivable)

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)



EURFixed 1,375 4.26% 7.7 144 6.20% 8.9 1,519 4.44% 7.8Variable 300 3.73% 2.9 217 3.67% 12.6 (144) 3.72% 8.9 373 3.70% 6.2

JPYFixed 217 4.99% 12.6 (217) 4.99% 12.6 0

Total 1,892 4.26% 7.5 0 0 1,892 4.29% 7.5



Notional amount

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)


Amount payable

(receivable)

Weighted average

interest rate (1)



EURFixed 1,370 4.26% 6.7 144 6.20% 7.9 1,514 4.44% 6.8Variable 300 4.78% 1.9 217 4.72% 11.6 (144) 4.72% 7.9 373 4.77% 5.2

JPYFixed 217 4.99% 11.6 (217) 4.99% 11.6

Total 1,887 4.42% 6.5 0 1,887 4.51% 6.5


(1) Weighted average interest rate taking into account last repriced interest rates for floating borrowings.

The table below summarizes the sensitivity analysis of the Group’s financial instruments to the interest rate risk.

Expectations Market interest rate Expected Impact onrelated to year fluctuation income statement

in bps (1) (EUR million)

2006 IRS EURIBOR 10 years +55 bps +7

2007 IRS EURIBOR 9 years +36 bps +4EURIBOR 3 months +69 bps -2

2008 IRS EURIBOR 8 years - 8 bps -1EURIBOR 3 months - 75 bps +2

(1) bps: basis points.

For 2008, the expected impacts on the income statement result from interest payable on floating rate borrowings on the one handand from measurement at fair value in income statement of some IRS derivatives that do not qualify as hedging derivatives on theother hand. The volatility on the financial income/(costs) depends on the fluctuations of the EURIBOR at three months (EURIBOR3M) for the interest payable on the floating rate borrowings and of the IRS-EURIBOR at eight years (IRS-EURIBOR 8 years) for themeasurement at fair value of the IRS derivatives.

Foreign currency risk The main Group’s currency exposure results from its operating activities. Such exposure arises from sales or purchases by operating units in currencies other than their functional currency. Transactions in currencies other than the functional currencymainly occur in the International Carrier Services (“ICS”) segment whose international carrier activities generate payments to and receipts from other telecommunications operators in various foreign currencies, in some affiliates of Telindus Group that have operating activities in USD and in international roaming activity of Belgacom Mobile that also generates foreign currency exposure.

Risks from foreign currencies are hedged to the extent that they influence the Group’s cash flows. Foreign currency risks that donot influence the Group’s cash flows (i.e., the risks resulting from the translation of assets and liabilities of foreign operations into the Group’s reporting currency) are generally not hedged. However, the Group could hedge this foreign currency risk, should theimpact of translation risk become material to the Group’s consolidated financial statements.



The main financial instruments used to manage foreign currency risk are forward exchange contracts.

In 2005, 2006 and 2007, the Group had only currency exposure on its operating activities. As the Group does not apply cash flowhedge accounting of this risk, the Group’s equity is not impacted by a change in the exchange rates. The re-measurement to fairvalue of the open positions in foreign currencies is recorded via the income statement but is reduced or offset by the re-measurement to fair value of the derivatives.

The Group performed a sensitivity analysis on the exchange rates EUR/USD, EUR/SDR8 and EUR/GPB, three currencies to which the Group is exposed in its operating activities, for the years 2006, 2007 and 2008. For 2006 and 2007, there was no material impact on the Group’s income statement. For 2008, the Group does not expect a material impact. This results on the one hand from the fact that the Group has a limited foreign currency exposure and on the other hand from the use of foreign currency derivatives whose fair value measurement reduces, or even fully offsets foreign currency exposure resulting from the open positions at year-end reporting dates.

Credit risk and significant concentrations of credit risk Belgacom is exposed to credit risk from its operating activities and from its financing activities (financial investments done tomanage cash of the Group). Credit risk encompasses all forms of counterparty exposure, i.e. where counterparties may default ontheir obligations to Belgacom in relation to lending, hedging, settlement and other financial activities.

The Group’s maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in theevent the counterparts fail to perform their obligations in relation to each class of recognized financial assets, including derivatives with positive market value, is the carrying amount of those assets in the balance sheet.

To reduce the credit risk in respect of financing activities and cash management of the Group, transactions are generally only concluded with leading financial institutions whose credit rating is at least AA-/Aa3.

Credit risk on operating activities with significant clients is managed and controlled on an individualized basis. When needed, the Group requests additional collaterals. These significant customers are however not material to the Group, since the client portfolio of the Group is mainly composed of a large numbers of small customers. Hence, credit risk and concentration of credit risk on trade receivables is limited. For amounts receivables from other telecommunication companies, the concentration of credit risk isalso limited due to the netting agreements with accounts payable to these companies, prepayment obligations, bank guarantees, parent guarantees and the use of credit limits obtained via credit insurance.

The Group is exposed to credit loss in the event of non-performance by a counterpart on financial derivatives (see notes 20 and21) and cross-border lease arrangements (see note 35), but does not anticipate non-performance by any of these counterparts nor require collateral or other security from them, as the Group has chosen highly rated financial institutions.

In addition, the Group is exposed to credit risk through the granting of financial guarantees. At 31 December 2007, the Group hadgranted bank guarantees for an amount of EUR 32 million.

Liquidity risk In accordance with the treasury policy, Group Treasury manages its overall cost of financing by using a mix of fixed and variable rate debts.

A liquidity reserve in the form of credit lines and cash is maintained to guarantee the solvency and financial flexibility of the Group at all times. For this purpose, Belgacom SA entered into bilateral credit agreements with different maturities and into a Syndicated Facility. For medium to long-term funding, the Group uses bonds and medium term notes. The maturity profile of the debt portfolio is spread over several years. Group Treasury assesses frequently its funding resources taking into account its own credit rating and general market conditions.

The tables below summarise the maturity profile of the Group’s interest bearing financial liabilities at each reporting date. Thismaturity profile is based on contractual undiscounted interests payments and capital reimbursements and takes into account the impact on cash flows of interest rate derivatives used to convert fixed interest rate liabilities to floating interest rate liabilities and vice versa. For floating-rate liabilities, interest rates used to determine cash outflows are the ones prevailing at their last re-pricing date before reporting date (as of 31 December 2005, 2006 and 2007, respectively).

(EUR million) 2006 2007 2008 2009 2010 2011 2012-2026


Non-current interest-bearing liabilities 11 11 11 11 11 11 280Current interest-bearing liabilities 111 0 0 0 0 0 0Total 122 11 11 11 11 11 280


Non-current interest-bearing liabilities - 81 85 385 74 674 1,215Current interest-bearing liabilities - 71 0 0 0 0 0Total 0 152 85 385 74 674 1,215


Non-current interest-bearing liabilities - - 85 390 75 675 1,228Current interest-bearing liabilities - - 69 0 0 0 0Total 0 0 154 390 75 675 1,228

The change in the maturity profile between 2005 and 2006 results from the issuance of new non-current unsubordinated debentures in November 2006 to finance the acquisition of Vodafone’s minority stake in Belgacom Mobile SA.

8 SDR: Special Drawing Right: basket of currencies, transactions money used in netting agreements between Telco operators.



Bank credit facilities at 31 December 2007 In addition to the interest-bearing liabilities disclosed in notes 16.1 and 16.2, the Group is backed by long term credit facilities of EUR 526 million and short term credit facilities of EUR 565 million. These facilities are provided by a diversified group of banks. At 31 December 2007, there is no outstanding balance under the long term facilities and there is an outstanding balance of EUR 34 million under the short term facilities, with an average remaining maturity of less than one month.

