We connect everyone and everything so people live better and work smarter

Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Table of contents

03  40 Meaningful innovation Internet of Things 04 Our strategy Open innovation Our 2017-2019 strategy Big Data

Smart Solutions 10 Our results Highlights 2016 51 A simple and agile Proximus key financials organization

Regulatory Context A simpler organization

International highlights Agility

23 Our brand promise 59 A sustainable, A superior customer experience digital society

Our best quality integrated networks Environnement: a carbon neutral company

Our enhanced content offer Education & skill building

Easy-to-use innovative solutions Community

Best accessibility

Proactive servicing

Proximus Group Annual Report 2016 | 2 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Proximus

Proximus

Proximus is a telecommunications & In March 2016, Be-Mobile, Flow and Mobile-For, a Proximus ICT company operating in the Belgian subsidiary, have merged to form and international markets, providing a new company called Be-Mobile with the aim of offering innovative services to residential, enterprise and mobility solutions to increase the accessibility of cities and public customers. manage and optimize traffic flows. Be-Mobile occupies a unique market position in the field of SmartMobility, offering solutions We are the leading provider of Offering the full range of telecom to road users, companies, cities, , internet, television and and ICT, Proximus provides services municipalities and government network-based ICT services in for residential, enterprise and public services. It offers its expertise to through our Proximus customers. increase the accessibility of cities, and brands. Our advanced We are active in through interconnected fixed and mobile our affiliates Telindus Luxembourg for manage and optimize traffic flows networks offer access anywhere ICT and for telecom. In the through services such as mobility and anytime to digital services and we offer ICT services monitoring, dynamic traffic control, data, as well as to a broad offering through Telindus Netherlands. BICS electronic toll charging, and payfor of multimedia content. We are is our affiliate responsible for our parking services. investing in future-proof networks international carrier services. and innovative solutions, creating the Our complementary brands meet the foundations for sustainable growth. demands of a wide range of customers.

Our brands:

“Belgium’s leader in “The no-frills offering “The Proximus Group “ICT with a focus “Best-in-class quality and service for customers looking telecom operator in on corporate and international wholesale with the full choice of for the best prices.” Luxembourg, with institutional customers solutions for voice and features – bringing fixed and mobile, in the Netherlands mobile data service customers instantly TV and convergent and Luxembourg.” providers worldwide.” close to what matters.” services.”

Proximus Group Annual Report 2016 | 3 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our strategy

06 Our 2017-2019 strategy

Proximus Group Annual Report 2016 | 4 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our Strategy

OurOur purpose is to connect everyone and everything Strategyso people live better and work smarter.

Thanks to my good internet connection and new communication technologies I can now review CT-scans from home when on call evenings or weekends; it allows me to be with my family more, while also being present to follow up patients.

Ann, radiologist, Tielt Hospital

Proximus Group Annual Report 2016 | 5 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our Strategy

Our 2017-2019 strategy

Proximus is accelerating its Fit for Growth strategy over the next 3 years and strengthening its ambition to become a Digital Service Provider, connecting everyone and everything so people live better and work smarter. Our ultimate objective is to offer our customers a superior customer experience.

Proximus’ Fit for Growth strategy, launched in 2014, had the ambition to change Proximus from a technology- based player to a company focusing on customer experience, simplification of its operations and a new winning culture. This strategy had as goal to bring Proximus back to growth by 2016. Already in 2015, one year ahead of plan, the company returned to growth. To anticipate the ever demanding, fast evolving customer needs and an increasingly intensive competitive market situation, Proximus is accelerating its Fit for Growth strategy over the next 3 years and strengthening its ambition to become a Digital Service Provider.

Dominique Leroy, CEO Proximus

Proximus Group Annual Report 2016 | 6 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our Strategy

customer experience with a quality and customer and employee satisfaction. To Becoming a digital service that can be experienced through this aim we will drive simplification and our best quality integrated network, easy- efficiency throughout the organization. service provider to-use and innovative solutions, best Our simplification initiatives will cover the accessibility & local reach, and proactive portfolio, networks, IT and processes. We Proximus wants to become a digital servicing. will adapt our ways of working to become service provider, connecting everyone a lean and agile organization, with a and everything so people can live better strong drive for efficiency. and work smarter. Our ambition is to bring new technologies in an easy way Fit for Growth to our customers and improve their lives Grow the core and work environment. We want to strategy favor a new digital ecosystem, open to Proximus will grow the value of its core partnerships and collaboration with new To support the delivery of a superior business offering relevant integrated emerging players and offer our customers customer experience and sustain our solutions for residential and business access to new technologies and their growth, we will focus on 4 strategic customers. We will create value for our benefits in an easy and customer friendly pillars, where we really want to make the customers by intelligently bundling our way. It’s by means of new application- difference over the next 3 years. solutions, to grow the proportion of multi- led and service-oriented solutions that play customers, and build usage value customers will experience the true through smart pricing. meaning of Proximus’ customer centricity Become “Fit” mission. On the residential market, with our Proximus will accelerate its strategy by innovative brand new portfolio for families It’s our ultimate objective to service our making its organization fitter, and bring and small enterprises, we set ourselves customers and offer them a superior down its operating costs while increasing apart by no longer making the difference

Connecting everyone and everything so people live better and work smarter

Proximus Group Annual Report 2016 | 7 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our Strategy

between the type of network the devices quality integrated network. It’s the Group’s future avenues for growth. In the are using and by an end-to-end “peace ultimate technology to offer customers residential market, we continue our content of mind” experience. Our portfolio will the best solutions and most future-proof aggregation strategy. Smart advertising evolve in time, progressively integrating experience, responding rapidly to their ever and Smart retail are the key areas of focus. the Internet of Things. faster evolving needs. For the enterprise market, we further In a highly competitive market, Proximus accelerate developments in new domains, On the enterprise market, we will believes that the superior experience mainly in the Internet of Things, Big Data significantly invest to connect to the created by Fiber, with ultra-fast download analytics, security and the creation of a new business reality. We continue to and upload speeds and unrivalled brokering platform (Enabling Company). improve and complete our existing ICT responsiveness, will lead to our increase Concrete integrated deliveries are ‘Smart portfolio, by following the mobile-first of market share in the residential segment mobility’ and ‘Smart cities’. and cloud-first evolution. We’ll move and to a strengthening of our position in the towards truly modular convergence to enterprise segment. Fiber will also enable deliver integrated solutions, supported by further densification of our mobile network Transform the company new tools and processes while embracing and allow the future roll-out of 5G. application-led solutions to integrate The acceleration of Proximus’ Good partners. This will translate into different We will boost digital customer to Gold culture will be a key enabler value proposals like workplace as a interactions. Proximus will transform to achieve our mission of delivering service, smart and connected buildings itself to enable customers and businesses a superior customer experience and and ecosystem convergence driving to interact with us throughout a coherent realize our ambition of becoming a digital value out of the supplier and customer digital journey. Optimizing digital service provider. We will reinforce, adopt relationship. touch points will bring us even closer and drive the need for cultural change to our customers: simpler interactions, towards a growth mindset, the belief that immediate access whenever convenient we are able to learn, change and adapt Build the future for the users, accessibility from any place for future success. This mindset change and with any device. will be driven by the 3 company values: We want to build the future through agility, collaboration and accountability. accelerating fiber roll-out, driving the Innovation is twofold for Proximus. First, we Agility is a prerequisite to grow and digital transformation of our processes focus on innovative technologies that are seize opportunities in tomorrow's digital & customer interactions and deploying relevant and meaningful for our customers, world. In order to be able to do so we will meaningful, application-led innovation. delivering them concrete and useful transform towards a learning and more Fiber is the key enabler to sustain applications. Second, we will concentrate on digital organization where both risk-taking and further develop Proximus’ best value-creating innovation, representing the and learning from mistakes are rewarded.

Proximus Group Annual Report 2016 | 8 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our Strategy

collaboration and accountability will become real through local and empowered teams, driving better execution, to improve accountability throughout the company and drive better execution. The cultural transformation of Proximus, which builds on people's strengths and the development of our talents through coaching and feedback, will not only drive performance. Our employees are to become proud ambassadors of Proximus and its solutions, where successes are celebrated and the company is recommended as a great and fun place to work.

Sustainable profitable growth

The sound financial position of Proximus allows for investing in its customer satisfaction and the long-term value of the company. With the announced Fiber roll-out plan, Proximus estimates its annual investment level for the Group over the next 3 years to be around EUR 1 billion.

In spite of regulatory impacts, Proximus expects its Free Cash Flow to sustain a stable dividend supported by its growth strategy and its cost efficiency programs. Proximus therefore can already announce it intends to return to its shareholders a stable dividend of €1,50 per share over the period 2017-2019.

Proximus Group Annual Report 2016 | 9 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

12 Highlights 2016

14 Proximus key financials

18 Regulatory Context

20 International highlights

Proximus Group Annual Report 2016 | 10 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

OurWe consistently delivered upon our Fit for Growth resultsstrategy in 2016, growing for the second year in a row.

With the helps of Proximus' services we have optimized our supply chain and our stock management which had a positive impact on our results.

Jan, bakery Van Grootloon, Sint-Truiden

Proximus Group Annual Report 2016 | 11 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Highlights 2016

ISO 27001 124,000 customers on our Certification ISO 27001 – Launch of our new kids 3-& 4-Play in the first 3 months the highly respected security content channel after launch management standard

GPON VoLTE

First customer connected to Launch of VoLTE: Pilot with Tessares to provide GPON Point-to-Multipoint we can now surf and call increased download speeds for fiber architecture on 4G at the same time customers in remote areas

2,172

First in Belgium to test 5G Exclusive broadcast of employees signing up for with speed up to 70 Gbps, the Proximus league for the next the voluntary early leave plan prior 100 times faster than 4G 4 seasons on Proximus TV to retirement

Proximus Group Annual Report 2016 | 12 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

+3.6% 72.3% 93%

Group underlying of vectoring coverage customer satisfaction following a EBITDA growth Happy House visit

240,000

Proximus is the #1 proactive € 3 bn investment in the national in the Netflix Speed Index decoder swaps roll-out of 'Fiber for Belgium' over the next 10 years

MyAnalytics EnCo Key customer Launch of MyAnalytics portal that Platform where we offer companies allows professional customers to all the building blocks required to deals create their own analyses quickly carry out their own tailor- and reports made solutions, incorporating our We renewed key contracts and key assets realized significant winbacks

Belfius, bpost and Proximus launch of a new company invested in smart retail offering innovative mobility platform solutions

Proximus Group Annual Report 2016 | 13 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Proximus key financials

In 2016, we continued to deliver our Fit for Growth strategy, transforming Proximus into a more customer oriented, agile and efficient organization. In an intensive competitive market with fast changing customer needs, we further grew our customer base. In the first 3 months since its launch mid-October, 124,000 customers were appealed by our new Tuttimus and Bizz All-In offer.

We achieved in 2016 a solid growth in our customer base, and especially further enriched it with more valuable and loyal multiplay customers. Moreover, our efforts to transform our company resulted into a solid reduction of our cost base.

This translated in a 3.6% increase in Group EBITDA, in spite of a significant impact from roaming regulation. Delivering upon our plans, we invested EUR 949 million to upgrade our networks, improve customer experience and in TV content. This all resulted in a very healthy cash flow of EUR 559 million, up 23% versus 2015 on like-for-like basis.

Proximus Group Annual Report 2016 | 14 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

by continued high volatility in the Voice Revenue For full-year 2016, the Proximus business and a less favorable destination Domestic revenue totalled EUR 4,410 mix. The non-Voice revenue on the other Proximus Group ended 2016 with a total million, a 0.7% improvement from hand continued to show solid growth. underlying revenue of EUR 5,871 million, 2015. The revenue growth was driven by 2.1% below the prior year. The lower both Proximus’ Consumer and Enterprise Group underlying revenue resulted from segment. a decline in BICS revenue, Proximus’ International Carrier business unit. This BICS generated in 2016 total revenue +0.7% was partly offset by Proximus’ Domestic of EUR 1,460 million, 9.6% lower operations which continued to show compared to its record-high revenue Domestic growth in 2016. posted in 2015. The decline was driven underlying revenue

Graphic 1: Revenue per product group (underlying, M€)

53 -1 1 4 -7 -3 -4 -1 56 5,994

5,871 Domestic + 0.7%

2015 Fixed Mobile Mobile Wholesale Subsidiaries Other BICS 2016 services devices

EBITDA Graphic 2: EBITDA - 3 year view (underlying, M€) The Proximus Group posted for 2016 underlying EBITDA of EUR 1,796 million, an increase by 3.6% compared to 2015. The Domestic operations of Proximus grew EBITDA by 4.7% to Domestic BICS a total of EUR 1,647 million. BICS closed 2016 with its Segment Result EUR 149 million. This is 7.2% below that of its record- high in 2015, during which BICS benefitted from favourable – 4.9% 1,733 3.6% 1,796 though volatile – market conditions. 1,653 160 -7. 2% 149 135 18.7% 3.6% 4.7% 1,647 +3.6% 1,518 1,573 Group underlying EBITDA 2014 2015 2016

Proximus Group Annual Report 2016 | 15 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Capex Graphic 3: Capex - 3 year view (M€)

In 2016 Proximus invested a total amount of Spectrum EUR 949 million, fully in line with the provided capex outlook for 2016. This compares to a total 994 1,002 capex of EUR 1,002 million for 2015, which included 949 EUR 75 million capex related to spectrum renewal.

In 2016, Proximus invested a.o. in its Fixed and Mobile networks to increase coverage and speed, as 978* 949 well as in IT systems, in further simplification and 926 transformation which all contributed to the decreasing cost base. Furthermore, Proximus successfully started its Fiber-to-the-Business roll-out in 2016, deployed greenfield fiber projects for new-builds, and initiated a 2014 2015 2016 brownfield project in . EUR 949 mio Capex * including the 3 year broadcasting rights of Belgian Jupiler League Football

Free cash flow Graphic 4: Free Cash Flow - 3 year view (M€)

Proximus’ FCF for the year 2016 totaled EUR 559 million, supported by the transversal cash management initiative launched mid-2015 in view of optimizing free cash flow generation. The 2016 FCF was up by EUR 151 million from the EUR 408 million FCF reported for 2015. When excluding the net impact of major one-off cash items in 2015, the FCF 711 increased year-on-year by EUR 105 million, i.e. 23% 559 on like-for-like basis. This was driven by the growth 408 in underlying EBITDA and less cash paid for Capex. More cash was needed however for Business working capital due to an increase in inventory with the level normalizing from a low 2015. 2014 2015 2016 EUR 559 mio Free cash flow

Proximus Group Annual Report 2016 | 16 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

regarding future business and market The Proximus evolutions, and may be subject to change in case of unforeseen risks or events share and dividend outside the company’s control.

The Proximus share closed 2016 at EUR Proximus 27.36, 8.8% below the last closing price of Shareholder return from the 2015. This compares to a 15.8% decline shares financial year 2016 for the European Telecom sector (STOXX ownership EUR 600 Telecom). On 23 February 2017, the Board of Directors decided to propose an ordinary In 2016 the Telecom sector was the worst dividend of EUR 1.00 per share to the performing sector in Europe, underper- Annual Shareholder Meeting of 19 April forming the global market. This in spite of 2017. As a result, Proximus expects to the sector showing an improving business return a dividend of EUR 1.50 gross per performance from the prior year, with Proximus own shares 5% share for the 2016 full-year results, in line decent quarterly financial results, meeting with its provided 3-year dividend outlook or exceeding consensus expectations, and  Free float 42% for 2014-2016. After approval by the solid shareholder return. The Telecom Annual Shareholder Meeting, the normal  Belgian State 53% underperformance was however driven dividend will be paid on 28 April 2017, by vaporizing hopes on consolidation and with record date on 27 April 2017 and ex- multiple regulatory headwinds. dividend date on 26 April 2017.

This came on top of the macro-driven Shareholder return policy This brings the total declared dividend over volatility on the overall market. the result of 2016 to EUR 486 million. Proximus commits to an attractive Proximus share ownership shareholder remuneration policy by Proximus continues to award its returning, in principle, most of its annual shareholders with an attractive and free cash flow to its shareholders. sustainable dividend. Mid-December Proximus’ main shareholder is the Belgian 2016, when announcing its Fiber-for- Government, owning 53.5% of the The return of free cash flow either Belgium project, Proximus’ management company’s shares. Proximus itself held through dividends or through share stated its intention to pay out a stable yearly 4.6% of its own shares end-2016. The buybacks will be reviewed on an annual dividend of EUR 1.50 per share for the free float represented 41.9%. basis in order to keep strategic financial next 3 years to come, provided Proximus’ flexibility for future growth, organically financial performance is in line with its Of the shares in free float, about 20% are or via selective M&A, with a clear focus expectations. held by retail investors and the remainder on value creation. This also includes essentially by institutional shareholders. confirming appropriate levels of Proximus’ main institutional shareholders distributable reserves. are located in the United States and the United Kingdom followed by Benelux and The shareholder remuneration policy is France. based on a number of assumptions

Consolidated Management Report Find all the financial information in the Proximus Consolidated Management Report

v Download the pdf

Proximus Group Annual Report 2016 | 17 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Regulatory Context

The telecommunications sector is highly regulated both from a national and a European perspective. Therefore, in 2016 as in the previous years, Proximus remained subject to a number of regulatory measures. The roaming charges and the fixed termination rates decreased sharply. The new net neutrality rules entered into force and the new process aimed at making it easier to change providers of fixed services was approved. At the same time, the cable operators persist in their refusal of Proximus’ access request to the cable infrastructure.

Roaming As from 15 June 2017, retail roaming prices within the EU will be at the The transitory period to the complete domestic retail price for consumption abolition of the roaming surcharges within the Fair Use Policy (FUP). (“Roam-Like-At-Home”) started on 30 April 2016 with the possibility for The Fair Use Policy was adopted by the operators to only apply a surcharge Commission on 15 December 2016. An up to the current regulated wholesale agreement among the EU institutions rates. As a consequence, Proximus on the review of the wholesale rates is lowered its rates in Europe and Scarlet also a prerequisite for the introduction completely abolished its roaming costs of RLAH. Such compromise was for all EU countries. reached on 31 January 2017.

Proximus Group Annual Report 2016 | 18 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Net Neutrality Consumer Cable &

The new Net Neutrality rules adopted protection Broadband in 2015 entered into force on 30 April 2016 and the Body of the European The “Easy Switch” rules that aim regulation Regulators adopted guidelines to be at facilitating the migration of fixed used by the national regulators for the services (internet, TV and packs) Despite the Court rulings confirming implementation. between operators were adopted in that Proximus has a principle September 2016. The new obligations authorization to use coax access, the will enter into force on 1 July 2017. cable operators continue to refuse our access requests introduced in Termination rates Since July 2015 the BIPT has pub- November 2014 and May 2015. lished maps of each mobile network on On 1 November 2016, the fixed call its “Atlas” website. In 2016 they also The file is currently in the hands of the termination rates decreased sharply published the first coverage maps of the regulators and should be treated in the to reach 0.092 eurocents/min. (from fixed broadband networks of all operators context of the upcoming review of the 0.645 eurocents average previously) together ranked by download speed. For television market analysis expected in in Belgium. These rates fell also in 2017, the BIPT has planned two meas- the course of 2017. Luxembourg on 1 January 2017 but uring campaigns that will show typical to a much lesser extent (from to 0.14 parameters regarding mobile user experi- eurocent/min. to 0.131 eurocent/min). ence in addition to the coverage maps. EU Telecom Review

The draft review of the EU telecom package released by the Commission in September shows some positive signals in terms of rewarding the investments in the fixed and mobile networks as well as of moving forward towards a level playing field. However there is still a long way to go before final adoption and the result is still uncertain.

We continue to advocate a lighter regulatory regime that incentivizes investments in next-generation networks and innovative services and a framework that guarantees a level playing field for all players both at network level and regarding services.

Regulatory Framework Report More details on the Regulatory Framework can be found in the full “Regulatory Framework Report”.

v Download the pdf

Proximus Group Annual Report 2016 | 19 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

International highlights

BICS is a top global voice carrier and the leading provider of mobile data services. In 2016, Proximus combines its Luxembourg entities Telindus and Tango to create Proximus Luxembourg, a new convergent organization with strong growth ambitions. Telindus Netherlands is the independent specialist combining connectivity, data center solutions, managed services and multi-vendor support.

BICS maintained its leadership position BICS in the international communications market, as a top voice carrier and the As a leading international global leader in mobile data services. communications enabler, BICS is connecting the world by creating reliable and secure mobile experiences anytime, anywhere.

In 2016, BICS continued to follow its comprehensive strategy to consolidate and update its offering and stay ahead of the accelerating changes in the global telecom landscape.

Proximus Group Annual Report 2016 | 20 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

Bridging the old and the new LTE Global Leadership BICS has launched a turnkey global IoT communications connectivity solution based on APIs. BICS maintained the LTE roaming BICS offers a 'pay-as-you-grow-model' BICS continued throughout 2016 to leadership, with double-digit growth for companies looking to integrate bridge the telecom and digital worlds. seen each month during 2016, while connected devices, as well as control It further expanded its offering and the data traffic has tripled year-on- and monetize them. the API tools to empower the different year on BICS’ global network. Next players in the ecosystem with state- generation data roaming now available BICS helps enterprises connect with of- the-art messaging, anti-fraud and across nearly 75% of the globe, customers and colleagues around authentication solutions. enabled by BICS’ IPX Hub. the world through cloud-based local phone numbers, which reflects in cost For digital service providers who want improvements, enhanced functionality, to protect their customers, secure Enabling the Internet and convergence across service types. their services and offer an enhanced of Things & Cloud customer experience to their users, Communications BICS offers authentication and connectivity solutions based on the Following its aims of becoming the power of the mobile world. go-to provider of mobility solutions,

Proximus Group Annual Report 2016 | 21 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our results

and managed services by winning several important ICT outsourcing contracts such as Alter Domus, a leading European provider of Fund and Corporate Services. For the next five years, Telindus will deliver ICT infrastructure services to 15 business sites worldwide, managing operations from its Luxembourg-based datacenter.

Finally, Telindus Luxembourg was rewarded for its expertise and received a series of industry awards such as Eurocloud’s 2016 “Best Business Impact provided by Cloud Services” and Cisco’s “Cloud and Managed Services Partner of the Year”.

Tango

In 2016 Tango redesigned its entire website to speed up and simplify the Telindus Proximus way customers choose their services. The integrated experience that allows Netherlands Luxembourg click-to-pick shopping, where customers can compose their offer In 2016 Telindus Netherlands invested (Telindus Luxembourg & Tango) online and pick up their device at the heavily in end-to-end security, nearest shop. combining the knowledge and expertise In 2016, creation of a branch called within the group (Proximus, Telindus "Proximus Luxembourg" to oversee Tango revamped its mobile bundles Netherlands and Telindus Luxembourg) the activities of Telindus Luxembourg by including EU roaming by default. As and Tango. While the companies keep from May 2016, all SMART bundles Telindus helped customers challenged their names and identities, the new were allowed to use the volumes with adapting to the Cloud, with Cloud entity supports the development of included in EU without any surcharge. advisor and Cloud-builder propositions our business in the EBU market. In created in 2016. addition, it offers a fully converged Finally, Tango swapped its mobile Core ICT and Telco services portfolio to the (the motor of its mobile network) in Acclaimed by vendors, Telindus won a enterprise market. Its areas of expertise less than 12 months, a project that number of industry awards including Cisco’s include fixed and mobile networks, ICT normally takes at least two years. Partner of the Year. Cisco also awarded infrastructure, Cloud and Security. Telindus for ‘Architectural Excellence: Datacenter’ and ‘Cloud Builder of the Year’. Telindus Luxembourg Telindus has invested heavily in packet optical technology, making the In 2016, Telindus Luxembourg extended company Ciena’s first ATSS (Advanced its security services offerings by launching Technology Support Services) a next generation Security Operation accredited partner globally. Telindus Center (SOC) to operate and proactively was the first to go to market with a monitor our customers’ ICT systems 200G encryption solution and the 24/7/36 against cyber-attacks. first partner with a Blue Planet Lab. As a result, Ciena honored it with its Telindus Luxembourg also further Innovation Partner of the Year award. increased its market shares in Cloud

Proximus Group Annual Report 2016 | 22 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

25 A superior customer experience

26 Our best quality integrated networks

30 Our enhanced content offer

32 Easy-to-use innovative solutions

36 Best accessibility

38 Proactive servicing

Proximus Group Annual Report 2016 | 23 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

OurAs provider of digital services, Proximus is working to connect everyone and everything so people live better and work smarter. Customers can directly experience the quality and service we offer through our best-quality integrated networks, our easy-to-use and innovative brandsolutions, best accessibility and proactive servicing. promise Having a Swedish father and a Madagascan mother, I like to stay always close to my family abroad. New communication tools and all-in offers allow me to do so.

Saurea, housewife, Ghent

Proximus Group Annual Report 2016 | 24 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

A superior customer experience

In 2016 we continued the transformation of our company and remained focused on our ambition to deliver a superior customer experience in line with our brand promise “Always close to what matters”.

Every day, we go the extra mile to make proactively, Happy House visits, to offer sure our millions of customers are customers the best in home experience: getting the best service that matters to we installed the latest technology, them. In 2016 we stepped up the speed ensured full Wi-Fi coverage and explained for more than 250,000 customers so useful applications. We also launched they can enjoy the best experience. the “safety nets” – providing customer We also replaced 240,000 decoders information and close follow-up when an with the latest technology, allowing issue is detected. customers to make the most of their Proximus TV experience. We are always there to help: our customer services are accessible free of charge. For all TV and Internet technical questions, experts are available until midnight. For our business customers the technical help center is available 24/7 for all technical questions. For questions that can’t be answered on the phone, customers can request a technician’s visit at a time that works for 82,500 them, including evenings and Saturdays. We want to excite our customers Happy House visits by providing an excellent customer experience at every touch point of their journey. With this in mind, we In 2016, we improved our proactive have launched a multi-year interactive monitoring to resolve customer’s issue. In business transformation program this perspective we visited 82.500 homes called Excite.

Proximus Group Annual Report 2016 | 25 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Our best quality integrated networks

In the new digital world, customers have high demands on the performance of the network and they expect an excellent usage experience independent of the network they are using. In 2016 Proximus invested € 949 million in its infrastructure, content, simplification, transformation and IT developments to stay ahead of the curve. With the launch of 'Fiber for Belgium' we ambition to accelerate our national roll-out of Fiber supported by a major investment plan of €3 billion over 10 years.

door to great services such as HD TV, A reliable fixed for example, which is now available to network some 92 % of households. Higher speeds for more Even in remote areas customers We are working on solutions to ensure Thanks to the expansion of vectoring that even the remote areas of Belgium technology in 2016, customers can now can benefit from super-fast Internet. enjoy an average download speed of 63 Together with the Belgian start-up Mbps on VDSL lines. We also increased Tessares, we are combining our fixed the vectoring coverage by 29% in the Internet signal with our 4G network space of one year to reach 72.3% end to ensure high-speed Internet in 2016. Through the combination of remote areas too. This innovative DLM and vectoring, Proximus is able to technology was successfully tested by connect a constantly growing portion hundreds of customers in the village of the Belgian population to 100 Mbps of Frasnes-Lez-Anvaing boosting the on copper. Higher speeds open the internet speed of the customers.

Proximus Group Annual Report 2016 | 26 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Building a future-proof Fiber, internet at the speed of Light network with Fiber Proximus already has 21 000 km of optical fiber in its network - mainly in context of Optical Fiber is the ultimate future-proof VDSL for residential customers (Fiber-to-the Curb) and connecting enterprises network. The capabilities of Fiber will (Fiber-to-the Business). The newly announced 'Fiber for Belgium' investment plan enable new applications and improve will bring the fiber capabilities directly into the homes. the way we work and live. Fiber is the superior future-proof technology offering: Fiber for businesses in industrial • Highest Speed (Gbps), supporting next generation video zonings… • Low Latency, vital for Augmented and Virtual Reality • Up & download Symmetry, enabling Cloud applications Fiber connection is a major differentiator for businesses .Thanks to optical Fiber, corporate customers will be fully ready for the latest digital developments. Collaboration between workers will become much easier, as everything can be stored in the cloud and is instantly accessible thanks to superfast download and upload. Fiber That is why since 2015, Proximus has time without hitches, even in peak enables all employees to surf and proactively roll-out 'Fiber-To-The- hours. With Fiber, all family members stream intensively and simultaneously Business' (FTTB). Today, already 80% can enjoy surfing, streaming and without latency, even when they’re of industrial zonings and more than gaming instantly, without any latency working with heavy files, which is often 6,000 enterprise customers are or loss of quality. the case for architects or designers connected to FTTB. for example. By working in the In June 2016 we launched a pilot project cloud, businesses can grow without And businesses are welcoming the to bring Fiber into existing homes in the requiring any additional investments new possibilities of Fiber. Customers Anspach district of Brussels. in infrastructure while ensuring data such as Volvo Cars, ING, BNP-Paribas, protection and redundancy. Belfius, Dovy keukens and Facilicom are ‘Fiber for Belgium’ to accelerate already taking full advantage of these the roll-out of Fiber cutting-edge services. Proximus also invests in GPON (Point-to-Multipoint In December 2016 we launched ‘Fiber fiber architecture) for medium-size for Belgium’, a major investment enterprises and the branch sites of plan of € 3 billion over 10 years, major companies. to accelerate our national roll-out of Fiber-To-The-Business, start a full Fiber in new residential areas fiber roll-out in dense city areas combining Fiber-To-The Business & Fiber-To-The-Home is the ideal To-The-Home (in existing homes) technology to enable everyone to enjoy and start densification of our existing the sharpest image on all family screens. Fiber-To-The-Curb network outside cities. The overall objective of the fiber Since 2015, Proximus has also been plan is to cover more than 85% of rolling out 'Fiber-To-The-Home' businesses and more than 50% (FTTH) technology in new residential of households. areas across Belgium. With FTTH, surfing at home is faster than ever. As of early 2017, Proximus will be Uploading an ultra-high definition the first operator in Belgium to bring video, for example, only takes a few Fiber inside existing homes and minutes. Fiber-To-The-Home is the apartments on a large scale, starting ideal technology for everyone to with a progressive roll-out in six cities: enjoy the sharpest image on all family Brussels, Antwerp, Ghent, Charleroi, screens, or to be online at the same Namur and Roeselare.

Proximus Group Annual Report 2016 | 27 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

The next-generation mobile Top-class mobile network network: 5G, with 4.5G in the middle At Proximus we aim to keep improving and 3G networks. We also stepped up our mobile network, anticipating our deployment of 4G and 4G+ for high- Mobile data traffic is expected to double customers’ future needs. In 2016, we speed mobile internet. every year. This exponential increase invested not only in our existing 2G is being driven by the growth in the number of , causing an ever- rising demand for mobile data. There’s also the explosive growth of Always reliable mobile network video (3D video and 4K screens) and expanding use of the Internet of Things. Today Proximus offers its customers the top-class To anticipate this growth, Proximus mobile network. is working on the next-generation This is confirmed by measurements taken by technologies: 4.5G and 5G. the independent research firm Commsquare. Proximus successfully tested 4.5G technology over the summer. The Speed Coverage Quality indicators progressive roll-out of this technology will begin in 2017. This will offer many opportunities for streaming with an improved image quality.