The Group has also established a USD 2.5 billion Euro Medium Term Note (“EMTN”) Program and a EUR 1 billion Commercial Paper (“CP”) Program. At 31 December 2007, there is an outstanding balance under the EMTN Program of EUR 1,650 million, corresponding to the unsubordinated debentures issued in 2006 to finance the acquisition of Vodafone’s stake in Belgacom MobileSA, with an average remaining maturity of 6 years. At 31 December 2007, there is no outstanding balance under the CP Program.

Note 22. Net revenue

(EUR million) 2005 2006 2007

Sales of goods 218 597 649Rendering of services 5,166 5,425 5,339Total 5,384 6,022 5,987


Note 23. Other operating revenue


Gain on disposal of intangible assets and property, plant and 13 17 12equipmentGain on disposal of consolidated companies 10 0 0Gains on realization of trade debtors 37 1 1 1Other income 49 60 64Total 74 78 77


Note 24. Non-recurring revenue

(EUR million) 2005 2006 2007

Gain on sale of Belgacom Directory Services 238 - -Total 238 0 0


Gains on the disposal of subsidiaries and joint-ventures are reported as non-recurring revenue when they individually exceed EUR5 million.

In January 2005, the Group sold 100% of the shares of Belgacom Directory Services SA to Promedia Comm.V. resulting in the recognition of a gain of EUR 238 million (see note 6.3).

Note 25. Costs of materials and charges to revenue

(EUR million) 2005 2006 2007

Purchases of materials 147 459 496Purchases of services 1,408 1,546 1,519Total 1,555 2,005 2,015


Purchases of materials are shown net of work performed by the enterprise that is capitalized for an amount of EUR 12 million in2005, EUR 48 million in 2006 and EUR 58 million in 2007.



Note 26. Personnel expenses and pensions

(EUR million) 2005 2006 2007

Salaries and wages 717 832 846Social security expenses 163 194 199Pension costs 16 19 20Post-employment benefits other than pensions and termination benefits 40 31 25Other personnel expenses 21 29 30Total 957 1,106 1,120


Salaries and wages and social security expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 37 million in 2005, EUR 45 million in 2006 and EUR 46 million in 2007.

Note 27. Other operating expenses


Rent expense 85 107 105Maintenance and utilities 164 171 179Advertising and public relations 127 135 125Consultancy 150 172 177Administration and training 61 55 49Telecommunications, postage costs and office equipment 34 37 37Outsourcing 38 55 56Allowances for trade debtors 11 & 37 -8 -10 4Loss on realization of trade debtors 37 14 26 27Impairment on intangible assets and property, 5 16 4plant and equipmentTaxes other than income taxes 38 56 58Other operating charges (1) 24 21 31Total 731 841 853


(1) Including unrealized and realized net exchange gains amounting to EUR 1 million in 2005, EUR 4 million in 2006 and EUR 4 million in 2007.

Other operating expenses are shown net of work performed by the enterprise that is capitalized for an amount of EUR 106 millionin 2005, EUR 112 million in 2006 and EUR 131 million in 2007.

Note 28. Non-recurring expenses

(EUR million) 2005 2006 2007

Termination benefits and additional compensation 355 0 46Total 355 0 46


Losses on the disposal of subsidiaries and joint-ventures that individually exceed EUR 5 million and costs of restructuring programs are recorded as non-recurring expenses.

In 2005, the Group recorded termination benefits, additional compensation benefits and other post-employment benefits in respect of the collective labor agreement concluded between Belgacom and the Unions in November 2005 for an amount of EUR 355 million (see note 9.1).

In 2007, the Group recorded termination benefits and additional compensation benefits for voluntary leaves of employees for an amount of EUR 46 million in respect of the external mobility offer with the Belgian State (see note 9.1).



Note 29. Depreciation and amortization

(EUR million) 2005 2006 2007

Amortization of licenses and other intangible assets 153 220 223Depreciation of property, plant and equipment 573 582 551Total 726 802 774


Note 30. Net finance income / (costs)


Finance income

Interest income on financial instruments at amortized cost 15 15 24at fair value through income statement 5 5 6

Gain on disposal of other participating interests 37 52 122 74enterprises accounted for using the equity method 11 0 0investments 37 7 1 1

Fair value adjustments of financial instrumentsnot in a hedge relationship 37 0 12 7in a hedge relationship 0 -1 0

Finance costs

Interests and debt charges on financial instruments at amortized cost -5 -19 -77at fair value through income statement -16 -16 -18

Discounting chargeson provisions -1 -1 -1on termination benefits - -13 -14

Fair value adjustments of financial instrumentsnot in a hedge relationship 37 -3 0 0

Other finance costs -1 -1 0

Total 64 104 1


In 2005, Belgacom disposed of its interests in certain satellite companies resulting in a gain of EUR 52 million (see note 7). In 2006, Belgacom disposed of its interest in Neuf Cégétel resulting in a gain of EUR 118 million (see note 7). In 2007, Belgacom disposed of its interest in Mobistar and in Eutelsat Communications SA resulting in a gain of respectively EUR 5 million and EUR 69 million (see note 7).



Note 31. Earnings per share

Basic earnings per share are calculated by dividing the net income for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net income for the year attributable to ordinary shareholders, by the weighted average number of ordinary shares outstanding during the year, both adjusted for the effects of dilutive potential ordinary shares.

The following table reflects the income and share data used in the computation of basic and diluted earnings per share.

2005 2006 2007

Net income attributable to ordinary shareholders (EUR million) 959 973 958

Adjustments for dilutive potential ordinary shares (EUR million) 0 0 0

Adjusted net income for calculating diluted earnings per share (EUR million) 959 973 958

Weighted average number of ordinary shares 345,406,186 338,621,113 334,017,553

Adjustment for share options 166,072 153,096 326,130

Weighted average number of ordinary shares for diluted earnings per share 345,572,258 338,774,209 334,343,683

Basic earnings per share (EUR) 2.78 2.87 2.87

Diluted earnings per share (EUR) 2.77 2.87 2.87


The 475,516 stock options granted in 2007 are anti-dilutive and hence not included in the calculation of diluted earnings per shares, while the options granted in 2004, 2005 and 2006 are dilutive.

The number of ordinary shares has decreased since 31 December 2007 as a result of the ongoing share buy-back (see note 42).

Note 32. Dividends paid and proposed

2005 2006 2007

Dividends on ordinary shares:

Dividends proposed to the shareholders' meeting (EUR million) 534 552 563

Number of shares with dividend rights 351,161,901 344,713,982 335,263,811

Dividend per share (EUR) 1.52 1.60 1.68

Interim dividend paid to the shareholders (EUR million) - 100 170

Interim dividend per share (EUR) - 0.29 0.50

Year ended December 31

The proposed dividends for 2005 and 2006 have been effectively paid in April 2006 and April 2007 respectively. The interim dividend of 2006 has been paid in December 2006. The interim dividend of 2007 has been paid in December 2007.

The number of shares with dividend rights has decreased since 31 December 2007 as a result of the ongoing share buy-back (see note 42).



Note 33. Related party disclosures

Note 33.1. Consolidated companies Subsidiaries and joint-ventures are listed in note 6.

The Group does not own any associates for each of the three years.

Commercial terms and market prices apply for the supply of goods and services between Group companies.

Joint-venturesBelgacom International Carrier Services SA and subsidiaries Effective 1 July 2005, the Group holds a joint venture interest of 72% in Belgacom International Carrier Services SA and subsidiaries (hereafter “BICS”); the remaining 28% shares being held by Swisscom Fixnet AG (see note 6.3). BICS is involved in international carrier activities towards Belgacom SA and subsidiaries, Swisscom Fixnet AG and subsidiaries and other telecom operators.

For the period from 1 July 2005 until 31 December 2005, sales and purchases from BICS to the Group amounted to EUR 27 million and EUR 22 million respectively. At 31 December 2005, BICS had trade receivables of EUR 4 million, trade payables of EUR 5 million and short-term loans of EUR 11 million towards the Group.

For the year 2006, sales and purchases from BICS to the Group amounted to EUR 21 million and EUR 16 million respectively. At 31 December 2006, BICS had trade receivables of EUR 4 million, trade payables of EUR 3 million and short-term deposits of EUR 21 million towards the Group.

For the year 2007, sales and purchases from BICS to the Group amounted to EUR 21 million and EUR 15 million respectively. At 31 December 2007, BICS had trade receivables of EUR 4 million, trade payables of EUR 3 million and short-term deposits of EUR 30 million towards the Group.

Note 33.2. Relationship with shareholders The Belgian State is the majority shareholder of the Group, with a stake of 53.5%. The Group holds treasury shares for 1.8%. Theremaining 44.7% are traded on the First Market of Euronext Brussels.

Relationship with the Belgian State The Group supplies telecommunication services to the Belgian State and various administrations of the Belgian State. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers and suppliers. The services provided to those administrations do not represent a significantcomponent of the Group’s net revenue.

Relationship with the minority shareholders of Belgacom Mobile Until early November 2006, Vodafone BV and subsidiaries (hereafter “Vodafone”) held a 25% stake in Belgacom Mobile (see note 15.2).

The Group enters into transactions with Vodafone in the framework of its mobile telephony activity (roaming-in revenues and roaming-out costs). Vodafone also charges consultancy fees to Belgacom Mobile. These transactions are done at normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers/suppliers.

The Group sold services to Vodafone for EUR 72 million in 2005 and EUR 84 million until end of October 2006, when Vodafone ceased to be a related party to the Group. Vodafone sold services to the Group for EUR 91 million in 2005 and EUR 86 million until end of October 2006.

Accounts receivable from Vodafone, net of the related allowance for doubtful debtors, amounted to EUR 35 million at 31 December2005. Trade payables to Vodafone amounted to EUR 27 million at 31 December 2005.

Relationship with the minority shareholders of Belgacom International Carrier Services SA and subsidiaries Swisscom Fixnet AG (hereafter “Swisscom”) holds a 28% stake in BICS since 1 July 2005.

The Group enters into transactions with Swisscom and its subsidiaries in the framework of its international carrier activities.Swisscom is using BICS’s network to handle their outgoing international voice and data traffic while BICS is using Swisscom’s national network to terminate international voice and data traffic to Switzerland. These transactions are done at normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers/suppliers.

The Group sold services to Swisscom for EUR 44 million in 2005, EUR 78 million in 2006 and EUR 71 million in 2007. Swisscom sold services to the Group for EUR 43 million in 2005, EUR 75 million in 2006 and EUR 79 million in 2007.

Accounts receivable from Swisscom amounted to EUR 11 million at 31 December 2005, EUR 14 million at 31 December 2006 and EUR 17 million at 31 December 2007. Trade payables to Swisscom amounted to EUR 14 million at 31 December 2005, EUR 25 million at 31 December 2006 and EUR 22 million at 31 December 2007.

Note 33.3. Relationship with other State-controlled enterprises The Group supplies telecommunication services to various State-controlled enterprises. All such transactions are made within normal customer/supplier relationships on terms and conditions that are not more favourable than those available to other customers and suppliers. The services provided to State-controlled enterprises do not represent a significant component of the Group’s net revenue.



Note 33.4. Relationship with key management personnel Compensation of the directors is as follows: an annual fixed compensation of 50,000 EUR for the Chairman of the Board of Directors and of 25,000 EUR for the other members of the Board of Directors, with the exception of the President and Chief Executive Officer. All members of the Board of Directors, with the exception of the President and Chief Executive Officer, have the right to an attendance fee of 5,000 EUR per attended meeting of the Board of Directors. Attendance fees of 2,500 EUR per meeting are granted to each member of an advising committee to the Board of Directors, with the exception of the President and Chief Executive Officer. For the Chairman these attendance fees are doubled. The total remuneration for the directors amounts toEUR 1,404,375 for 2005, EUR 1,104,000 for 2006 and EUR 959,208 for 2007. The directors have not received any loan or advance from the Group.

The number of meetings of the Board of Directors and advising committees are detailed as follows:

2005 2006 2007

Number of meetings

Board of Directors 9 6 5

Audit and Compliance Committee 4 5 5

Nomination and Remuneration Committee 8 6 6

Strategic and Business Development Committee 6 4 2

For the year ended 31 December 2005, a total amount of EUR 6,961,434 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2005, the members of the Belgacom Management Committee were B. Cosgrave, A. De Lathauwer, D. Bellens, R. Stewart, W. Mosseray, S. Alcott, Ph. Vander Putten (4 months), and M. Georgis (8 months).

For the year ended 31 December 2006, a total amount of EUR 8,316,554 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2006, the members of the Belgacom Management Committee were B. Cosgrave, A. De Lathauwer, D. Bellens, R. Stewart, W. Mosseray, S. Alcott, M. Georgis and R. Everaert.

For the year ended 31 December 2007, a total amount of EUR 12,190,606 was paid in aggregate to the members of the “Belgacom Management Committee” (BMC), Chief Executive Officer included. In 2007, the members of the Belgacom Management Committee were A. De Lathauwer, D. Bellens, R. Stewart, W. Mosseray, S. Alcott, M. Georgis, R. Everaert (12 months) and B. Cosgrave (10 months).

These total amounts of key management compensation include the following components:

short-term employee benefits: annual salary (base and variable) as well as other short-term employee benefits such as medical insurance, private use of management cars, luncheon vouchers, and social security contributions paid on these benefits. post-employment benefits: insurance premiums paid by the Group in the name of members of the BMC. The premiums cover mainly a post-retirement complementary pension plan. termination benefits.

EUR 2005 2006 2007

Short-term employee benefits 5,927,742 7,009,718 6,028,477Post-employment benefits 1,033,692 1,306,836 2,831,908Termination benefits 0 0 3,330,221Total 6,961,434 8,316,554 12,190,606

In addition to these pecuniary advantages, equity compensation benefits have been granted to the BMC members through stock option plans. The BMC members had the opportunity to participate to an Employee Stock Option Plan whereby they were granted 340,389 share options in 2005, 138,786 share options in 2006 and 138,097 share options in 2007.

Note 33.5. Regulations The telecommunications sector is regulated through the legislation adopted in the Belgian parliament, through a series of Royaland Ministerial Decrees, and also through decisions of the Belgian Institute for Postal services and Telecommunications, commonly referred to as the “BIPT/IBPT”. The Belgian licensing regime provides for individual licenses for the provision of public fixed voice telephony services, public network infrastructure services and mobile telecommunications services.

The company is also governed by certain provisions and principles of Belgian public and administrative law whereby Belgacom hasobligations such as the delivery of regulated services and public services.