38.3 Mbps download 97.7 % indoor Proximus 1st or joint 1st in 84 out of the 89 categories measured

# 1 WEB NAVIGATION

# 1 FOR ONLINE VIDEO STREAMING

# 1 FOR DOWNLOAD OR 16.2 Mbps upload 99.7 % outdoor UPLOAD OF FILES

In November, Proximus was also the HD voice calls over 3G and 4G (VoLTE) first to test 5G in Belgium and one of the first in Europe. To improve the customer experience we Therefore we invested in VoLTE (Voice also worked on the voice call quality. over LTE/4G) technology. It offers users With 4.5G and 5G, Proximus is once To this end, in March 2016 we enabled HD voice quality with faster call setup time again confirming its leadership role in HD voice calls on 3G and in December (from average 7 sec to 2.6 sec), and the mobile to offer consumers the best we launched HD voice on 4G. possibility to surf at 4G speed while calling. mobile user experience.

Proximus Group Annual Report 2016 | 28 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Connecting the We're committed Internet of Things to giving our customers with LoRa - no matter where they are - the best calling, surfing In addition to connecting more and more and video experience and people, there will be an exponential growth of connected “things” over the providing them with all next years. This is why in 2015 we began the new opportunities that rolling out a dedicated IoT network the 'Internet of Things' world based on the LoRa™ technology, a cost-efficient solution designed to offers. To be ready for the support short messages over long future, Proximus and distances with very low power usage Huawei are already testing and a very high level of security. In 2016, this dedicated network has been 5G, the next-generation densified in the urban areas, across mobile Internet. Belgium and Luxembourg responding to the needs of the customers. Geert Standaert, Discover more on IoT in the chapter: “Innovation” Proximus CTO

Proximus Group Annual Report 2016 | 29 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Our enhanced content offer

After reinventing Proximus TV the year before, we spent 2016 stepping up that experience with our new TV interface and our enriched content offer.

Further enriching our content

In 2016, we considerably enlarged our offer for families and children. From March 2016, Proximus TV customers had exclusive access to Wanagogo, Studio 100’s digital offering for children, accessible both on television and on smartphones and tablets. The Wanagogo pass is accessible for all Proximus TV customers and gives access to the whole Studio 100 world: on-demand programs, video clips, games, books, etc. It's the ideal offering for parents looking for intelligent and safe entertainment.

Proximus Group Annual Report 2016 | 30 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Furthermore, since 1 June 2016, the just football, through Eleven sports, with the Superprestige, a regularity new television channel Studio 100 customers can also enjoy the most criterium in cyclo-cross racing, and the TV is available in the basic offer to all spectacular moments of basketball, ‘ UCI Cyclo-cross World Cup’. Proximus TV customers in Wallonia American football, tennis, volleyball, and Brussels. Broadcasted 24/7, handball and cycling. With Netflix, we also offer the best the channel offers children between series and movies! Adults, teens, kids 0 and 12 years of age a rich and varied Cyclo-cross fans can now watch their – there's something for everyone on program. favorite sport for free on Proximus TV Netflix, which has exclusive series and movies you can't find anywhere else. Customers can stream Netflix directly on Proximus TV.

Football fans get more thrills and chills, following an exclusive agreement to broadcast D1B, the new format of the current division 2 championship. The competition will now be named the 'Proximus League' for the next four seasons. We are also continuing to offer complete coverage of the UEFA Champions League and the best of European football and Jupiler Pro League. But there is more than

Football, anywhere and on any screen with the Proximus 11 app

With the Proximus 11 app and website: - You can watch your favorite teams live, everywhere. Via Wi-Fi or 4G. - You get access to the Video Goal Alert system - You can watch Proximus 11 on your PC, laptop, tablet or - We offer you all the news and rankings of your favorite teams. Plus additional videos and summaries.

Proximus Group Annual Report 2016 | 31 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Easy-to-use innovative solutions

Seizing on the digital revolution, Proximus is transforming itself into a digital service provider that brings new, easy-to-use solutions to both consumers and businesses. We provide full digital, converged services and platforms that offer our customers new ways of living better and more efficient lives.

A convergent experience anywhere, anytime for consumers

We want our customers to be able to access their favorite content effortlessly and enjoy a similar multi- screen convergent experience on any device, anytime, anywhere. We have been working hard in 2016 to make this happen with a focus on a new commercial offer and an improved TV experience. 2016 was also the year we revamped our roaming offers.

Proximus Group Annual Report 2016 | 32 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

New attractive commercial offer

In October 2016 Proximus reinvented its commercial offer with the launch of the new all-in products Tuttimus for residential customers and Bizz All-in for small business customers.

This offer allows everyone to tailor the services available according to their own needs and preferences. It is designed for the digital age where customers want an all-in package with an abundance of options, which they can easily personalize. Users can call, surf, watch Tuttimus television and work worry-free, at home and on the move. Imagine: a world where everyone gets what they like: - Everyone gets loads of mobile data and unlimited Internet at home - Everyone gets unlimited use of their favorite app Roaming gets cheaper in EU - Everyone gets their favorite TV bundle plus Netflix and top destinations - Everyone gets unlimited fixed and mobile calls Customers on the move and without Well, that's the world of Tuttimus. borders want to access their content anywhere. Adapting to new European roaming regulation, Proximus and Scarlet have completely reviewed their roaming offers.

From 30 April 2016, calling, texting and surfing within the European Union became up to 70% cheaper for Proximus subscribers. Customers now benefit from cheaper roaming in 73 countries, including top destinations such as Canada, the United States, Turkey, Morocco and Australia.

Scarlet has completely eliminated all roaming charges for EU countries as of April 2016. This price change ties in Bizz All-in with the philosophy of Scarlet, our brand aimed at customers seeking the best With Bizz All-in, every entrepreneur gets: price-quality ratio. - Unlimited calls, fixed and mobile - Loads of data, fixed and mobile As of June 2017, the roaming charges - 24/7 guaranteed support applicable within the EU will be - Working in the Cloud completely abolished for retail. Thanks - Digital TV on all their screens (optional) to the new regulation, customers will be able to surf, call and text in EU countries What's more, they can personalize their Bizz All-In with extra mobiles, call at the same tariff as in Belgium. management with Bizz Call Connect, roaming options and joint offers.

Proximus Group Annual Report 2016 | 33 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Future-proof replace their old classic telephone PABX by offers flexibility and choice for Hybrid a Unified Communication solution: Skype Cloud data center solutions, while solutions for for Business. the Proximus Cloud Connect & Azure ExpressRoute services provide dedicated businesses connections to the Cloud services of our Leveraging the Cloud customers. Proximus combines Microsoft technology with its Cloud expertise Wherever the digital revolution takes us, Proximus extended its Cloud portfolio to offer better, solutions to Belgian we aim to remain the leading, reliable for the corporate market with the enterprises and to help businesses ICT partner for businesses. With Proximus Azure Pack. This product leverage the power of the Cloud. solutions that help them work smarter and live better, future-ready, future-proof.

Proximus offers its professional customers connectivity which embeds a high level of security on any device. Our integrated IT and Telco solutions are designed with flexibility in mind. We also build complete solutions that can make a difference in running a business. For example, by creating productive, motivated employees, achieving smarter collaboration, satisfying their customers and keeping their business running efficiently.

We are also improving our New Communication & Collaboration portfolio to cater for all communication and collaboration needs, across all technologies. Amongst others we signed a partnership with Duvel Moortgat where we

Proximus Bizz Call SME in Cloud Connect Connect the Cloud

gives customers access via a is a flexible and advantageous allows the customers to no longer private, secure, high quality solution in the Cloud. To manage worry about managing their connection to all our Cloud all client calls in a professional IT. With SME in the Cloud their services offered in the Proximus manner on any type of device, be familiar PC environment (data datacenters. The customer it fixed line or smartphone. With and applications) is located in a can easily adapt bandwidth the app (available for iOS and secured Proximus datacenter. requirements depending on Android) or the web portal, all the The customers will have the latest business needs. functionalities of Bizz Call Connect IT infrastructure and applications can be easily managed. in the cloud at a fixed price per user. They can even integrate their own applications in this solution.

Proximus Group Annual Report 2016 | 34 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Security

With constantly evolving risks and threats, cyber security is a top priority for Proximus and its customers. Due to an interconnected world, many companies risk hacker attacks that aim to obtain sensitive information or disrupt operations.

Taking on those threats, Proximus has developed ‘360° Security Services’, including prediction, prevention, detection and response. It’s a one- stop shop for solutions protecting a company, its data, endpoints and critical infrastructure.

We also provide a unique incident response capability, with more than 300 security specialists.

In recognition of Proximus’ expertise in cyber security, our Enterprise Business Unit obtained the ISO 27001 certification – the highly respected security management standard - for its Housing and Hosting Platform. ISO 27001 It also got that mark of excellence for its Security Operations Center, the Explore network and the Work Place as a Service solution.

Growing brand preference as an Self-managed ICT solution provider solutions

Proximus’ quest for digital innovation is paying off. A study amongst When customers prefer to use Belgian companies shows Proximus is increasingly seen as a leading ICT their own employees to install provider. In November 2016, 46% of businesses cited Proximus when and manage new security asked to name an ICT service provider, an increase of 18% compared to solutions, we can deliver training January 2016. to allow them to perform major interventions, leading to the (Proximus Communication Tracker) certification of their own people.

Proximus Group Annual Report 2016 | 35 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Best accessibility

Proximus wants to reduce customer effort in all-digital & human interactions and increase customer satisfaction. Proximus aims to offer its customers a seamless shopping and service experience across channels, with a digital-first mindset.

MyProximus: your personalized app

Through MyProximus, customers can check their consumption, their products and receive personalized advice.

Today some 740,000 customers are using MyProximus. In 2016 we focused on improving the customer experience through the look & feel and responsiveness of the application. Since December, customers can access their bills directly and receive notifications from the app once their latest bill is available.

We have also improved the experience on the proximus.be website with a complete revamp of most sections which are now simpler and responsive on any device.

Proximus Group Annual Report 2016 | 36 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

E-billing: simpler, We want to excite our customers by content incredibly easy to find, present, share providing an excellent customer experience and measure. greener at every touch point of their journey. With this in mind, we have launched a multi-year More and more of our customers opt for interactive business transformation program Business continuity e-billing, with more than 1 million called Excite. This program will support the residential customers now receiving growth in the professional market through - same day repair their bills electronically, saving a lot of convergent solutions, the adoption of an paper… and trees. agile approach and digitalization. In a hyper-connected world, constant availability is increasingly vital. In recent We have revamped and simplified the bills As a first step in this program we are years, we have succeeded in maintaining of our private customers for fixed services now using the Salesforce Customer service continuity at around 99.99% and packs. To do that, we have improved the Relations Management system to for small enterprises. Should a small lay out, and the readability of the invoice. manage the sales cycle. Thanks to this enterprise encounter a break down, we solution, all customers’ data is available offer a same day repair (fixed line, Internet anywhere, anyplace, ensuring better connection and PABX). customer service and interactions. Customer support To ensure entrepreneurs are served by In order to make sure our customers have people who know their needs, a network via touch points the best experience, we have implemented of 400 Bizz Experts is present in shops, a 'First Time Right’ approach to minimize contact centers and online to find the best We use both digital and physical channels the number of complaints. This approach is solutions to their questions. to guarantee the best quality customer starting from when they submit their order support. Customers can contact us by right up to the final delivery of the solution. phone for technical questions from 8 am To guarantee this we have reengineered key to 10 pm (until midnight for TV and customer journeys and have tailored them internet) every day of the week. Support to the needs of our customers. 400 via the Website offers FAQs and features Bizz Experts 60 tutorials on YouTube. Proximus and the Ghent start-up Showpad have joined forces to offer account managers For our professional customers we offer In 2016 we launched the Proximus a Cloud application which offers the world's 24/7 access to an ICT Service Desk with forum, where customers and experts can most powerful content activation platform. It different solutions tailored to their needs. interact to help each other. In just one year, makes Proximus’ commercial and marketing Non-stop service for non-stop business. we registered more than one million visits. In specific cases, customers can solve their questions through online chat sessions.

As social media are also becoming a more important support channel for customers, we have invested in training of 'social media agents’.

Best experience for business customers

We are also innovating in the way we connect with our professional customers so as to simplify both our interactions and our solutions.

Proximus Group Annual Report 2016 | 37 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Proactive servicing

In a world in which companies and consumers rely on the constant availability of online services, the quality of service offered makes all the difference. Proximus' proactive servicing approach eliminates as many potential problems as possible at the root. We engage to proactively avoid issues wherever they might occur and assure an end-to-end availability of our solutions.

High satisfaction for the Full Install

We provide the best product experience for our customers by making sure everything is perfect the first time around. Our technicians now carry out all of the installations themselves thereby ensuring a high first-time-right percentage and a customer satisfaction 86.4% rate of 86.4% for residential customers and 80.3% for small enterprises. customer satisfaction

Proximus Group Annual Report 2016 | 38 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Our brand promise

Happy House - the next level in service

For existing customers, we launched the Happy House approach in 2016, visiting our customers proactively to optimize their Proximus installation at home. The Proximus technician checks the existing fixed installation, the mobile indoor coverage, the WiFi coverage where the customer wants it and explains useful applications.

In 2016 we made 82,500 visits with great results: after a Happy House visit, approximately 1 out of 2 customers would recommend Proximus and customer satisfaction is peaking at 93%. Our technicians are making a difference!

End-to-end solutions for business

In 2016 we introduced the first end- to-end servicing: service repair. We provide a service repair in 5 hours for the Enterprise Call and Surf bundle, wherever the technical problem occurs. Also, all new contracts for standard solutions are founded on the same set of building blocks, ensuring uniformity and clarity with respect to the support services that Proximus offers on its solutions.

Proximus Group Annual Report 2016 | 39 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful Innovation

43 Internet of Things

45 Open innovation

4 7 Big Data

49 Smart Solutions

Proximus Group Annual Report 2016 | 40 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

MeaningfulOur ambition is to become a digital service provider bringing new technologies in an easy way to our customers and improving their lives and work environment. Our focus is not only tech-oriented, but on how we can transform technologies like the Internet Innovationof Things (IoT), Big Data, the Cloud and Security into solutions with positive impact on people and society.

Together with Be-Mobile we will develop innovative mobility solutions to improve road safety and reduce carbon emissions, including an app that warns truck drivers in case a dangerous traffic situation occurs.

Stephan, Supply chain manager by Colruyt, Halle

Proximus Group Annual Report 2016 | 41 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

To foster innovation, we are developing In the residential market, our focus is on more agile ways of working and Smart Advertising & Smart Retail. embracing a start-up mentality. That means building strong 'partnership For the enterprise market, we further ecosystems’ and co-creating the accelerate developments in new solutions of tomorrow together domains, mainly in the Internet of with our customers. It’s by means Things, Data analytics, security of new application-led and service- and the creation of the brokering oriented solutions that customers platform EnCo (Enabling Company). will experience the true meaning of Concrete integrated deliveries are Proximus’ customer centricity mission. 'Smart Mobility' and 'Smart Cities'.

Proximus Group Annual Report 2016 | 42 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

Internet of Things

With the Internet of Things (IoT) everyday objects get network connectivity, allowing them to send and receive data. This data is collected and processed to considerably improve how things work, at home and in business. Proximus offers a unique end-to-end offering to connect devices with the Internet via its IoT network based on the LoRa™ technology.

Today the main activity in IoT is still Besides that, we also further deploy connecting objects with SIM cards. our new LoRa network dedicated to We are the market leader in this with objects (SIM-less technology). more than 1.1 Mio active SIM cards. In 2016, we activated more than 700,00 SIM cards, mainly driven by the toll project Road User Charging. Proximus participated in the setup of the tolling solution for Viapass, the Belgian road user charging project - aiming to reduce pollution, improve mobility and increase tax income.

Since 1 April 2016 trucks have been subject to distance-based road charging based on vehicle characteristics, time and place. Proximus delivers IT & communications services.

Proximus Group Annual Report 2016 | 43 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

IoT in action

Proximus’ Internet of Things solutions offer countless (eg: better insulation, more respectable heating and air possibilities in many industries and in daily life: conditioning systems ...).

QUALITY GUARD Today, thanks to the development of new communication The company Quality Guard has developed an application technologies it is possible to go further and create smart that uses the LoRa™ network to measure the cold chain buildings. in food sector. Sensors detect all legally required cold storage information (temperature, humidity etc.) and Various sensors make it possible to collect lots of transmit them via LoRa™ for monitoring and storage with information in real time which will be analyzed and used minimum paperwork. to take faster decisions (ex: incident detection cleaning of the busiest places …). SMART BUILDING Over the past 2 decades, new construction techniques Proximus is investing in this new field and developing and materials have enabled to build new buildings more partnerships with key players to meet the needs of its in line with the latest environmental expectations customers.

Proximus Group Annual Report 2016 | 44 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

Open innovation

Innovation is a very important aspect of our growth strategy at Proximus. We unhesitatingly opt for Open Innovation, working with external parties to jointly develop the products of tomorrow.

In April Proximus launched a strategic applications and services in a flexible cooperation program with the iMinds way via an open IT platform. research center. This partnership enables Proximus to play an even more decisive As part of our innovation strategy, we are role in the roll-out of Smart Homes, making available the assets of Proximus Smart Logistics and Smart Cities. as well as those of third parties to an ecosystem of partners. The objective is to boost the development of ‘Proximus inside’ solutions. The EnCo community Launch of the has more than 400 active developers. Proximus EnCo marketplace

A new step in the development of the partner ecosystem was the launch of the Proximus Enabling Company (EnCo) Platform in October 2016. Proximus EnCo enables all business customers, application development partners and Proximus employees to connect internal and external data,

Proximus Group Annual Report 2016 | 45 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

EnCo in action

• With our open API for carrier billing we allow partners to sell digital goods and have them billed on the Proximus invoice without a credit card. Currently, Proximus customers can have their purchases from the Google Android store directly billed on their Proximus’ invoice.

• The SMS API allows vast numbers of SMS messages to be sent and received. A software partner in the healthcare sector, for example, uses our SMS platform to enrich their ‘appointment application’. Patients now receive a SMS the day before their scheduled hospital appointment as a reminder.

• If credit card companies suspect fraud they can perform a location check of the credit card owners’ telephone via our Location Based Services.

• Through the Proximus Enabling Company (EnCo) Platform we offer companies all the building blocks required to quickly carry out their own tailor-made solutions.

Hack-a-post Co.Station Ghent

To stimulate co-creation with the In September, Co.Station Ghent opened developer community we actively organize as the result of a partnership between and support events where we motivate BNP Paribas Fortis, EY (Ernst & Young) developers to create new solutions by and Proximus. Co.Station Ghent is building on our core assets. designed to provide a ‘village-style’ co-working space, together with a Proximus organized, for example, the learning academy and an accelerator ‘Hack-a-post’ competition together program. It is all aimed at encouraging with bpost and Microsoft. This gave ‘scale-ups’ for young companies looking developers and business ‘pros’ two days to take their growth to the next level. to dream up ways of using postal assets as postmen, mail boxes together with Through its involvement in Co.Station IoT hardware and Cloud apps to deliver Ghent, Proximus wants to promote the concepts which can help communities latest technologies and contribute to the and businesses. booming digital economy.

Proximus Group Annual Report 2016 | 46 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

Big Data

Big Data is a powerful source of innovation at Proximus. Our solutions give professional customers the opportunity to boost their businesses with better knowledge of the market and their consumers.

We collect a lot of valuable data generated by all the touch points with our customers including customer locations and TV viewing. Big data provides businesses with great insights and helps them make better informed decisions. It is important to note that the privacy of this data is always ensured by being aggregated.

Launch of Proximus MyAnalytics

To leverage the power of Big Data, we launched the MyAnalytics online portal in October. It gives professional customers a key tool to boost their businesses with better knowledge of the market and their consumer. With

Proximus Group Annual Report 2016 | 47 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

MyAnalytics they create their own Accurate visitor information can also analyses and reports based on mobile help a wide range of event organizers Collaboration phone location data collected from plan their events efficiently, effectively devices connected to our network. In and successfully. with the National addition to a self-service facility, we also offer tailored reports on the MyAnalytics Institute of dashboard within 48 hours. Better traffic Statistics With data analysis, Proximus also analysis guarantees personal privacy since Proximus collaborated with the the reports only contain aggregated, For the city of Ostend, we analysed National Institute of Statistics, a anonymous data and not individual journeys on one of their most important true European premiere! We have information. routes. This road is often congested, validated together a new approach especially during the weekend, which of producing statistics. It is a nice Shops, cities, municipalities, advertisers frustrates residents. Proximus mapped example that demonstrates how and event organizers can all benefit the road on its cellular network Proximus co-creates in new domains from this new technology. Visit.Brussels, and analyzed movements in order and invests in building open relations the communications agency for the city to detect the different destinations with public actors at various levels of Brussels, uses our aggregated and after leaving the road. This makes the around data analytics. anonymous data to gain additional insights traffic situation more understandable into the patterns of visitors to the Belgian and is allowing the city to take capital. It uses the monthly visitor statistics better informed decisions on traffic to refine and target its communications. management.

Proximus Group Annual Report 2016 | 48 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

Smart Solutions

Smart solutions combine Proximus' capabilities in IoT and Big Data to co-create with several partners new solutions that truly have an impact on the quality of life and help people live better and work smarter.

of tomorrow, using high-tech solutions Smart Cities: and connectivity such as smart parking, smart waste management, e-permits Proximus and environmental monitoring. These initiatives are built on Proximus IoT innovation in the network based on LoRa technology. heart of the city

Our cities face many challenges. Among Smart Mobility: them: an ageing population, efficient use of raw materials and energy, connectivity, Launch of growing traffic congestion, limited funding for various public services, and Be-Mobile waste management. Cities and municipalities need ‘smart’ In March 2016 Proximus created the unique solutions to meet the challenges Smart Mobility company Be-Mobile, and become more sustainable, more thereby integrating its Mobile-For affiliate ecological, and provide a better quality with Be-Mobile and Flow. The new of life. company offers solutions for mobility monitoring, dynamic traffic control, There are currently countless examples electronic toll charging, and parking of smart initiatives for the Smart Cities services. The solutions can be valuable for

Proximus Group Annual Report 2016 | 49 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Meaningful innovation

road users, companies, cities, municipalities payment methods, E-commerce, right person at the right place at the and government services. M-commerce, logistics and sustainable right moment by unlocking relevant mobility to provide an answer by data. We are partnering up with the Businesses benefit as well. Through our providing an integrated free app for 4 major national broadcasters for this collaboration with Be-Mobile we can smartphone and tablet that meets the project: SBS (vier & vijftv), Medialaan provide road traffic information in real needs of local retailers, shoppers and (vtm, Q2, …), RMB (LaUne, LaDeux) and time. We can generate good insights on, for local authorities. IP (RTL Group). example, where to locate a new distribution center, or identify locations with high traffic Currently, Citie is already operating in where advertising can be concentrated. various cities and municipalities, including Bruges, Ostend, Roeselare, Antwerp and In September Be-Mobile launched the Genk. Belfius, bpost and Proximus intend 4411 app in collaboration with the transport to develop Citie further and deploy it at company De Lijn. With its electronic national level. m-ticket, Be-Mobile aims to make cash-free purchases of transport tickets easier.

In October, Be-Mobile and the city of Smart Advertising Antwerp launched a smart route planner which residents, commuters and visitors In 2016, Proximus continued to develop can use to travel quickly to and from its smart advertising strategy. In 2016, Antwerp. This smart route planner is based we successfully pursued what is called on Be-Mobile's real-time information. "Addressable TV" where we enable Everybody can consult the smart route targeted advertising on linear and replay planner on www.slimnaarantwerpen.be TV. By doing so we want to reach the

Smart Retail: Citie, Smart Retail in action:

Proximus, Belfius • Enables towns, cities and local councils to communicate simply and directly with local residents and traders (urgent messages, severe traffic problems, cultural and and bpost invest sports events,…) • Can be used as a digital shop window by merchants, complete with integrated in the Citie digital webshop. Customers can order and pay online and then have the physical goods delivered by bpost and its partners platform • Enables traders to get to know their customers better, using the dashboard to send them e-mails or satisfaction surveys that they can complete directly on their Belfius, bpost and Proximus are smartphone or tablet investing together in the Citie digital platform to support the local Belgian economy and boost our country’s position on the digital map.

The aim of the three partners is to combine Citie with their own expertise and local positioning so that they can bring traders, shoppers and local authorities closer together.

The three companies will build further on the existing Citie platform that was launched in Roeselare in 2015. By working together, Belfius, bpost and Proximus aim to build on their complementary knowhow in digital

Proximus Group Annual Report 2016 | 50 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

53 A simpler organization

55 Agility

Proximus Group Annual Report 2016 | 51 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

SimpleProximus will accelerate its strategy by making and its organization fitter, transforming towards a more lean and agile structure with higher efficiency and continuing its agilesimplification efforts to drive cost reduction. organization

We’re permanently improving our systems so that new orders can be introduced more easily and our customers are served well without waiting too long.

Benjamin, retail sales agent, Brussels

Proximus Group Annual Report 2016 | 52 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

A simpler organization

Proximus aims to become a fitter organization through simplification and bringing down its operating costs, while increasing customer and employee satisfaction.

To this aim we are driving simplification launch of the new portfolio, 500,000 and efficiency throughout the mobile postpaid subscriptions have been organization. Our simplification migrated to Mobilus offers. For mobile initiatives are covering the portfolio, prepaid, a cleaning of 30 % prepaid plans networks, IT and processes. We are has been performed while implementing adapting our ways of working to become of a new IN (Intelligent Network) platform. a lean and agile organization, with a strong drive for efficiency. By simplifying our portfolio we were able to reduce internal workload, maintenance, manual interventions and Portfolio also the number of complaints. For our business customers, we have simplification further simplified our products and solutions to better respond to our We are moving towards a simplified customers' needs and ease the Excite IT portfolio of products and solutions, and business transformation. slimming down our legacy catalog and proactively offering pack migrations to New solutions have to be granted a future-proof, easy-to-use solutions that ‘Simplification & Customer Experience are more advantageous for our customers. Stamp’ before they are launched. In this way, we ensure that they are simple and By end 2016, 97% of our customers clear to the customer and that they can enjoying our convergent offers were on be easily ordered, installed, invoiced and the 2 last generations of packs. With the supported.

Proximus Group Annual Report 2016 | 53 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

Network IT & process simplification simplification

Proximus is investing in modernizing The redesign of the IT architecture is and simplifying its networks. This will accompanied by the redesign of the reduce costs, make the company more processes to improve first time right agile in the marketplace and ensure and maximize efficiency gains. For that customers can be easily moved to example, the new mass market IT future-proof solutions. systems have drastically simplified the selling & ordering systems at Proximus. The large-scale transition of As a result, the time to introduce a customers from legacy networks complex order has been reduced with such as PSTN and ATM, to IP-based 75%. We also now have only one technology has, for example, enabled master product catalog compared to us to power off 221 legacy switches multiple local ones previously. in 2016. To achieve this, 533,000 customers have been migrated in 2016 A process reengineering methodology from classic telephone lines to the is being deployed within Proximus to future-proof Voice over IP platform, reduce workload and free-up ‘oxygen’ reaching a total of 2.3 Mio customers. in the organization to increase capacity on value-added tasks. This has been Such migrations and outphasing applied to various domains like mass operations are also key enablers to market promotions, internal mobility, dispose of buildings. Two additional procurement and the budgeting large buildings have been sold in 2016, process. having a positive impact on the total building maintenance and energy costs.

Proximus Group Annual Report 2016 | 54 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

Agility

The fast-moving digital world requires it more than ever: a more focused, customer-centric approach, entrepreneurship and an innovation mindset with a winning spirit. In a word, agility.

Proximus is transforming itself into an agile organization that requires People employees and teams to deliver swiftly and seamlessly new or A company is only as good as its improved solutions to the customer. people. That is why Proximus In this environment, employees feel believes in continuous coaching and more engaged, prepared for the feedback, putting more emphasis on digital transformation and act as real development. In 2016 we launched ambassadors for the company. our new performance management philosophy Drive for Personal Growth To build this agile organization, our and the supportive platform, My culture, people and organization need Growth. to evolve hand in hand. That requires an integrated change management This new growth mindset is all about approach. embracing change, being prepared

Proximus Group Annual Report 2016 | 55 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

to act faster, and learning from the success of our ‘Fit for Growth’ strategy, feedback and mistakes. In 2016, we defined three company values that we implemented a full roll-out of strongly support the corporate culture, ‘Coaching and Feedback’ training namely: collaboration, agility and for all team leaders. A total of 1,615 accountability. people followed the 4-day course. The next step is to reinforce and drive this behavioral change to instil a growth We also launched an internal coaching mindset, the belief that we can handle project for team leaders to strengthen the challenges ahead and are able their skills on topics such as change, to learn, change and adapt for future leadership, communication, etc. They success. Through employee surveys will be supported on their request by it has been confirmed that the large a team of colleagues, being trained on majority of our staff is motivated and coaching skills. committed to make this culture change happen. Since personal development is key, we keep investing in training with an average of 22 hours of training per Proximus’ employee. We also 1,615 give people the opportunity to employees followed the Coaching move internally and acquire new and Feedback training experiences. In 2016, 798 employees have changed jobs internally. 798 Cultural internal job rotation transformation

For the past three years we have worked on the cultural transformation of our 331 company ‘From Good to Gold’. To ensure new hires

Proximus Group Annual Report 2016 | 56 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

Organization location, requiring an agile response relevant for our customers. To do that, with a degree of freedom to operate for our digital adoption program includes By improving agility, we are also local teams, close to the market, close to training, hand-in-hand with leveraging increasing efficiency and reducing the customers and bringing the different the Proximus digital natives. It workforce costs, which are now 2% areas of expertise together to serve the leverages inspiration & know-how to lower on year-on-year basis. customer in the most appropriate way. develop this digital DNA inside-out and In our ambition to be customer-centric to drive the digital way of working. To boost that efficiency, Proximus it is key to understand the local market reached agreement with its social dynamics and context, and to act upon We recognize the need for more 'digital' partners in April 2016 for a voluntary this in a swift way within the overall in our workforce DNA, not only via early leave plan prior to retirement governance freedom. new recruits, but also within existing that will be deployed over several years. employees. That is why we have taken The plan will allow employees from the We are already enjoying good results big steps towards a new way of working, age of 60 to stay at home voluntarily with this approach and will be working as part of the transversal program until their earliest pension date. As a more in Local Teams, especially for all 'Digital Workplace'. result, 2,172 employees will leave the our Fiber projects in the different areas company over the next 5 years. where they are deployed. We have identified so-called ‘Digital Heroes’, change agents who love Proximus has also hired 331 new staff the new collaboration tools and will in 2016. Our recruitment strategy teach their colleagues to collaborate focuses on attracting and developing Digital differently and work more efficiently. the skills we need for future growth. It More and more digital communities are emphasizes factors such as the ability transformation & being created to share information and to change and a ‘growth mindset' rather experiences. than just technical skills. It concerns digital culture mainly digital profiles such as data We are also developing training programs analysts, IT and cyber security experts. Our customers live more and more in a to make sure our employees are ready for We expect to attract a few hundred new digital world, and their demand changes the future, focused on new technologies hires per year in the coming years. with it. At Proximus, we are adapting with such as Big Data, Cyber Security, etc. future-proof solutions, in order to remain We are moving towards new organization collaboration models to accelerate our transformation and make us more agile in responding to the fast changing needs of our customers and the external business environment.