Note 34. Rights, commitments and contingent liabilities

Operating lease commitments The Group rents sites for its telecom infrastructure and leases buildings, technical and network equipment, as well as furnitureand vehicles under operating leases with terms of one year or more. Rental expenses in respect of these operating leases amounted to EUR 124 million in 2005, EUR 146 million in 2006 and EUR 140 million in 2007. Future minimum rentals payable under the non-cancellable operating leases are as follows at 31 December 2007:

(EUR million) Within From 1 to From 3 to More than Totalone year 3 years 5 years 5 years

Buildings 26 31 7 1 65Sites 12 35 34 0 80Technical and network equipment 9 8 3 2 22Furniture 2 2 0 0 4Vehicles 26 24 1 0 51Total 74 100 46 3 222

Claims and legal proceedings From time to time Belgacom has been, and expects to continue to be, subject to legal, regulatory and tax proceedings and claimsarising in the ordinary course of its business. The Group is currently involved in various judicial and regulatory proceedings,including those for which a provision has been made (see note 17) and those described below for which no or limited provisions have been accrued, in the jurisdictions in which it operates concerning matters arising in connection with the conduct of its business. These include also proceedings before the Belgian Institute for Postal services and Telecommunications ("BIPT"), appeals against decisions taken by the BIPT, and proceedings with the Belgian tax administrations with respect to real estate withholding taxes and corporate income taxes.

In September 2002, Codenet, Versatel, Colt and Worldcom filed a complaint with the Belgian Competition Council alleging that Belgacom’s “Benefit Excellence Program” constitutes an abuse of an alleged dominant position in the market through pricing and loyalty rebates. The plaintiffs also filed a request for interim relief measures with the President of the Competition Council requesting, among other things, the suspension of the program. Belgacom’s “Benefit Excellence Program”, which was launched in March 2002, is a voice telephony tariff plan aimed at large corporate users offering specific base rates for national telephony and for fixed-to-mobile calls as well as an additional discount scheme. On 22 December 2004, the President of the Competition Council rejected the plaintiffs’ request for interim relief measures because Belgacom had clarified the way the volume discounts are applied, and stated that there was, in his opinion, no serious risk that other licensed operators would disappear because of the‘Benefit Excellence’ tariffs (and especially the volume discount). The issue of interim relief measures having been closed successfully for Belgacom, the case on the merits with respect to the alleged infringement is still pending and no calendar for the proceedings has been set. On 7 March 2006, Belgacom received a “statement of objections” from the Corps des Rapporteurs (College of Examiners), which is conducting the ongoing investigation for the “Benefit Excellence” complaint. The statement of objections, to which Belgacom responded on 23 May 2006, considers that various Belgacom pricing plans for business customers involve infringements of the competition rules. These infringements allegedly date back to October 2000, and some of them, in particular the loyalty rebates and the so-called discriminatory pricing conditions, are considered to be still in place to date. The Corps des Rapporteurs heard Belgacom on this matter on 6 June 2006. Once the investigation is completed, the College of Auditors (formerly the Corps des Rapporteurs) will submit a reasoned report to the Belgian Competition Council, which will thenhave to rule on the objections raised against the Belgacom pricing schemes in question. Belgacom may be subject to an obligationto increase the retail tariffs that are the subject of the claim and if it would ultimately be found to have committed an abuse of dominant position, it may be subject to a maximum fine of up to 10% of the Group’s annual turnover.

In June 2003, BASE filed an action against Belgacom Mobile before the Commercial Court of Brussels. BASE alleges that Belgacom Mobile’s termination rates since 1 October 2000 are not in accordance with the official telecommunications regulations requiringcost oriented pricing and that Belgacom Mobile’s Proximus-to-Proximus tariffs constitute an abuse of Belgacom Mobile’s alleged dominant position in the Belgian market. BASE’s provisional estimate of the claim for compensation based upon BASE's briefs in August 2004, amounts to approximately EUR 700 million in reimbursement and damages, representing the amount of lost revenue that BASE allegedly suffered as a result of these practices. This amount has been changed by BASE during the procedure: the provisional estimate from BASE related to the claim of compensation, based on the last documents in the file, amounts today to approximately EUR 980 million.

On 1 March 2004, Mobistar filed a request to intervene voluntarily in the action brought by BASE against Belgacom Mobile. Mobistar alleges that if the Commercial Court of Brussels were to find that Belgacom Mobile’s termination rates were not in accordance with the obligation of cost-oriented pricing, Mobistar should be awarded damages provisionally estimated by Mobistarto range between EUR 967,000 and EUR 56,000,000 depending on the termination rates upheld by the Court. Furthermore, Mobistar alleges that in addition to the Proximus-to-Proximus tariffs, certain tariff schemes offered by Belgacom Mobile to business and corporate customers constitute an abuse of Belgacom Mobile’s allegedly dominant position. Mobistar requests the Court to appoint a court expert to calculate the amount of alleged damages and seeks compensation for such damages, provisionally estimated at a minimum of EUR 50,000,000. As with the action filed by BASE, Belgacom Mobile is contesting the claim made by Mobistar.



On 29 May 2007, the Commercial Court of Brussels pronounced in a first judgment that Belgacom Mobile did not infringe the obligation requiring cost oriented pricing for its termination rates. Furthermore, it did not find any proof for the existence of a dominant position during 2005. With regard to former years (from 1999 to 2004), the Court considered Belgacom Mobile as being in a dominant position and requested a college of experts, composed of Mr. Robert Wtterwulghe and Mr. Cyril Nourissant to determine whether Belgacom Mobile had taken advantage of its dominant position by the creation of a network situation in which it applied lower rates for its “on-net” traffic, as well as a “price-squeezing” practice. In that case, the Commercial Court of Brussels will charge the experts with the calculation of the damages suffered as a result of these practices.

Belgacom is still convinced that there is no abuse of dominant position.

In February 2005, BASE filed an additional action against Belgacom Mobile before the President of the Commercial Court of Brussels. This action is intimately linked with the existing file which opposes Belgacom Mobile against BASE and Mobistar: BASEalleges that Belgacom Mobile’s Proximus-to-Proximus tariffs in certain tariff plans constitute an abuse of Belgacom Mobile’s allegedly dominant position in the Belgian market, these tariffs being lower than for calls to the other mobile networks and thetariff difference not being justified by a difference in underlying termination costs. On the basis of these allegations, BASE this time requested a cease-and-desist order of certain tariff plans. On 12 December 2005 , the President of the Brussels CommercialCourt ruled that there is no possible abuse of dominant position by Belgacom Mobile as the latter is not considered dominant onthe mobile market. Consequently the request for a cease-and-desist order of certain Proximus on-net tariff schemes is rejected.

On 19 January 2006, the Belgian Competition Authority performed a dawn raid at Belgacom Mobile’s premises based upon a complaint of BASE dated 7 October 2005, alleging abusive pricing on the professional market. Several documents have been seized during this office search. Since then, the Competition Authority requested Belgacom Mobile to submit information and documentation as to its activities on the professional market. If the Competition Authority would ultimately find that BelgacomMobile committed an abuse of dominant position, it may be subject to a maximum fine of up to 10% its annual turnover.

The Belgian tax authorities notified a foreign subsidiary of the Group in 2007 to be considered as a tax resident of Belgium rather than of Luxembourg and therefore to be subject to Belgian corporate income tax for the year 2004. Belgacom has strong arguments to ward off the proposed tax assessment of EUR 21 million and contests the assessment.

Since 2003, Belgacom considers its payments of withholding real estate taxes on telecom equipment as undue and therefore recognizes an asset against the tax authorities in the ‘current income tax asset’ caption of the balance sheet for an amount of EUR 103 million at 31 December 2007.

Capital expenditure commitments At 31 December 2007, the Group has contracted commitments of EUR 56 million, mainly for the acquisition of intangible assets and technical and network equipment.