To support this we have set up several Transversal Programs across our Business Units. This increased collaboration and allows teams to come together across internal and external boundaries to deliver on short, focused solutions.

'Local Teams' are at the core of what we want to do: bringing people together from different organizational and functional backgrounds to serve customers in that region with a specific mission. Customer needs and expectations can vary location by

Proximus Group Annual Report 2016 | 57 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A simple and agile organization

'Discovery sessions', attended by more with customers. Tuttimus was the Innovation than one thousand employees. first example of co-creation with our customers. When developing discovery As a result, Proximus has introduced Tuttimus, customers were involved innovations such as ‘Unconferences’. at the design stage. Three clear sessions In those brainstorming sessions, people expectations emerged from this co- from the entire company can share creation process: customers want an Between January and May 2016 their ideas on topics such as happiness 'all-in' package, with no worries and the top 200 leaders of Proximus at work or the digital workplace. with a broad offering which they can realized “discovery tours” and visited personalize to their liking, and all at innovative start-ups in Silicon Valley, We are also tapping our customers a keen price. Berlin, Dublin and London. The lessons as a resource for innovation through they learned were shared during more Design thinking & Co-creation

Proximus Group Annual Report 2016 | 58 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A sustainable, digital society

61 Environment: a carbon neutral company

61 Education & skill building

61 Community

Proximus Group Annual Report 2016 | 59 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A sustainable, digital society

A sustainable, At Proximus, we are working towards a more sustainable and safer society, everyone can participate in. We are committed to addressing key digitalsocietal issues by structurally society embedding Corporate Social Responsibility (CSR) in everything we do. Our CSR strategy is based on three pillars: Environment, Education and Communities.

Sometimes you need a light at the end of the tunnel. Bednet was that light for me. Thanks to Bednet, I could catch up with all the lessons I missed because of my illness.

Sofie, student, Jette

Proximus Group Annual Report 2016 | 60 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 A sustainable, digital society

Environment: Education & Safer Internet a carbon neutral skill building Through the Safer Internet program our employees, in collaboration with company Empowering and sharpening young Child Focus, trained 11,816 school minds, the Proximus Foundation pupils in 2016 on how to use the We are on track toward meeting the supports jobseekers through new Internet and social media safely. Twice commitments we made in advance of technologies and aims to give young a year some 150 of our employees visit the COP21 Climate Conference in Paris. people a better shot at their dreams. - on a voluntary basis - the fifth and sixth year classes of primary schools As of 2016, Proximus is a carbon neutral to promote safe internet use. Since the company. We have reduced our carbon Digitalent start of the project more than 65,000 emissions on Group level for the 6th year pupils have been trained. in a row and we will compensate for the emissions we cannot reduce. Proximus received the CDP Climate Leadership Award for the fourth year in a row. Community

There are 4 key areas where our carbon Our evolving technologies also make footprint has been reduced. a difference for communities in need of specific solutions to improve their First off it is our fleet mobility, our lives. Proximus is active in helping employees prefer the green mobility children with long-term illnesses, plans which favor public transport and people with disabilities and the which, for the first time, include the disadvantaged. possibility to lease a bicycle. We are also running energy efficiency projects for our networks, datacenters, Bednet & Take-off program office buildings and transport. We use electricity mainly from renewable In 2016, the Bednet & Take-off energy sources. program has enabled more than 430 children with a long-term Most of our waste is recycled and we Among its initiatives, the Digitalent illness to remain in contact with their also help our customers to reduce their project immerses young low-skilled classmates and to attend school. carbon footprint thanks to our products jobseekers in the ICT world. In 2016 and services. we trained 72 people. In total we had Through the People with disabilities training sessions in 8 cities across program we continuously test the Finally, we reached the 120,000 mark Belgium. The project is very successful accessibility of all the devices that in the collection of old mobile phones with 32% of participants following a we put on the market. This aids and in schools, in collaboration with our training, 35% finding a job and one reinforces constant improvements partner GoodPlanet Belgium. person even starting his own company. by manufacturers.

CSR For more information on CSR, read the full report.

v Download the CSR report here

Proximus Group Annual Report 2016 | 61 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 v Download the different reports from the Proximus Group Annual Report by clicking on them

CSR report Regulatory Framework

2016 2016

Remuneration report Consolidated Management Report

2016 2016

Management Report Proximus PLC

2016

Proximus Group Annual Report 2016 | 62 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Underlying revenue and EBITDA

Proximus‘ management discussion focuses on unusual or not directly related to Proximus’ underlying figures, i.e. after deduction of the business operations, and which had a significant incidentals. impact on the year-on-year variance of the Proximus Group revenue or EBITDA. The In order to allow a like-for-like comparison, adjusted revenue and EBITDA are referred to as Proximus provides a clear view of the operational- “underlying”. driven trends of the business by isolating Definitions can be found as from page 33 of this incidentals, i.e. revenues and costs that are document.

(EUR million) Revenue EBITDA

2014 2015 2016 2014 2015 2016

Reported 6,112 6,012 5,873 1,755 1,646 1,733

Underlying 5,864 5,994 5,871 1,653 1,733 1,796

Incidentals - Total 248 17 3 102 -87 -63

Non Recurring Items 62 0 0 34 2 -95

Other incidentals 187 17 3 67 -90 32

Non-recurring items: 62 0 0 34 2 -95

Early Leave Plan and Collective Agreement 0 0 0 0 0 -103 Disposal of consolidated companies 62 0 0 27 0 0 Other : in 2016 mainly removal of the favourable 0 0 0 7 2 8 early retirement clause Other incidentals: 187 17 3 67 -90 32

Capital gains on building sales 46 17 3 46 17 3

Divesture TLS FR/UK 134 0 0 3 -1 0

Reversal Pylon Tax provision 2014 & 2015 0 0 0 0 0 29

Settlement agreement on mobile tariff related 0 0 0 0 -116 0 litigations

Scarlet NL / Sahara net disposals 7 0 0 0 0 0

Network litigation settlement 0 0 0 22 10 0

Compensation pay Pension previous year 0 0 0 10 0 0

Update stock option liability 0 0 0 -14 0 0

Transformation & Rebranding 0 0 0 -16 0 0 Other 0 0 0 16 0 0

2 I Proximus Group Annual Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Changes in Segment reporting To improve the relevancy of reported figures, The expenses (after direct margin) are split into Proximus has applied the changes described below Workforce expenses and Non Workforce expenses with restatements provided for 2014 and 2015: and are reported at Group, Domestic and BICS level, in a more relevant manner. Domestic is composed of three customer segments : Consumer, Enterprise and Wholesale  Workforce expenses: expenses related to own for which the revenue and direct margin is employees (former HR-expenses) as well as to external employees (part of former non-HR provided. expenses) for Proximus S.A. For subsidiaries, only Segment results (contribution to Group EBITDA) internal HR expenses are reported under are no longer reported as these figures were non- Workforce expenses relevant, given the fact that Proximus does not  Non Workforce: all other expenses (part of former apply full cost allocation. non-HR expenses)

Rounding In general, all figures are rounded. Variances are calculated from the source data before rounding, implying that some variances could not add up.

Proximus Group Annual Report 2016 I 3

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

 Proximus grew its domestic revenue by 0.7% in 2016 and its Group EBITDA by 3.6% on underlying basis, in spite of regulatory headwinds.  The Domestic EBITDA grew by 4.7% driven by a positive Direct Margin contribution and especially by a solid reduction in expenses.  Good progress for Fixed Services revenue more than offset the pressure on Mobile service revenue resulting from lower roaming rates.  In the context of a shift from voice to data, BICS posted a 7.2% EBITDA decline on a high comparable base.  Sound Free Cash Flow of EUR 559 million.

Revenue

Revenue - 3-year view (underlying, M€) The Proximus Group ended the year 2016 with total Domestic BICS underlying revenue of EUR 5,871 million, 2.1% below that 5,864 2.2% 5,994 -2.1% 5,871 of the prior year. The lower Group underlying revenue 1,577 2.5% 1,616 -9.6% 1,460 resulted from a decline in revenue from BICS, Proximus’ International Carrier business unit. This was partly offset by 2.1% 0.7% Proximus’ Domestic operations which continued to show 4,379 4,410 4,287 growth in 2016.

2014 2015 2016

For full-year 2016, the Proximus Revenue - evolution by segment (underlying, M€) Domestic revenue totaled EUR 4,410 13 25 -7 1 -156 million, a 0.7% improvement over 2015. 5,994 The revenue growth was driven by both the Consumer and Enterprise segments of 5,871

Proximus. Domestic

In 2016, BICS generated total revenue of Group

EUR 1,460 million, 9.6% lower compared 2015 Consumer Enterprise Wholesale Other (incl. BICS 2016 to its record-high revenue posted in 2015. eliminations)

The decline was driven by continued high volatility in the Voice business and a less favorable destination mix. The non-Voice revenue on the other hand continued to show solid growth.

4 I Proximus Group Annual Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Revenue per product group (underlying M€) 53 -11 4 -7 -3 -4 -156 5,994 Domestic underlying revenue Domestic 5,871 +0.7% Group

2015 Fixed Mobile Mobile Wholesale Subsidiaries Other BICS 2016 services devices

Revenue from the Consumer segment Proximus’ Enterprise segment posted a 1.9% progressed by 0.4% to reach EUR 2,905 million. underlying revenue growth for 2016 to reach This was driven by solid revenue from Fixed EUR 1,360 million. This was mainly driven by a Internet and TV through a growing customer solid revenue growth in ICT and Be-Mobile NV1, a base. Proximus benefitted from its great efforts smart mobility company created mid-March 2016. on customer centricity and its convergence The growth more than compensated for the strategy. Through its successful multi-Play continued Fixed Voice revenue erosion. Mobile offering, Proximus enhanced its customer mix, services revenue remained fairly stable compared increasing loyalty and value. This resulted in a to 2015 in spite of the high roaming exposure. good Fixed revenue growth, in spite of the continued revenue erosion in Fixed Voice. In The above favorable trends of Proximus’ 2016, the revenue from Mobile came under Domestic revenue were partly offset by a pressure. In line with the EU regulation, EU decrease in Wholesale revenue, mainly due to the roaming rates were lowered as of 30 April 2016, regulated lowering of fixed termination rates and which has been visibly reflected in the Mobile the ceased revenue stream from Snow. Snow Service Revenue trend since then. wholesale customers were fully outphased since mid-2015, with many welcomed by Scarlet.

Direct Margin - The 2016 underlying Direct Margin of 3-year view (underlying, M€) Proximus Group totaled EUR 3,628 million.

This is a 0.3% increase from the prior year, with the Domestic BICS growth in Domestic direct margin partially offset by 3,533 2.4% 3,617 0.3% 3,628 a lower direct margin for BICS. 12.3% 278 -1.3% 274 247 The Domestic direct margin was up by 0.4% to 1.6% 0.4% reach EUR 3,354 million on the back of a favorable 3,286 3,340 3,354 evolution for both the Consumer and the Enterprise segments.

2014 2015 2016 BICS’ direct margin of EUR 274 million was 1.3%

below that of 2015, during which BICS benefitted from a higher Voice-unit margin in a favourable though volatile Voice market.

1 Be-Mobile, active in the Smart Mobility domain, is the combination of the entities of Be-Mobile NV (previously Mobile-For NV), Be-Mobile Tech NV, and Flow NV. Being majority shareholder, Proximus consolidates the turnover of all these entities. The revenue is reported in ‘Other products”.

Proximus Group Annual Report 2016 I 5

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Direct Margin - evolution by segment (underlying, M€)

7 -4

14 -2 -4 Underlying 3,628 Group Direct Margin 3,617

Domestic +0.4% +0.3% Group +0.3%

2015 Consumer Enterprise Wholesale Other (incl. BICS 2016 eliminations)

Operating expenses Operating expenses - 3-year view Executing upon its ‘Fit for Growth’ strategy, and specifically by focusing (underlying, M€) on efficiency and productivity gains, Proximus managed Domestic BICS to reduce its 2016 expenses to EUR 1,832 million, a 2.7% or EUR 52 million improvement from 2015. With its Domestic expenses 1,880 0.2% 1,884 -2.7% 1,832 decreasing in 2016 by 3.4% or EUR 59 million, Proximus is well on 4.2% 113 118 6.6% 125 track to deliver upon its cost reduction plan, aiming for a EUR 150 -0.1% -3.4% million net decrease by 2019. This resulted from an overall improved 1,767 1,766 1,707 efficiency and productivity. The cost base benefitted from the optimization of Proximus’ physical sales channels (integration of The Phone House) and network simplification. Volumes to contact centers 2014 2015 2016 decreased following improved customer interactions (first-time-right) and enhanced digital solutions encouraging self-care and further digitization of billing and ordering.

For BICS, the 2016 operating costs were up by 6.6%, or EUR 8 million, from last year, adding. This was mainly driven by investments in new geographies and future growth domains.

Operating expenses split (M€) Domestic expenses Worforce Non Workforce

1.5 -1.7% 675 685 673 -3.4% -0.5% -3.3% 1,205 1,199 1,159 Proximus Workforce expenses declined by 3.3% year-on-year to EUR 1,159 million, supported by a lower internal headcount enabled 2014 2015 2016 by a voluntary early leave plan ahead of retirement. The favorable effect this had on Proximus’ cost base was however partly offset by the

impact of an inflation-based salary increase in July 2016.

6 I Proximus Group Annual Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Headcount evolution (in FTE) End-2016, Proximus employed a total of 13,633 FTEs. This was 457 FTEs less compared to one year ago mainly due to a combination of employees having left the company under the early leave plan and through regular retirement, and the strengthening of its human resources by hiring some business-critical profiles supporting, among 14,187 14,090 13,633 other things, new domains.

2014 2015 2016

EBITDA

EBITDA - 3-year view (underlying, M€) The Proximus Group posted for 2016 underlying EBITDA Domestic BICS of EUR 1,796 million, an increase by 3.6% compared to 1,796 4.9% 1,733 3.6% 2015. The Domestic operations of Proximus grew 1,653 -7.2% 149 18.7% 160 EBITDA by 4.7% to a total of EUR 1,647 million. BICS 135 4.7% 3.6% closed 2016 with its Segment Result totaling EUR 149 million. This is 7.2% below that of its record-high in 1,518 1,573 1,647 2015, during which BICS benefitted from favourable – though volatile – market conditions. 2014 2015 2016

EBITDA - evolution (underlying, M€)

Group underlying 52 1,796 EBITDA

11 +3.6% 1,733

2015 Direct Margin Expenses 2016

Reported EBITDA (incidentals included) Reported EBITDA – 3-year view (M€) including incidentals In 2016, the Proximus Group recorded EUR -63 million net EBITDA incidentals.

-6.2% 5.3% Including these, the Proximus Group’s reported EBITDA totaled EUR 1,733 million, compared to EUR 1,646 million for 1,755 the year before, i.e. +5.3%. See section 1 for more 1,646 1,733 information on the incidentals.

2014 2015 2016

Proximus Group Annual Report 2016 I 7

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Depreciation & Amortization Depreciation & Amortization– 3-year view In 2016, the depreciation and amortization totaled EUR 917 million. This compares to EUR 869 million for 2015, with the 5.5% 5.8% increase mainly due to a higher asset base to depreciate.

821 869 917

2014 2015 2016

Tax Expense

Effective Tax Rate – 3-year view The full-year 2016 tax expenses amounted to EUR 167 million. This represents an effective tax rate of 23.3%, fairly -0.5 pp stable in relation to the 23.8% of 2015. 5.4 pp

The 2016 effective tax rate results from applying the Belgian 23.8 23.3 tax law and was below the corporate tax rate of 33.99% 18.4 % % % following some tax deductions and one off transactions.

2014 2015 2016

Net income

Net income (Group Share) - 3-year view Proximus reported a net income (Group share) of EUR 523 (M€) million for 2016. The year-on-year increase by EUR 41 million or 8.5% is mainly explained by higher Group EBITDA and lower finance costs, partly offset by higher depreciation -26.3% 8.5% and amortization and tax expenses.

654 482 523

2014 2015 2016

8 I Proximus Group Annual Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Net income evolution (M€) 24 -47 62 19 -11 -8 2 523 482 +8.5% Net Income

Net income 2015 Underlying Incidentals D&A Net Finance Tax expense Non-controlling Share of loss Net income 2016 EBITDA variance result interest from associates

Capex

Capex - 3-year view (M€) In 2016 Proximus invested a total amount of EUR 949 million,

Spectrum fully in line with the capex outlook provided for 2016. This compares to a total capex of EUR 1,002 million for 2015, which 994 1,002 included EUR 75 million capex related to spectrum renewal. 949

978 € * 926 949 949m invested to improve overall customer experience 2014 2015 2016 * Including the three-year broadcasting rights of Belgian Jupiler Pro league football

In 2016, Proximus invested among others in its Fixed and Mobile networks to increase coverage and speed, as well as in IT systems, in further simplification and transformation which all contributed to the decreasing cost base. Furthermore, Proximus successfully started its Fiber-to-the-Business roll-out in 2016, deployed greenfield fiber projects for new-builds, and initiated a brownfield project in Brussels.

Free Cash Flow Proximus’ FCF for the year 2016 totaled EUR million FCF reported for 2015. When excluding 559 million, supported by the transversal cash the net impact of major one-off2 cash items in management initiative launched mid-2015 in view 2015, the FCF increased year-on-year by EUR of optimizing free cash flow generation. The 2016 105 million, i.e. 23% on like-for-like basis. FCF was up by EUR 151 million from the EUR 408

2 Net impact of: major settlement agreements, cash paid for subsidiaries, disposal of buildings and other tangible assets

Proximus Group Annual Report 2016 I 9

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

This was driven by the growth in underlying EBITDA and less cash Free Cash Flow - 3-year view (M€) paid for Capex. More cash was needed however for Business working capital due to an increase in inventory with the level normalizing from a low 2015.

711 559 408

2014 2015 2016

Free Cash Flow - evolution (M€) +23% like-for-like 62 -25 30 559 38 € 559m 408 46 454 Free Cash Flow

FCF Net Normalized Less cash for Higher Business Income tax FCF FY'15 one-offs FCF '15 Capex Underlying working payments FY'16 EBITDA capital & other WC

Net financial position

Proximus maintained a solid financial Net debt - evolution (M€) position with a net debt of EUR 1,861 million end-2016. The net debt/ -1,861 EBITDA ratio remained at around 1X. -1,919 The net debt decreased from one year ago, with a solid 2016 FCF level more than covering for the committed dividend pay-out. 559 -485 -26 18 -7

Net Debt FCF Dividends Dividends to non- Net sale of treasury Other Net Debt December 2015 controlling interests shares December 2016

10 I Proximus Group Annual Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

• Consumer segment posted a revenue growth of 0.4% to a total of EUR 2,905 million • Growing revenue from Internet and TV on larger customer base and sound ARPU trends • Growing customer base for mobile Postpaid but ARPU impacted by EU roaming regulation • Higher penetration of 3- and 4-Play Households • Direct Margin grew by 0.6% to EUR 2,214 million

NOTE

In line with Proximus’ strategy, most products are sold through multi-Play Packs, a trend reinforced by the launch of the converged offers Tuttimus and Bizz All-in since mid-October 2016. The packs are sales arrangements with multiple deliverables. The revenue is allocated to the different products such as Internet, Voice, TV and Mobile, based on their relative fair value, being the amount for which the product could be sold separately and considering the cash cap. The revenue allocation per product as reported below might be impacted by changes in the composition of multi-Play offers.

The resulting product ARPUs as reported in this document for TV, Internet, Fixed Voice and Mobile, and the variances compared to preceding periods, are therefore partly the mere mathematical consequence of the application of this accounting policy to a changed pack composition.

Revenue For 2016, the Consumer segment posted total This favorable evolution is largely the result of the underlying revenue of EUR 2,905 million, or an strong progress made by Fixed Internet and TV, increase of 0.4% compared to 2015. which more than compensated for the erosion in Fixed Voice revenue. In 2016, the revenue from Revenue - 3-year view (underlying, M€) Mobile services came under pressure. EU roaming rates were lowered as of 30 April 2016, in line

3.1% 0.4% with the imposed EU regulation, visibly impacting the Mobile Service revenue trend. While revenue from Postpaid services was still up year-on-year driven by a growing customers base, it was no longer sufficient to fully compensate for the 2,807 2,892 2,905 revenue decline in Prepaid. As a result, the total Consumer Mobile services revenue was down by 1.0% compared to 2015.

2014 2015 2016 The revenue from the Consumer segment was strongly supported by Proximus’ successful convergence strategy, upselling additional services to its customer base.

Proximus Group Annual Report 2016 I 11

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

This strategy was further strengthened by the For full-year 2016, the revenue of Tango, launch of Proximus’ new product portfolio mid- Proximus’ Luxembourgish subsidiary, totaled October, with Tuttimus and Biz-All-in EUR 127 million, 1.9% below that of the prior accelerating the uptake of 4-Play. Proximus year. This was mainly driven by a highly closed the year with 601,000 4-Play households competitive market, a decline in Prepaid revenue and small offices (HH/SO), an increase by 9.9% and a negative impact from roaming regulation, from the prior year. With 4-Play HH/SO typically in part offset by the benefits of a growing at higher ARPH and significantly lower full-churn, postpaid customer base. the Consumer customer base became more valuable and loyal in 2016.

Revenue evolution per product group (underlying, M€)

20 -31 33 -3 -21 41 2,905 +0.4% 2,892 -27 Consumer revenue YoY

2015 Fixed voice Fixed TV Mobile Mobile Tango Terminals 2016 internet services - services - & other postpaid prepaid

Fixed Internet revenue (M€) Revenue from Fixed Internet grew by 7.3% year-on-year to EUR 599 million for 2016.

7.3% 7.3% +64,000 558 599 520 Fixed Internet customers added, 2014 2015 2016 revenue up by 7.3%

12 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Fixed internet customers (in ‘000)

This resulted from a growing customer base, up by 64,000 or 3.7% 7.5% 3.7% in a one year period to reach a total of 1,781,000.

1,718 1,781 1,598

2014 2015 2016

Fixed Internet ARPU (in €) Besides a larger customer base, the positive revenue evolution is

0.6% 2.0% also the result of a higher revenue per customer, with ARPU increasing 2.0% to EUR 28.4 for 2016, including the benefit of price adjustments. 27.7 27.9 28.4

2014 2015 2016

TV revenue (M€) In 2016, Proximus continued to grow its revenue from TV, up by 10.0% compared to 2015, to a total of EUR 360 million. 10.0% This resulted from a continued increase in the TV subscriber 14.5% base, for both the Proximus and Scarlet brands.

360 285 327 +75,000 TV households

2014 2015 2016

TV customers (in ‘000)

In 2016, Proximus welcomed an additional 75,000 households Households multi stream to its TV-platform bringing the total to 1,489,000 TV households or a 5.3% annual growth. When also including the 4.0% 359 304 13.4% 345 359,000 second/third TV set-top boxes, the total of connected 5.3% 9.8% TV set-up boxes totaled 1,848,000. 1,288 1,414 1,489

2014 2015 2016

Proximus Group Annual Report 2016 I 13

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

TV ARPU (in €)

2.8% 4.3% Besides a growing customer base, the TV revenue also benefitted from the more extensive TV content offered to customers. The TV ARPU for 2016 was EUR 20.6, 2.8% up from 2015. 19.2 20.0 20.6

2014 2015 2016

Fixed voice revenue (M€) Over 2016, Consumer generated EUR 524 million from Fixed Voice, or 4.9% less than for 2015. The erosion in the Fixed Voice line base continued in 2016, with -52,000 Voice lines. -3.6% -4.9% This in spite of the support provided by multi-Play packs including Voice, with in particular a notable positive impact from the Tuttimus offer since its launch in October 2016, resulting in 572 551 524 a net Fixed Voice line growth in the fourth quarter 2016. Consumer ended 2016 with a total Fixed Voice line base of 2,060,000, a 2.5% decline from one year ago.

2014 2015 2016

Fixed voice customers (in 000’s)

-0.6% -2.5% However, the success of multi-Play packs at favorable pricing impacted the standalone Fixed Voice ARPU, only in part offset by upward price adjustments3. 2,126 2,112 2,060 Fixed voice marked by continued erosion of Fixed line park 2014 2015 2016

Fixed voice ARPU (in €)

-2.5% -2.5% Over 2016, the Fixed Voice line ARPU totaled EUR 21.0, 2.5% less than for 2015.

22.1 21.6 21.0

2014 2015 2016

3 Price changes on 1 January 2016 and 1 July 2016

14 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Mobile Services revenue (M€) Consumer’s full-year revenue from Mobile Services totaled

Postpaid Prepaid EUR 995 million, or a 1.0% decrease from 2015. The 998 1,006 995 Consumer mobile service was under pressure since the adoption 0.8% -1.0% of the European roaming regulation end-April 2016, -21.0% 174 -17.6% 144 221 significantly reducing the European roaming rates. Moreover, a 7.0% 2.5% less favorable travel destination mix, with a higher traction for 777 831 852 European destinations, put some additional pressure on roaming revenues.

2014 2015 2016

+66,000 Mobile postpaid cards (Free Internet Everywhere cards & M2M excluded)

Mobile customers (in ‘000) Prepaid Internet Everywhere (IE)* Postpaid excl. IE* Nevertheless, the Postpaid revenue was up by 2.5%, benefitting 4,233 -0.1% 4,229 -2.5% 4,125 from a growth of 66,000 Mobile postpaid cards, M2M and free 1,457 -10.3% 1,307 -10.5% 1,170 Internet Everywhere cards excluded. Accordingly, Consumer ended 2016 with a total Postpaid customer base of 2,494,000, 471 4.9% 494 -6.6% 461 5.4% 2.7% higher versus one year ago. If including M2M and free 2.7% 2,304 2,428 2,494 Internet Everywhere cards, the Postpaid base totaled 2,955,000, or +1.1%. 2014 2015 2016 * including a limited number of M2M cards

Benefits on Mobile ARPU of incremental data usage were offset by lower roaming rates.

In spite of the benefits from a higher smartphone announced legislation on Prepaid card penetration, higher mobile data usage and a identification, as published in the Belgian Official better customer tiering versus one year ago, the Journal on 7 December 2016, refueled the Postpaid ARPU of EUR 28.9 was 1.4% below that erosion of Prepaid cards. In 2016, the Proximus’ of the prior year, fully driven by the impact from prepaid park declined by 137,000. By end-2016, roaming regulation. Revenue from mobile Consumer counted 1,170,000 Prepaid cards, or Prepaid declined by 17.6% from the prior year. 10.5% less than for the previous year, with ARPU In an already declining Prepaid market, the at EUR 9.7.

Mobile blended ARPU (in Mobile Postpaid ARPU (in €) Mobile Prepaid ARPU (in €)

1.7% 0.2% 0.9% -1.4% -11.7% -8.4%

22.1 22.4 22.5 29.1 29.4 28.9 11.9 10.5 9.7

2014 2015 2016 2014 2015 2016 2014 2015 2016

Proximus Group Annual Report 2016 I 15

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Tango revenue (M€) Operating in a competitive market, Tango, Proximus’ Luxembourgish telecom operator, generated for the full-year -1.9% 11.1% 2016, revenue of EUR 127 million, or 1.9% less than for 2015. This was mainly driven by a decline in Prepaid revenue and a negative impact from EU roaming regulation, in part offset by the benefits of a growing postpaid customer base by +17,000. 117 130 127 The solid growth in Postpaid follows the launch of new offers. TV, Internet and Fixed voice also contributed.

2014 2015 2016

Tango mobile customers (in ‘000)

Postpaid Prepaid

1.7% Tango -4.0%

84 -9.5% 76 -38.1% 47 8.2% +17,000 6.4% 200 212 230 Postpaid customers

2014 2015 2016

Mobile blended ARPU (in €)

5.6% -1.9%

28.0 29.5 29.0

2014 2015 2016

Consumer Direct Margin

For the full-year 2016, the Direct Margin- 3-year view (underlying, Consumer direct margin

totaled EUR 2,214 million, or 3.1% 0.6% a 0.6% increase from the +0.6% previous year driven by the

Direct Margin direct margin growth from 2,134 2,200 2,214 Internet, TV and - to a lesser extent - Mobile services.

2014 2015 2016 M€)

16 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Successful multi-Play strategy The progress on Proximus’ long-term convergence and value strategy is measured through household- based reporting. In contrast to traditional reporting per product group, X-Play Household and Small Offices (HH/SO) reporting focuses on operational and financial metrics in terms of Households and Small Offices serviced by Proximus and the number of Plays and Revenue Generating Units (RGU) offered. The X-Play reporting also includes Scarlet as of 2016. 2015 figures have been restated accordingly.

2016 Consumer revenue (M€) 46.3% Revenues X- Prepaid Play 2,337 144 Households/Small Terminal sales Offices 169 Tango on 3 or 4 Play 2,905 M€ 127

Consumer Other Revenue 127

In 2016, the Consumer Segment generated EUR 2,905 million underlying revenue, of which EUR 2,337 million was X-Play revenue, a 2.9% increase compared to 2015. End-2016, 80.5% of Consumer underlying revenue came from X-Play households. +2.9% The revenue from 4-Play households showed a continued strong growth, ending 2016 with EUR 781 million, up by 8.4% from the Household revenue prior year. The 3-Play revenue increased as well, up by 3.9% compared to 2015. Following the better product mix and increased RGUs, the average revenue per HH/SO increased by 2.4% to EUR 66.1.