Other rights and commitments At 31 December 2007, the Group has the following other rights and commitments:

The Group received guarantees for EUR 23 million from its customers to guarantee the payment of its trade receivables and guarantees for EUR 6 million from its suppliers to ensure the completion of contracts or works ordered by the Group; The Group granted bank guarantees for an amount of EUR 32 million to its customers and other third parties to guarantee, among others, the completion of contracts and works ordered by its clients and the payment of rental expenses related to buildings and sites for antennas installation; Belgacom has a right, established by Belgian legislation with respect to Universal Services, to receive compensation from the Universal Services Obligation fund for offering Social Tariffs for the years 2005, 2006 and 2007. Since this right is contested by some operators and is under investigation by the European Commission, the Group qualifies the compensation receivable as a contingent asset;



Note 35. Cross-border lease arrangements

During the period 1996 through 2001, the Group entered into several cross-border lease arrangements with foreign investors relating to part of its fixed and mobile switches equipment. Under the terms of these agreements, which range in duration from 13to 16 years, the Group received at the inception date of the arrangements a total amount of USD 681 million and placed a total amount of USD 652 million on deposit. The Group entered, in respect of the deposits, into non-refundable payment undertaking agreements with highly rated banks.

In respect of these arrangements, the Group received fees from the foreign investors or realized gains for a total amount of EUR23 million. These fees or gains are recognized in the income statement under the caption “other operating revenue” over the lifetime of the respective agreements. The fees effectively recognized in income amount to EUR 1.6 million in 2005, 1.4 million in 2006 and 1.8 million in 2007.

On 25 September 2002, the Group sold its investment in Ben Nederland Group but agreed it will continue to guarantee the payment of leasing debts amounting at 31 December 2007 to USD 44 million (EUR 30 million), in case the payment undertakers on the related cross-border lease arrangement would become insolvent. The risk that this guarantee will result in a payment by the Group is mitigated by the fact that the deposit institutions involved are rated AAA or AA by Standard & Poors. The term of the related leasing debt expires in 2012.

Early buy-outs have been exercised by the Group with effect in January 2005 (for an arrangement amounting to USD 71 million at inception), in January 2006 (for an arrangement amounting to USD 87 million at inception), in January 2007 (for part of an arrangement amounting to USD 67 million at inception) and in January 2008 (for two arrangements amounting to USD 80 and 45 million at inception). The arrangement of 2001 amounting to USD 95 million at inception has been terminated with effect in January 2008.

Note 36. Net financial position of the Group

The Group defines the net financial position as the net amount of investments, cash and cash equivalents, interest-bearing liabilities and related derivatives (including re-measurement to fair value).


AssetsNon-current investments (*) 10 7 7 7Current investments (*) 13 86 91 59Cash and cash equivalents (*) 13 798 236 726Non-current derivatives 10 50 17 4

LiabilitiesNon-current interest-bearing liabilities (*) 16 -296 -1,917 -1,895Current interest-bearing liabilities (*) 16 -111 -71 -69Net financial position 534 -1,636 -1,167(*) after remeasurement to fair value, if applicable.

As of 31 December

Non-current interest-bearing liabilities include non-current derivatives at fair value amounting to EUR 33 million in 2005, EUR 21 million in 2006 and EUR 14 million in 2007 (see note 16.1).

The purpose of the Group in its capital management is to maintain net financial debt and equity ratio’s that allow for liquidity at all times via flexible access to the capital markets, to be able to finance strategic projects and to offer an attractive remuneration to its shareholders. The latter is based on a dividend ratio between 50% and 60% of the net income (Group Share). During the years2005 to 2007, the free cash flow has enabled the Group to offer an additional shareholders’ remuneration to its shareholders through increased dividends and share buy-backs while maintaining the net financial debt at an acceptable level.

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



Note 37. Additional disclosures on financial instruments

The Group has interest rate and currency swaps (IRCS) to manage the exposure to interest rate risk and to foreign currency riskon its non-current interest bearing liabilities (see notes 20 and 21). Hedges all qualify as fair value hedges.

The following tables present the Group’s financial instruments per category defined under IAS 39, as well as gains and losses resulting from re-measurement to fair value (attributable to the risks hedged) of hedged liabilities and hedging IRCS, in fair value hedges.

As of December 31, 2005(EUR million)

Amortized cost Acquisition cost net of impairment

losses, if any

Fair value adjustment

recognized in equity


recognized in income statement

ASSETS

Non-current assetsOther participating interests 7 AFS 198 132 66Other non-current assets

Non-current investments 10 AHTM 7 7Derivatives held-for-hedging 10 n.a. 49 49Other derivatives 10 FAHfT 1 1Other financial assets 10 LaR 8 8

Current assetsTrade receivables 11 LaR 947 947Current income tax asset 8 LaR 67 67Other current assets

VAT and other receivables 12 LaR 31 31Accrued income 12 LaR 10 10

Investments 13 AFS 86 83 2Cash and cash equivalents 14 LaR 798 798

LIABILITIES

Non-current liabilitiesInterest-bearing liabilities

Unsubordinated debentures in a hedge relationship 16 n.a. 263 217 46Other derivatives 16 FLHfT 33 33

Other non-current payables 18 FLAC 1 1

Current liabilitiesInterest-bearing liabilities

Credit institutions 16 FLAC 82 82Other loans 16 FLAC 29 29

Trade payables FLAC 1,038 1,038Income tax payable 8 FLAC 202 202Other current payables

Accrued expenses 19 FLAC 11 11V.A.T. and other amounts payable 19 FLAC 208 208

Amounts recognized in balance sheet according to IAS 39

(1) The categories according to IAS 39 are the following :AFS: Available-for-sale financial assets

Note Category according to IAS 39

(1)

FLHfT: Financial liabilities held-for-trading

AHTM: Financial assets held-to-maturityFAHfT: Financial assets held-for-trading

Carrying amount

LaR: Loans and Receivables financial assetsFLAC: Financial liabilities at amortized costs





losses, if any





ASSETS



Current assetsTrade receivables 11 LaR 1,207 1,207Current income tax asset 8 LaR 97 97Other current assets



LIABILITIES


Unsubordinated debentures in a hedge relationship 16 n.a. 231 217 14Unsubordinated debentures not in a hedge relationship 16 FLAC 1,640 1,640Credit institutions 16 FLAC 24 24Other loans 16 FLAC 0 0Other derivatives 16 FLHfT 21 21


Current liabilitiesInterest-bearing liabilities, current portion

Credit institutions 16 FLAC 5 5Interest-bearing liabilities





(1)

Carrying amount


LaR: Loans and Receivables financial assetsFLAC: Financial liabilities at amortized costsFLHfT: Financial liabilities held-for-trading

(1) The categories according to IAS 39 are the following :AFS: Available-for-sale financial assetsAHTM: Financial assets held-to-maturityFAHfT: Financial assets held-for-trading





losses, if any





ASSETS



Current assetsTrade receivables 11 LaR 1,158 1,158Current income tax asset 8 LaR 117 117Other current assets



LIABILITIES


Unsubordinated debentures in a hedge relationship 16 n.a. 218 217 0Unsubordinated debentures not in a hedge relationship 16 FLAC 1,641 1,641Leasing and similar obligations 16 FLAC 2 2Credit institutions 16 FLAC 20 20Derivatives held-for-hedging 16 n.a. 1 1Other derivatives 16 FLHfT 14 14


Current liabilitiesInterest-bearing liabilities, current portion

Credit institutions 16 FLAC 4 4Interest-bearing liabilities





(1)

Carrying amount


LaR: Loans and Receivables financial assetsFLAC: Financial liabilities at amortized costsFLHfT: Financial liabilities held-for-trading

(1) The categories according to IAS 39 are the following :AFS: Available-for-sale financial assetsAHTM: Financial assets held-to-maturityFAHfT: Financial assets held-for-trading

The carrying amount of financial assets and liabilities not carried at fair value in the balance sheet equals the estimated fair value except for the non-current interest bearing liabilities:

(EUR million) 2005 2006 2007

Carrying amount 0 1,664 1,663Estimated fair value 0 1,655 1,595

Difference 0 -9 -67

As of 31 December



The net gains and losses on financial instruments recorded into income statement per category defined under IAS 39 are as follows:

Year ended 31 December 2005

(EUR million) Note Fair value measurement into income statement

Allowances and impairment

losses

Fair value measurement

removed from equity

Complementary gains/(losses)

Total net gain/(loss)

Available-for-sale financial assetsOther participating interests 7 & 30 n.a. 0 55 -3 52Investments 13 & 30 n.a. 0 5 3 7

Financial instruments held-for-tradingDerivatives not in a hedge relationshipmeasured into finance income/(expense) 10, 16, 20 & 30 -3 n.a. n.a. 0 -3

Loans and receivablesTrade receivables 11, 23 & 27 n.a. 8 n.a. -13 -4

Total -2 8 60 -13 53

From subsequent measurement From disposals and settlements




losses


removed from equity



Available-for-sale financial assetsOther participating interests 7 & 30 n.a. 0 19 103 122Investments 13 & 30 n.a. 0 1 1 1

Financial instruments held-for-tradingDerivatives not in a hedge relationshipmeasured into finance income/(expense) 10, 16, 20 & 30 12 n.a. n.a. 0 12

Loans and receivablesTrade receivables 11, 23 & 27 n.a. 10 n.a. -24 -15

Total 11 10 19 80 120





losses


removed from equity



Available-for-sale financial assetsOther participating interests 7 & 30 n.a. 0 65 9 74Investments 13 & 30 n.a. 0 0 0 0

Financial instruments held-for-tradingDerivatives not in a hedge relationshipmeasured into finance income/(expense) 10, 16, 20 & 30 7 n.a. n.a. 0 7

Loans and receivablesTrade receivables 11, 23 & 27 n.a. -4 n.a. -25 -30

Total 7 -4 65 -16 51




Note 38. Share-based Payment

Discounted Share Purchase Plans In 2005, 2006 and 2007, the Group launched Discounted Share Purchase Plans (hereafter “DSPP”).

Under the 2005, 2006 and 2007 plans, Belgacom sold respectively 139,198 shares, 138,549 shares and 134,649 shares to the senior management of the Group at a discount of 16.67% compared to the market price (respectively 29.92 EUR, 25.94 EUR and EUR 32.71 per share). The cost of the discount amounted to EUR 0.7 million in 2005, EUR 0.6 million in 2006 and EUR 0.7 millionin 2007 and was recorded in the income statement as personnel expenses (see note 26).

Employee Stock Option Plans In 2005, 2006 and 2007, Belgacom launched Employee Stock Option Plans (hereafter “ESOP”) whereby respectively 538,541, 608,928 and 475,516 share options were granted to the key management and senior management of the Group.

The Group has early adopted IFRS 2 (“Share-based Payments”) in 2004, as issued on 19 February 2004 by recognizing the fair value of the equity portion of the share options at inception date over their vesting period (three years) in accordance with thegraded vesting method and periodic re-measurement of the liability component. Such fair value amounts to EUR 2 million for theplan of 2005, EUR 2 million for the 2006 plan and EUR 3 million for the 2007 plan. The annual charge of the graded vesting including the liability component re-measurement is recognized as personnel expenses and amounts to EUR 3 million in 2005, EUR 2 million in 2006 and EUR 4 million in 2007.

At the moment of exercise, the employee will pay the exercise price of 29.92 EUR per share for the 2005 plan, 25.94 EUR per share for the 2006 plan and 32.71 EUR per share for the 2007 plan, with physical delivery of the share. The share options are exercisable until 21 April 2012 for the 2005 plan, 24 April 2013 for the 2006 plan and 22 April 2014 for the 2007 plan at the latest.

The 2005, 2006 and 2007 plans provide the beneficiaries with a right to the dividends declared after granting the options.

For the 2005, 2006 and 2007 plans, in case of voluntary leave of the employee, all unvested options forfeit except during the first year, for which the first third of the options vests immediately and must be exercised within two years as from the date of leave.In case of involuntary leave of the employee, all unvested options vest immediately and must be exercised within two years as from the date of leave or as a minimum 3 years as from 1 January of the year following the grant date.

The evolution of the stock option plans is as follows:

Plan 2004 Plan 2005 Plan 2006 Plan 2007

Outstanding at 1 January 2005 1,128,500 - - -Exercisable at 1 January 2005 0 - - -Movements during the year 2005

Granted 538,541Forfeited -21,114 -Exercised -169,435 -Expired - -

Total -190,549 538,541Outstanding at 31 December 2005 937,951 538,541 - -Exercisable at 31 December 2005 210,255 0 - -Movements during the year 2006

Granted - - 608,928Forfeited -5,583 -1,600 -Exercised -196,188 -5,562 -9,265Expired - - -

Total -201,771 -7,162 599,663Outstanding at 31 December 2006 736,180 531,379 599,663 -Exercisable at 31 December 2006 386,879 177,562 31,722 -Movements during the year 2007

Granted - - 475,516Forfeited -5,255 -5,491 -5,341 -1,236Exercised -140,292 -29,373 -81,096 -Expired - - - -

Total -145,547 -34,864 -86,437 474,280Outstanding at 31 December 2007 590,633 496,515 513,226 474,280Exercisable at 31 December 2007 590,633 341,739 211,182 30,742

Number of stock options



Plan 2004 Plan 2005 Plan 2006 Plan 2007Option pricing model Binomial Black Scholes Black Scholes Black ScholesGrant Date 22/03/2004 25/04/2005 24/04/2006 23/04/2007Dividend rights as from grant date no yes yes yesContractual life of the options 7 years 7 years 7 years 7 yearsExpected life 5 (to 6) years 6 years 6 years 6 yearsExercise price EUR 24.50 EUR 29.92 EUR 25.94 EUR 32.71

Expected volatility (compared to peer group volatility) 27.50% 18.00% 21.00% 19.83%Expected dividend pay-out ratio 50% - 60% 50% - 60% 50% - 60% 50% - 60%

Risk free interest rate Euro swap annual rate Euro swap annual rate Euro swap annual rate Euro swap annual rateFair value of options granted EUR 4.29 EUR 4.15 EUR 4.02 EUR 6.245Weighted average share price at exercise during the year 2005 EUR 32.96 - - -Weighted average share price at exercise during the year 2006 EUR 31.87 EUR 32.67 EUR 31.98 -Weighted average share price at exercise during the year 2007 EUR 33.86 EUR 33.87 EUR 34.13 -Weighted average remaining contractual life (years) 3 4 5 6

The following assumptions were applied for determining the weighted average fair value of the stock options at grant date:

The volatility has been estimated based on the actual trading statistics of the share and taking into account alignment to certain peers, comparable in terms of risk profile.

Note 39. Relationship with the auditors

The Group expensed for the Group’s auditors during the year 2007 an amount of EUR 1,549,704 for the annual audit mandate fees and EUR 399.963 for non-mandate fees. This last amount is detailed as follows:

EUR Auditor Network of auditor

Other legal missions 32,885 23,774Tax advice 0 20,735Other missions 322,028 540Total 354,913 45,049

Note 40. Segment reporting

Until end of 2007, the Board of Directors and the Chief Executive Officer managed the operations of Belgacom Group by business segments. These business segments are the primary segments and are described as follows:

Fixed Line Services. This segment provides retail voice, data, Internet and network integration services, to residential and business customers in Belgium, as well as regulated and commercial wholesale services to other carriers and service providers in Belgium. Mobile Communications Services. This segment provides retail mobile telephony services to residential and business customers in Belgium and provides wholesale data services to third parties. International Carrier Services. This segment provides voice, data and capacity and infrastructure services to telecommunications operators worldwide.

The Group’s head office and central functions are included for financial reporting purposes within the Fixed Line Services segment.

When a legal entity includes more than one segment, adjustments for inter-segment pricing are determined on an arm’s length basis. Segment results, assets and liabilities include items attributable to a segment as well as those that can be allocated on a reasonable basis.



(EUR million) Fixed Line Services Mobile Communications

Services

International Carrier Services

Inter-segment eliminations

Total

Net revenue 2,745 2,001 637 0 5,384Other operating revenue 52 17 5 0 74Intersegment revenue 163 163 70 -396 0Total segment revenue 2,961 2,181 713 -396 5,458

Total segment result (1) 1,147 1,041 27 -1 2,214

Operating income before depreciation 1,031 1,041 27 -1 2,098and amortization

Depreciation and amortization -492 -214 -20 1 -726

Operating income 538 827 7 0 1,372

Finance revenue (net) 64

Income before taxes 1,436

Tax expense -339

Net income 1,098

Minority interests 139Net income (group share) 959

(1) Operating income before depreciation and amortization and before non-recurring revenue and expenses


(EUR million) Fixed Line Services Mobile Communication

Services


Unallocated Total

Segment assets2,874 1,155 335 1,467 5,831

Segment liabilities952 655 279 1,354 3,240

Capital expenditure488 195 19 -6 696

Impairment losses recorded in the income statement

- on intangible assets, property, -2 -2 -1 - -5

plant & equipment (into segment result)



Services



Total

Net revenue 3,367 1,975 680 0 6,022Other operating revenue 57 20 1 0 78Intersegment revenue 206 141 54 -401 0Total segment revenue 3,630 2,136 736 -401 6,100

Total segment result (1) 1,116 1,000 33 0 2,149

Operating income before depreciation 1,116 1,000 33 0 2,149and amortization





Tax expense -358

Net income 1,093







Services


Unallocated Total

Segment assets3,450 2,694 292 863 7,300

Segment liabilities1,144 653 274 2,828 4,900

Capital expenditure448 214 15 - 676


- on intangible assets, property, -6 -10 - - -16




Services



Total

Net revenue 3,377 1,919 691 5,987Other operating revenue 55 21 1 77Intersegment revenue 171 114 54 -339 0Total segment revenue 3,603 2,054 746 -339 6,065

Total segment result (1) 1,112 912 53 0 2,077

Operating income before depreciation 1,066 912 53 0 2,031and amortization





Tax expense -300

Net income 958





Services


Unallocated Total

Segment assets3,350 2,667 266 1,043 7,325

Segment liabilities1,144 664 247 2,745 4,800

Capital expenditure453 154 18 0 625


- on intangible assets, property, -2 -3 0 - -4



For secondary segment reporting purposes, the Group has defined groups of countries characterized by similar economic environment and risks and returns. The group of countries “Western Europe” represents more than 90% of total revenue and total assets of the Group for each of the three periods presented. As a consequence, the company concluded that it must not present secondary segment information.



Note 41. Recent IFRS pronouncements

The Group does not early apply the standards or interpretations that are not yet effective at 31 December 2007. This means that the following standards or interpretations are not applied yet:

IFRS 8 (Operating Segments). This standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. The Group determined in 2007 the operating segments that will replace the primary segments. The disclosure requirements under IFRS 8 will be early applied as of 1 January 2008. Revised IAS 23 (Borrowing Costs). This revised IAS is effective for financial years beginning on or after 1 January 2009 and requires capitalization of borrowings costs that relate to a qualifying asset. The transitional requirements of the standard require it to be adopted as prospective change from the effective date. IFRIC 13 (Customer Loyalty Programs). This IFRIC becomes effective for annual periods beginning on or after 1 July 2008. This interpretation requires customer loyalty award credits to be accounted for as separate component of the sale transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. The Group expects that this interpretation will impact the Group’s financial statements since it currently accrues customer loyalty award credits at cost. IFRIC 14 (The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction). IFRIC 11 (IFRS 2 –Group and Treasury Share Transactions). IFRIC 12 (Service Concession Arrangements).

The Group will investigate the possible impacts of the application of these new standards and interpretations on the Group’s financial statements in the course of 2008, except for IFRS 8 which will be early applied.

Note 42. Post balance sheet events

On 15 February 2008, Belgacom announced the acquisition of all the shares of Scarlet SA, an infrastructure based communication provider, for an amount of EUR 185 million on a debt and cash free basis. This acquisition is subject to the approval of the competent competition authorities.

Belgacom is pursing the share buy-back program decided by the Board of Directors of 18 October 2007 for a maximum amount of EUR 230 million. The buy-back started in November 2007. On 27 February 2008 Belgacom had bought back 6,714,434 shares of which 4,439,322 shares were bought back in 2008, for a total amount of EUR 220 million.



Report of the Auditor

Report of the auditor to the General Meeting of Shareholders of Belgacom SA de droit

public/NV van publiek recht on the consolidated financial statements for the year ended

31 December 2007

In accordance with legal requirements, we report to you on the performance of the audit mandate that has been entrusted to us. This report contains our opinion on the consolidated financial statements as well as the required additional comments and information.

Unqualified opinion on the consolidated financial statements

We have audited the consolidated financial statements of Belgacom SA de droit public/NV van publiek recht and its subsidiaries (collectively referred to as “the Group”) for the year ended 31 December 2007, prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use by the European Union, and with the legal and regulatory requirements applicable in Belgium. These consolidated financial statements comprise the consolidated balance sheet as at 31 December 2007, and the consolidated statement of income, changes in equity and cash flow for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated balance sheet shows total assets of EUR 7,325 millions and the consolidated income statement shows a profit for the year, share of the Group, of EUR 958 millions.

Responsibility of the Board of Directors for the preparation and fair presentation of the

consolidated financial statements

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Responsibility of the auditor

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with legal requirements, and the auditing standards applicable in Belgium, as issued by the Institute of Registered Auditors (“Institut des Réviseurs d’Entreprises/Instituut van de Bedrijfsrevisoren”) and International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

In accordance with these standards, we have performed procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.

In making those risk assessments, we have considered internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. We have evaluated the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by the Group and the presentation of the consolidated financial statements, taken as a whole. Finally, we have obtained from the Board of Directors and the Group’s officials the explanations and information necessary for executing our audit procedures. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.



Opinion

In our opinion, the consolidated financial statements for the year ended 31 December 2007 give a true and fair view of the Group’s financial position as at 31 December 2007 and of the results of its operations and its cash flows in accordance with IFRS as adopted for use by the European Union, and with the legal and regulatory requirements applicable in Belgium.

Additional comments and information

The preparation and the assessment of the information that should be included in the annual report on the consolidated financial statements are the responsibility of the Board of Directors.

Our responsibility is to include in our report the following additional comments and information, which do not modify the scope of our opinion on the consolidated financial statements:

The annual report on the consolidated financial statements deals with the information required by law and is consistent with the consolidated financial statements. We are, however, unable to comment on the description of the principal risks and uncertainties which the entities included in the consolidation are facing, and on their situation, their foreseeable evolution or the significant influence of certain facts on their future development. We can nevertheless confirm that the matters discloseddo not present any obvious inconsistencies with the information that we became aware of during the performance of our mandate.