Average Revenue per Household/Small offices (ARPH in €) HH/SO revenue per X-Play (M€)

115.5 115.2 2.9% 4-Play 2,272 2,337

8.4% 721 781 3-Play 4-Play 80.2 79.3

3-Play 3.9% 64.5 66.1 705 732 Average 2-Play -3.4% 58.3 58.7 327 316 1-Play -2.3% 2-Play 35.7 36.3 520 508 2015 2016 1-Play 2015 2016

Proximus Group Annual Report 2016 I 17

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Consumer Households & Small Offices (HH/SO) per X-play (000’s)

2,951 2,943 4-Play 547 9.9% 601 3-Play 755 1.1% 763 2-Play 455 -3.7% 438 1-Play 1,194 -4.4% 1,141

2015 2016

End-2016 the Consumer segment serviced 2,943,000 Annualized full churn rate (HH/SO level) HH/SO 19.9% 20.5% Within the household mix, Proximus’ convergence success was 1-Play especially apparent in the continued progress it made in the number of households that take 3 or 4 Plays. In 2016, Average Proximus’ household mix improved, its 3-Play customer base Churn 13.3% 12.9%

growing by 8,000 households and 4-Play customer base by 11.7% 54,000. As such, Proximus ended the year with 763,000 2-Play 11.2% 3-Play households (+1.1 %) and 601,000 4-Play households 10.8% 9.9% (+ 9.9%). As a consequence, Proximus strengthened its 3-Play customer base with 3-and 4-Play households having typically 2.8% 2.7% a lower churn rate, i.e. a full churn rate of 9.9% and 2.7% respectively. 4-Play 2015 2016

The average RGU continued to show some progress throughout 2016, with the average across all X-Play households rising to 2.65 RGU in 2.65 the fourth quarter 2016, up 2.3% year-on year. Average RGU Furthermore, the number of households having +2.3% YoY both Proximus Fixed and Mobile services, i.e. convergent households, grew to 54.5%, 1.4 p.p. more than a year ago.

18 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

• Proximus’ Enterprise segment grew its 2016 revenue by 1.9% to EUR 1,360 million • Revenue progression driven by BeMobile NV and solid growth in ICT • Roaming regulation impacted revenue from Mobile services • Direct margin grew by 0.7% to EUR 954 million

Revenue

The successful convergence and innovation Proximus’ Enterprise segment benefitted in 2016 from a strategy of the Enterprise segment, supported solid revenue growth in ICT and Be-Mobile NV4, a smart by a recognized high-quality network, resulted mobility company created mid-March 2016. The overall in a 1.9% revenue growth to EUR 1,360 million revenue growth was however tempered by an ongoing erosion of revenue from legacy Fixed Voice, and by for 2016. regulatory measures reducing the Mobile Services

revenue. Since end-April 2016, Proximus has lowered its Enterprise roaming pricing in line with the EU regulation. Revenue - 3-year view (underlying, M€) This combined with an unfavorable change in the travel destination mix of customers, resulted in a weaker mobile service revenue as from mid-2016. 1.9% 2.0%

1,360 1,335 1,308

2014 2015 2016 Revenue evolution per product group (underlying, M€)

15 1,360 20 -1 1,335 -11 1 +1.9%

Revenue YoY 2015 Fixed voice Fixed data ICT Mobile Terminals 2016 services & other

4 Smart Mobility company combining the activities of Be-Mobile and Flow with Proximus’ subsidiary Mobile-For. Being the majority shareholder, Proximus consolidates the turnover of the company. The revenue is reported in ‘Other revenue’.

Proximus Group Annual Report 2016 I 19

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Fixed Data revenue (M€) The 2016 revenue from Fixed Data, consisting of Fixed Internet and Data Connectivity revenue, totaled EUR 251

0.5% million, 0.5% above that of 2015. The favorable evolution 0.8% was driven by Data Connectivity services following a growing customer base, better product mix and the further roll-out of P2P fiber. 248 250 251 Revenue from Fixed Internet was a touch down from the prior year due to a slightly lower ARPU. In a competitive and highly penetrated Internet market, Proximus’ Enterprise 2014 2015 2016 segment managed to increase its Fixed Internet park by

0.7% to 138,000 Fixed Internet lines by end-2016. This

was however offset by a 0.7% decline in Fixed Internet ARPU to EUR 43.5, reflecting the impact of the outphasing 138,000 and migration of legacy products in the context of Fixed Internet park simplification programs offering customers new solutions at more attractive pricing.

Fixed Internet park (in ‘000 lines) Fixed Internet ARPU (in €)

-2.8% 0.7% 2.2% -0.7%

141 137 138 42.9 43.9 43.5

2014 2015 2016 2014 2015 2016

ICT revenue (M€) A good revenue uptake in both National and International ICT led to a solid total ICT revenue of EUR 475 million, or up by 4.5% from the prior year. The year-on-year increase by 4.5% EUR 20 million included a good growth in ICT services and 2.3% some large products deals.

475 444 455 +4.5% ICT revenue growth

2014 2015 2016

20 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Fixed voice revenue (M€) For 2016, Enterprise posted EUR 237 million revenue from Fixed Voice lines, which is 4.4% less than for 2015. This -4.2% resulted from continued Fixed Voice line erosion triggered by -4.4% companies rationalizing on Fixed line connections and the move to IP-based Voice Solutions. In the course of 2016, the line erosion equaled 40,000 bringing the total Fixed line 259 248 237 base to 620,000, i.e. a year-on-year lines loss of 6.1%. The 2016 Fixed Voice ARPU of EUR 30.9 was 1.5% higher than for 2015, strengthened by limited upward price revisions.

2014 2015 2016

Fixed voice lines (in ‘000) Fixed voice ARPU (in €)

-5.0% -6.1% 0.6% 1.5%

695 660 620 30.3 30.5 30.9

2014 2015 2016 2014 2015 2016

Mobile services revenue (M€) For 2016 the Enterprise segment posted Mobile services revenue of EUR 323 million, nearly stable (-0.3%) in relation

5.6% -0.3% to the previous year, in spite of an eight-month impact of roaming regulation.

324 323 307 +43,000 Mobile cards added 2014 2015 2016

Mobile cards excluding M2M and free data cards (in ‘000) Despite operating in a competitive landscape, the Enterprise 4.9% 3.6% segment showed a continued solid growth in its Mobile cards park, up by 4.9% to 937,000 mobile cards (Machine-to- machine and free data cards excluded). The sustained growth in 937 863 894 mobile voice cards was supported by a low mobile churn of 10.0%, reflecting good customer experience of Proximus’ mobile network and service levels, and increasing customer satisfaction. 2014 2015 2016

Proximus Group Annual Report 2016 I 21

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Mobile M2M and free data cards (in ‘000) With the roll-out of the Road User Charging project5, the number of M2M cards activated in 2016 was boosted. Enterprise added a total of 603,000 M2M cards in 2016.

104.7% Tiering of mobile subscriptions continued to improve in the 1,179 Medium Enterprise Segment, with high-end pricing plans gaining 93.4% traction, providing more abundance to customers. Data usage 576 picked-up considerably, resulting from a greater smartphone 298 penetration and a growing number of 4G users. The average 2014 2015 2016 data usage went up by 52% compared to one year ago to 982 Mb/user/month for 2016. These beneficial usage evolutions could however not fully offset the roaming regulation impact on ARPU. Mobile ARPU (in €) The full-year 2016 Mobile ARPU totaled EUR 28.5, down by

0.5% 3.9% from the previous year. -3.9%

29.5 29.7 28.5

2014 2015 2016

Enterprise Direct Margin

For the year 2016 the Enterprise Direct Margin - 3-year view segment posted a total direct

margin of EUR 954 million, a 0.7% favorable evolution of 0.7% 0.7% +0.7% compared to the previous year. The Direct Margin as percentage of 954 947 Direct Margin revenue went down 0.8pp to reach 941 70.2% as a result of a changing revenue mix, with ICT taking an increasing share in the total 2014 2015 2016 Enterprise revenue. (underlying, M€)

5 Road User Charging is a project in which Proximus acts as a subcontractor for “Satellic”, offering data center, M2M and Explore services to implement distance-based road charging in Flanders, Wallonia and Brussels for trucks as from April 2016.

22 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Revenue - 3-year view (underlying, M€) For 2016, Proximus’ Wholesale revenue totaled EUR 194 million, or 3.6% lower than for 2015. This was

-10.0% largely due to a six-month impact from the ceased -3.6% revenue stream from Snow (3-Play offer launched by BASE using the Proximus network through a 224 commercial wholesale agreement). Snow customers 202 194 were fully outphased by mid-2015, hence the year-on- year impact faded as of mid-2016. A large part of the Snow customers opted for Scarlet, Proximus’ low-cost 2014 2015 2016 brand. The Snow-effect aside, the Wholesale revenues were impacted by the regulated lowering of Fixed Termination Rates as of November 2016. Loss in Wholesale access revenue partly compensated for by higher This was partially compensated for by higher Roaming- Roaming-in revenue in revenue. The revenue from visitor roaming was up due to a steep increase in data volumes which more than compensated for the heavy pressure on prices. Direct Margin - 3-year view (underlying, M€) Wholesale posted a Direct Margin of EUR 169 million, or 2.6% lower than for 2015.

-10.4% -2.6%

194 174 169

2014 2015 2016

Proximus Group Annual Report 2016 I 23

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report • 2016 BICS Direct Margin 1.3% below its record-high in 2015

• Less favorable destination mix pressured Voice direct margin

• Ongoing shift from Voice to Data services • Investments in geographical expansion and new growth initiatives

Revenue

In a highly competitive international a less favorable destination mix than for 2015. communications market, BICS defended its This resulted in a 13.2% decline in Voice revenue. leadership position in 2016. BICS closed the year with a total revenue of EUR 1,460 million, i.e. Non-voice revenue however was up year-on-year 9.6% less than for the prior year. In a volatile by 8.4%, driven by a continued steep volume Voice market, BICS maintained its Voice volumes increase (+18.5%). fairly stable at 26.2 billion minutes, although with

Revenue - 3-year view (underlying, M€) Volumes- 3-year view (in million) Voice Non-Voice Non-Voice Voice 1,616 1,577 2.5% 26.9% -9.6% 1,460 2,365 3,002 18.5% 3,558 15.4% 269 Thousands 233 8 .4% -3.1% 292 -0.3% 0.2% -13.2% 27,158 26,313 26,224 1,344 1,347 1,169

2014 2015 2016 2014 2015 2016

Direct margin

Direct margin - 3-year view (underlying, M€) Voice Non-Voice For the year 2016, BICS’ direct margin of EUR 274 million was 1.3% below the high comparable base 278 274 247 12.3% -1.3% of 2015, during which BICS benefitted from favorable though temporary conditions on the Voice Thousands 11.9% 145 130 6.3% 154 market. The volatility in the Voice market resulted in a 9.7% decline in Voice direct margin for 2016, in part 12.8% -9.7% 118 133 120 offset by a growth in non-Voice direct margin.

2014 2015 2016

24 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Segment result

Segment result - 3-year view (underlying, M€)

-7,2% 19,1% The segment result of BICS amounted to EUR 149 million, 7.2% lower than for 2015 due to a combination of lower direct margin 160 149 and higher expenses, mainly related to 135 geographical expansion and investments in new growth initiatives.

2014 2015 2016

T

Proximus Group Annual Report 2016 I 25

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Group – Financials

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

REPORTED

Revenues 1,482 1,511 1,509 1,509 6,012 1,433 1,463 1,488 1,490 5,873

EBITDA 425 456 344 421 1,646 417 428 441 447 1,733

UNDERLYING

Revenues per Segment 1,479 1,505 1,509 1,502 5,994 1,433 1,460 1,487 1,490 5,871

Domestic 1,080 1,094 1,088 1,117 4,379 1,077 1,101 1,105 1,127 4,410

Consumer 712 727 720 733 2,892 710 718 734 742 2,905

Enterprise 328 326 331 350 1,335 329 345 334 352 1,360

W holesale 51 53 51 48 202 48 49 51 46 194

Other (incl. eliminations) -11 -12 -14 -13 -50 -10 -11 -14 -14 -49

International Carrier Services (BICS) 399 411 420 385 1,616 356 359 382 363 1,460

Costs of materials and charges to revenues (*) -590 -590 -592 -605 -2,377 -531 -550 -569 -593 -2,242

Direct Margin 890 915 917 896 3,617 902 911 918 897 3,628

Direct Margin % 60.1% 60.8% 60.8% 59.7% 60.3% 63.0% 62.4% 61.7% 60.2% 61.8%

Total expenses before D&A -482 -460 -464 -478 -1,884 -484 -448 -444 -456 -1,832

W orkforce expenses -302 -299 -311 -288 -1,199 -295 -293 -289 -282 -1,159

Non W orkforce expenses -180 -161 -153 -190 -685 -189 -155 -156 -174 -673

EBITDA 408 455 453 418 1,733 418 463 474 441 1,796

Segment EBITDA margin % 27.6% 30.2% 30.0% 27.8% 28.9% 29.2% 31.7% 31.9% 29.6% 30.6% (*) referred to as "Cost of sales" in the document

Group – EBITDA

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

REPORTED

EBITDA 425 456 344 421 1,646 417 428 441 447 1,733

UNDERLYING

EBITDA Group 408 455 453 418 1,733 418 463 474 441 1,796

Domestic 369 408 412 384 1,573 383 425 435 405 1,647 International Carrier Services (BICS) 39 47 41 34 160 35 38 40 36 149

26 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Consumer – Financials

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

REPORTED

Revenues 712 727 720 733 2,892 710 718 734 742 2,905

UNDERLYING

Revenues 712 727 720 733 2,892 710 718 734 742 2,905

From Fixed 365 368 375 377 1,484 379 381 383 384 1,526

Voice 139 137 138 137 551 134 131 131 128 524

Data (Internet & Data Connectivity) 135 137 142 144 558 147 151 150 151 599

TV 78 82 82 85 327 87 88 91 94 360

Terminals (excl. TV) 5 5 5 4 19 4 4 4 4 15

ICT 7 7 7 8 29 7 7 7 7 29

Mobile Services 246 254 255 250 1,006 248 250 251 246 995

Postpaid 200 208 213 210 831 210 213 216 213 852

Prepaid 46 47 42 40 174 38 38 35 33 144

MobileTerminals 40 40 28 36 145 25 30 37 53 146

Subsidiaries (Tango) 31 31 33 35 130 31 30 32 34 127

Other 30 33 30 34 128 28 27 30 26 110

Costs of materials & charges to revenues -171 -174 -161 -187 -692 -160 -163 -172 -197 -691

Direct Margin 542 553 560 545 2,200 551 555 562 546 2,214 Direct Margin % 76.0% 76.0% 77.7% 74.5% 76.1% 77.5% 77.3% 76.6% 73.5% 76.2%

Proximus Group Annual Report 2016 I 27

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Consumer – Operationals

Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

From Fixed

Number of access channels (thousands) 3,789 3,810 3,811 3,830 3,830 3,837 3,832 3,824 3,841 3,841

Voice 2,140 2,136 2,121 2,112 2,112 2,096 2,078 2,058 2,060 2,060

Broadband 1,649 1,674 1,690 1,718 1,718 1,741 1,754 1,767 1,781 1,781

TV (thousands) 1,657 1,692 1,716 1,759 1,759 1,795 1,816 1,834 1,848 1,848

Unique Customers 1,340 1,365 1,384 1,414 1,414 1,440 1,458 1,472 1,489 1,489

of which multiple settop boxes 317 327 332 345 345 354 357 361 359 359

ARPU (EUR)

ARPU Voice 21.7 21.3 21.7 21.5 21.6 21.3 20.9 21.2 20.8 21.0

ARPU broadband 27.6 27.5 28.2 28.0 27.9 28.3 28.8 28.4 28.3 28.4

ARPU TV 19.8 20.1 20.0 20.1 20.0 20.2 20.2 20.7 21.1 20.6

From Mobile

Number of active customers (thousands) 4,230 4,229 4,236 4,229 4,229 4,202 4,189 4,172 4,125 4,125

Prepaid 1,416 1,376 1,341 1,307 1,307 1,268 1,239 1,210 1,170 1,170

Postpaid 2,815 2,853 2,895 2,922 2,922 2,934 2,950 2,962 2,955 2,955

Among Which Paying cards 2,333 2,359 2,393 2,430 2,430 2,437 2,455 2,469 2,496 2,496

Among W hich Internet Everywhere cards 482 494 502 492 492 496 495 494 459 459

Annualized churn rate (blended)