Brussels, 10 March 2008

Ernst & Young Réviseurs d'Entreprises SCCRL/Bedrijfsrevisoren BCVBA

represented by

Marnix Van Dooren

Partner





Extract from the Belgian GAAPnon-consolidated financial statementsof Belgacom SA under public law

76> Income statement

78> Balance sheet after appropriation

80> Appropriation statement

The financial information presented in this caption is an extract of the non-consolidated financial statements of Belgacom SA under public law as approved by the General Assembly on 09 April 2008 and as communicated to the National Bank of Belgium (in Dutch and French) in the month following the General Assembly. These financial statements were prepared in conformity with the accounting and reporting laws and regulations applicable in Belgium (“Belgian GAAP”). The Joint Auditors of Belgacom SA de droitpublic/ Belgacom NV van publiek recht have issued an unqualified opinion with respect to such non-consolidated financial statements.

A full set of the financial statements of Belgacom SA under Public Law is available in the "investor corner" section of the Belgacom Group website (www.belgacom.com) as soon as they will be filed at the National Bank of Belgium.



Income statement

(in EUR million - year ended 31 December) 2005 2006 2007

I. Operating income 3,041 3,045 2,956A. Turnover 2,856 2,828 2,735B. Increase (+); Decrease (-) in stocks of finished goods, 0 2 0 work and contracts in progressC. Own construction capitalised 134 169 174D. Other operating income 51 46 46

II. Operating charges -2,337 -2,410 -2,328A. Raw materials, consumables and goods for resale 173 203 218 1. Purchases 179 207 217 2. Increase (-); Decrease (+) in stocks -6 -4 1B. Services and other goods 994 1,070 966C. Remuneration, social security costs and pensions 730 710 715D. Depreciation of and other amounts written off 425 399 401 formation expenses, intangible and tangible fixed assetsE. Increase (+); Decrease (-) in amounts written off -4 -7 1 stocks, contracts in progress and trade debtorF. Increase (+); Decrease(-) in provisions for liabilities 2 12 6 and chargeG. Other operating charges 17 21 21H. Operating charges capitalised as reorganization costs

III. Operating profit 703 635 628

IV. Financial income 11 14 10A. Income from financial fixed assets 0 0 0B. Income from current assets 4 8 3C. Other financial income 7 6 7

V. Financial Charges -208 -280 -412A. Interest and other debt charges 192 266 399B. Increase (+); Decrease(-) in amounts written off 0 0 0 current assets other than mentioned under II.E.C. Other financial charges 15 14 13

VI. Profit on ordinary activities before taxes 507 369 226




VI. Profit on ordinary activities before taxes 507 369 226

VII. Exceptionnel income 351 68 80A. Adjustments to depreciation of and to other amounts 0 0 0 written off intangible and tangible fixed assetsB. Adjustments to amounts written off financial fixed assets 18 66 0C. Adjustments to provisions for extraordinary liabilities and charges 0 0 0D. Gain on disposal of fixed assets 333 1 73E. Other exceptionnel income 0 0 7

VIII. Extraordinary charges -466 -45 -90A. Extraordinary depreciation of and extraordinary amounts 0 1 0 written off formation expenses, intangible and tangible fixed assetsB. Amounts written off financial fixed assets 4 5 0C. Provisions for extraordinary liabilities and charges 306 -130 -53 (increase+, decrease -)D. Loss on disposal of fixed assets 0 0 0E. Other extraordinary charges 155 168 142F. Extraordinary charges capitalised as reorganization costs 0 0 0

IX. Profit for the period before taxes 392 392 217

Ixbis.A. Transfer from deffered taxation 0 0 0B. Transfer to deffered taxation 0 0 0

X. Income taxes 0 0 0A. Income taxes 0 0 0B. Adjustment of income taxes and write-back of 0 0 0 tax provisions

XI. Profit for the period 392 392 217

XII. Transfer from untaxed reserve 0 1 1Transfer to untaxed reserve 0 0 0

XIII. Profit for the period available for appropriation 392 393 218



Balance sheet after appropriation

(in EUR million - as of 31 December) 2005 2006 2007ASSETS

FIXED ASSETS 11,853 14,889 14,874

I. Formation expenses 0 0 0

II. Intangible assets 105 83 66

III. Tangible assets 1,566 1,567 1,575A. Land and buildings 225 215 207B. Plant, machinery and equipment 1,175 1,152 1,134C. Furniture and vehicles 25 24 21D. Leasing and other similar rights 52 41 31E. Other tangible assets 28 21 19F. Assets under construction and advance payments 63 113 163

IV. Financial assets 10,182 13,239 13,233A. Affiliated enterprises 10,170 13,232 13,233 1. Participating interests 10,170 13,232 13,233 2. Amounts receivable 0 0 0B. Other enterprises linked by participating interests 0 0 0 1. Participating interests 0 0 0 2. Amounts receivable 0 0 0C. Other financial assets 12 7 0 1. Shares 11 7 0 2. Amounts receivable and cash guarantees 1 0 0

CURRENT ASSETS 1,787 1,401 806

V. Amounts receivable after more than one year 3 2 2A. Trade debtors 0 0 0B. Other amounts receivable 3 2 2

VI. Inventories and contracts in progress 45 49 48A. Inventories 44 49 48 1. Raw materials and consumables 24 22 27 2. Work in progress 0 0 0 4. Goods purchased for resale 20 27 21B. Contracts in progress 1 0 0

VII. Amounts receivable within one year 539 553 525A. Trade debtors 514 534 494B. Other amounts receivable 25 19 30

VIII. Investments 570 762 186A. Own shares 564 754 178B. Other investments and deposits 6 8 8

IX. Cash at bank and in hand 618 17 27

X. Deferred charges and accrued income 13 17 18

Total assets 13,640 16,290 15,680



(in EUR million - as of 31 December) 2005 2006 2007LIABILITIES AND SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY 4,819 4,560 3,397

I. Capital 1,000 1,000 1,000

II. Share premium account 0 0 0

III. Revaluation surplus 0 0 0

IV. Reserves 3,818 3,560 2,397A. Legal reseve 100 100 100B. Reserve not available for distribution 601 812 202 1. In respect of own shares held 601 812 202 2. Other 0 0 0C. Untaxed Reserves 17 17 16D. Reserves available for distribution 3,100 2,631 2,079

V. Profit (loss) carried forward 0 0 0

VI. Investment grants 0 0 0

PROVISION AND DEFERRED TAXATION 1,170 1,052 1,005

VII. A. Provisions for liabilities and charges 1,164 1,046 999 4. Other liabilities and charges 1,164 1,046 999B. Deferred taxation 6 6 6

LIABILITIES 7,652 10,678 11,278

VIII. Amounts payable after more than one year 3,997 5,817 5,288A. Financial debts 3,997 5,817 5,288 1. Subordinated debentures 0 0 0 2. Unsubordinated debentures 217 1,867 1,867 3. Leasing and similar obligations 0 0 0 4. Credit institutions 3,421 3,591 3,062 5. Other loans 359 359 359D. Other amounts payable 0 0 0

IX. Amounts payable within one year 3,514 4,712 5,854A. Current portion of amounts payable after more than 1 year 815 826 729B. Financial debts 1,572 2,764 3,959 1. Credit institutions 1,572 2,764 3,959 2. Other loans 0 0 0C. Trade creditors 427 374 424 1. Suppliers 427 374 424 2. Suppliers bills 0 0 0D. Advances received on contracts in progress 17 14 10E. Taxes, remuneration and social security 140 167 140 1. Taxes 18 47 24 2. Remuneration and social security 122 119 116F. Other amounts payable 544 567 592

X. Accrued charges and deferred income 140 149 137

Total libabilities and shareholders' equity 13,640 16,290 15,680



Appropriation statement


A. PROFIT TO BE APPROPRIATED 392 393 218 LOSS TO BE APPROPRIATED

B. TRANSFERS FROM CAPITAL AND RESERVES 162 278 525

C. TRANSFERS TO CAPITAL AND RESERVES -16 -20 -7

F. DISTRIBUTION OF PROFIT -537 -651 -736




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