Prepaid 33.7% 32.7% 35.0% 35.4% 34.2% 35.0% 35.0% 37.9% 37.2% 36.3%

Postpaid 15.4% 13.4% 13.8% 15.6% 14.5% 15.2% 14.0% 15.5% 16.4% 15.2%

Blended 22.7% 20.9% 21.9% 23.0% 22.1% 22.4% 21.5% 23.4% 23.5% 22.7%

Net ARPU (EUR)

Prepaid 10.7 11.2 10.4 10.0 10.5 9.8 10.1 9.6 9.2 9.7

Postpaid 28.9 29.6 30.0 29.1 29.4 28.8 28.9 29.3 28.7 28.9

Blended 21.9 22.7 22.8 22.3 22.4 22.2 22.6 22.8 22.4 22.5

Average Mobile data usage user/month (Mb)

4G 855 851 920 945 1,039 1,090 1,107 1,197

Blended 474 511 581 627 725 790 842 945

28 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

X-Play reporting

Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

Consumer X-Play Reporting

Households/Small Offices per Play - Total 2,928 2,939 2,942 2,951 2,951 2,951 2,950 2,945 2,943 2,943 (thousands)

4 - Play 510 521 531 547 547 555 564 571 601 601

3 - Play 722 738 744 755 755 768 771 775 763 763

2 - Play 472 468 462 455 455 451 449 446 438 438

1 - Play 1,224 1,212 1,204 1,194 1,194 1,177 1,166 1,153 1,141 1,141

Fixed Voice 458 444 430 415 415 398 384 372 358 358

Fixed Internet 112 115 117 119 119 122 123 125 127 127

TV N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Mobile Postpaid 653 653 658 661 661 657 658 656 656 656

Average revenue x - play (in EUR) 63.4 64.1 65.5 65.0 64.5 65.5 65.7 66.8 66.2 66.1

4 - Play 115.0 115.4 116.6 115.1 115.5 114.9 114.9 116.1 115.1 115.2

3 - Play 80.6 79.9 80.7 79.6 80.2 79.6 79.3 80.0 78.5 79.3

2 - Play 57.8 57.7 59.0 58.7 58.3 58.9 58.5 59.1 58.3 58.7

1 - Play 35.0 35.4 36.4 35.8 35.7 36.0 36.0 36.9 36.2 36.3

Average #RGUs per househould/Small Office - Total 2.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6

4 - Play 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8

3 - Play 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3

2 - Play 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2

1 - Play 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2

Annualized churn rate (blended)

4 - Play 2.9% 2.5% 3.0% 2.9% 2.8% 2.8% 2.7% 2.4% 2.8% 2.7%

3 - Play 10.6% 9.6% 11.8% 11.2% 10.8% 10.4% 9.6% 9.6% 10.2% 9.9%

2 - Play 12.4% 10.7% 12.3% 11.3% 11.7% 12.1% 10.3% 10.9% 11.6% 11.2%

1 - Play 22.1% 18.1% 19.1% 20.3% 19.9% 20.8% 18.8% 20.5% 22.0% 20.5%

% Convergent HH / SO - Total

4 - Play 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

3 - Play 36.2% 36.1% 36.5% 36.9% 36.9% 36.8% 37.0% 37.6% 36.6% 36.6%

2 - Play 23.3% 23.3% 23.5% 23.8% 23.8% 23.5% 23.4% 23.4% 23.5% 23.5%

Proximus Group Annual Report 2016 I 29

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Enterprise – Financials

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

REPORTED

Revenues 328 326 331 350 1,335 329 345 334 352 1,360

UNDERLYING

Revenues 328 326 331 350 1,335 329 345 334 352 1,360

From Fixed 238 236 242 256 971 237 250 241 254 982

Voice 64 62 61 61 248 61 60 58 58 237

Data (Internet & Data Connectivity) 62 62 63 63 250 63 63 63 62 251

Terminals 5 5 5 5 19 5 5 5 5 19

ICT 107 107 113 127 455 108 123 115 129 475

Mobile Services 79 80 82 83 324 83 80 80 80 323

MobileTerminals 6 3 3 6 18 4 5 5 7 21

Other 6 6 4 5 21 5 9 8 11 34

Costs of materials & charges to revenues -93 -91 -95 -109 -388 -91 -105 -99 -111 -406

Direct Margin 235 235 236 241 947 237 240 235 242 954 Direct Margin % 71.7% 72.2% 71.4% 68.8% 71.0% 72.2% 69.6% 70.4% 68.5% 70.2%

Enterprise – Operationals

Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

From Fixed

Number of access channels (thousands) 825 815 808 798 798 784 774 768 758 758

Voice 686 677 670 660 660 647 637 630 620 620

Broadband 139 138 137 137 137 137 137 138 138 138

ARPU (EUR)

ARPU Voice 30.8 30.1 30.3 30.7 30.5 31.1 31.1 30.7 30.8 30.9

ARPU Broadband 43.5 43.8 44.5 43.7 43.9 43.4 43.6 43.8 43.3 43.5

Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

From Mobile

Number of active customers (thousands) 1,179 1,200 1,338 1,470 1,470 1,889 2,014 2,093 2,117 2,117

Among which voice and data cards 869 879 885 894 894 901 910 924 937 937

Among which M2M (including a limited number of Internet Everywhere311 cards) 321 453 576 576 988 1,105 1,169 1,179 1,179

Annualized churn rate (blended) 11.3% 10.0% 8.9% 10.3% 10.1% 10.8% 10.7% 8.9% 9.8% 10.0%

Net ARPU (EUR)

Postpaid 29.3 29.7 30.0 30.0 29.7 29.8 28.6 28.1 27.6 28.5

Average Mobile data usage user/month (Mb)

4G 718 752 811 862 973 1,045 1,074 1,170 Blended 488 529 590 645 756 833 880 982

30 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Wholesale – Financials

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

REPORTED

Revenues 51 53 51 48 202 48 49 51 46 194

UNDERLYING

Revenues 51 53 51 48 202 48 49 51 46 194

Direct Margin 43 46 44 41 174 43 43 44 40 169 Direct Margin % 85.5% 86.6% 86.3% 86.3% 86.2% 88.4% 88.4% 85.8% 86.0% 87.1%

Wholesale – Operationals

Q115 Q215 Q315 Q415 2015 Q116 Q216 Q316 Q416 2016

From Fixed

Number of access channels (thousands)

Voice (1) 9 9 9 8 8 9 9 8 8 8

Broadband (1) 1 1 1 1 1 1 1 1 1 1

From Mobile

Number of active Mobile customers (thousands)

Retail (1) 11 10 10 10 10 10 10 9 9 9

MVNO 11 11 11 12 12 13 14 15 16 16 (1) i.e. Proximus retail products sold via W holesale (OLO's own usage and reselling)

Proximus Group Annual Report 2016 I 31

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

BICS – Financials

(EUR million) Q115 Q215 Q315 Q415 2015 Q116 Q216 Q3216 Q416 2016

REPORTED

Revenues 399 411 420 385 1,616 356 359 382 363 1,460

Segment Result 39 47 41 34 160 35 38 40 37 149

UNDERLYING

Revenues 399 411 420 385 1,616 356 359 382 363 1,460

Revenues from Voice 335 347 347 318 1,347 286 288 303 291 1,169

Revenues from non-Voice 65 64 73 67 269 70 71 79 72 292

Costs of materials and charges to revenues -335 -336 -348 -320 -1,338 -289 -292 -310 -296 -1,186

Direct Margin 65 75 73 65 278 67 67 73 68 274

Direct Margin % 16.2% 18.3% 17.4% 16.9% 17.2% 18.8% 18.6% 19.1% 18.6% 18.8%

Total expenses before D&A -25 -29 -32 -32 -118 -32 -29 -33 -31 -125

W orkforce expenses -12 -14 -13 -15 -53 -13 -13 -14 -13 -53

Non W orkforce expences -14 -15 -19 -17 -64 -19 -16 -20 -18 -72

Segment result 39 47 41 34 160 35 38 40 36 149 Segment contribution margin % 9.8% 11.3% 9.7% 8.7% 9.9% 9.9% 10.5% 10.3% 10.0% 10.2%

32 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Definitions

Annualized full churn rate of X-Play: a cancellation of a household is only taken into account when the household cancels all its Plays. Annualized Mobile churn rate: the total annualized number of SIM cards disconnected from the Proximus 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. ARPH: Average underlying revenue per household (including Small Offices). ARPU: Average Revenue per Unit Blended Mobile ARPU: calculated on the basis of monthly averages for the period indicated. Blended monthly ARPU is equal to total Mobile voice and Mobile data revenues of both prepaid and postpaid customers, divided by the average number of active prepaid and postpaid customers for that period, divided by the number of months of that same period. This also includes MVNO’s but excludes free data cards and M2M. Broadband access channels: containing both ADSL and VDSL lines. For Consumer specifically, this also contains the Belgian residential lines of Scarlet. Broadband ARPU: total Internet underlying revenue, excluding activation and installation fees, divided by the average number of Internet lines for the period considered, divided by the number of months in that same period.

BICS: the Proximus Group placed its international carrier activities under the brand BICS, a joint venture of Proximus, and MTN in which Proximus owns 57.6% of BICS. Business working capital: this corresponds to the working capital related to Trades Receivable, Inventory and Trades Payable

Capex: this corresponds to the acquisitions of intangible assets and property, plant and equipment Consumer: segment addressing the residential and small businesses (less than 10 employees) market and including Proximus’ Customer Operations Unit. Cost of Sales: the costs of materials and charges related to revenues

Direct margin (reported): the result of cost of sales subtracted from the revenues (including non-recurring), expressed in absolute value or in % of revenues. Direct margin (underlying): the result of underlying cost of sales subtracted from the underlying revenue, expressed in absolute value or in % of revenues. Domestic: defined as the Proximus Group excluding BICS EBITDA (reported): Earnings Before Interest, Taxes Depreciations and Amortization; corresponds to Revenue (including non-recurring) minus Cost of sales, workforce and non-workforce expenses and non-recurring expenses.

EBITDA (underlying): Earnings Before Interest, Taxes Depreciations and Amortization; corresponds to underlying revenue minus underlying Cost of sales, workforce and non-workforce expenses EBIT: Earning Before Interest & Taxes, corresponds to EBITDA minus depreciations and amortizations

Enterprise: segment addressing the professional market including small businesses with more than 10 employees Fixed Voice access channels: containing PSTN, ISDN and IP lines. For Enterprise specifically, this also contains the number of Business Trunking lines (solution for the integration of voice and data traffic on one single data network.)

Proximus Group Annual Report 2016 I 33

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Fixed Voice ARPU: total voice underlying revenue, excluding activation related revenue, divided by the average voice access channels for the period considered, divided by the number of months in that same period.

FCF: Free Cash Flow. This is Cash flow before financing activities. General and Administrative expenses (G&A): remaining domestic expenses; excluding Marketing, Sales and Servicing and Network and IT expenses, i.e. mainly overhead. ICT: Information and Communications Technology (ICT) is an extended term for information technology (IT) which stresses the role of unified communications and the integration of telecommunications (telephone lines and wireless signals), computers as well as necessary enterprise software, middleware, storage, and audio-visual systems, which enable users to access, store, transmit, and manipulate information. Proximus’ ICT solutions cover, but are not limited to, Security, Cloud, “Network & Unified Communication”, “Enterprise Mobility Management” and “Servicing and Sourcing”. Incidental: adjustments including non-recurring income and expenses (*) and other material(**) items that are out of usual business operations, such as: divestments of consolidated companies, gains and losses on disposal of buildings, M&A (acquisition, merger, divestment,…) related transaction costs, deferred M&A purchase price, pre-identified one shot projects (such as rebranding costs), changes of accounting treatments (such as the application of IFRIC 21), financial impacts of litigation files, fines and penalties, financial impact of law changes (one-off impact relative to previous years), recognition of previously unrecognized assets and impairment losses. A detailed reconciliation from Reported to Underlying Revenue and EBITDA is presented in section 1. (number to update) (* ) Non-recurring income and non-recurring expenses include gains or losses on the disposal of consolidated companies exceeding individually EUR 5 million, fines and penalties imposed by competition authorities or by the regulator exceeding EUR 5 million, costs of employee restructuring programs and the effect of settlements of post-employment benefit plans with impacts for the beneficiaries. (**) The materiality threshold is met when an impact exceeds EUR 5 million. No materiality threshold is defined for divestments of consolidated companies, gains and losses on disposal of buildings, M&A related transaction costs and deferred M&A purchase price. No threshold is used for adjustments in a subsequent quarter of the same year if the threshold was met in a previous quarter.

Marketing, Sales and Servicing expenses: all expenses related to Consumer, Enterprise and Wholesale customers, including remote servicing.

Mobile active customers: includes voice and data cards as well as Machine-to-Machine (Enterprise). Active customers are customers who have made or received at least one call and/or sent or received at least one SMS message in the last three months. A M2M card is considered active if at least one data connection has been made in the last month. Mobile ARPU: calculated on the basis of monthly averages for the period indicated. Monthly ARPU is equal to total Mobile voice and Mobile data revenues, divided by the average number of active Mobile customers for that period, divided by the number of months of that same period. This also includes MVNO’s but excludes free data cards and M2M. Multi-Play household (including Small Offices): two or more Plays, not necessarily in a Pack. Network and IT expenses: all IT and Network related expenses, including interventions at customer premises Net debt: refers to the total interest bearing debt (short term + long term) minus cash and cash equivalents.

Non Workforce expenses: all operating expenses excluding workforce expenses, and excluding depreciation and amortization and non-recurring expenses. Play: a subscription to either Fixed Voice, Fixed Internet, dTV or Mobile Postpaid (paying Mobile cards). A 4-Play customer subscribes to all four services. Revenue-Generating Unit (RGU): For example, a household with Fixed Internet and 2 Mobile Postpaid cards is considered as a 2-Play household with 3 RGUs. Reported Revenues: this corresponds to the TOTAL INCOME. TV ARPU: includes only customer-related underlying revenue and takes into account promotional offers, excluding activation and installation fees, divided by the number of households with Proximus or Scarlet TV.

34 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 ––––––– Consolidated Management Report

Underlying: refers to adjusted Revenue and EBITDA (Total Income and Operating Income before Depreciation and Amortisation) for incidentals in order to properly assess the ongoing business performance.

Wholesale: Proximus’ unit addressing the telecom wholesale market incl. other telecom operators (incl. MVNO) and ISP’s. Workforce expenses: Workforce expenses are expenses related to own employees (personnel expenses and pensions) as well as to external employees. For subsidiaries, Workforce expenses include internal personnel expenses and pensions only. X-Play: the sum of single Play (1-Play) and multi-Play (2-Play + 3-Play + 4-Play).

Proximus Group Annual Report 2016 I 35

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Taking risks is inherent to doing business process allows management to take risks in and successfully managing risks delivers a controlled manner. Financial risk return to Proximus stakeholders. Proximus management objectives and policies are believes that risk management is reported in Note 33 of the consolidated fundamental to corporate governance and financial statements, published on the the development of sustainable business. Proximus website. Risks related to The Group has adopted a risk philosophy important ongoing claims and judicial that is aimed at maximizing business procedures are reported in Note 35 of success and shareholder value by these statements. The enterprise and effectively balancing risk and reward. The financial reporting risks are detailed below, objective of risk management is not only to together with the related mitigating factors safeguard the Group’s assets and financial and control measures. Note that this is not strength but also to protect Proximus’ intended to be an exhaustive analysis of all reputation. A structured risk management potential risks Proximus might be facing.

Proximus’ Enterprise Risk Management (ERM) is a terms of impact and likelihood, considering structured and consistent framework for assessing, quantitative and/or qualitative aspects. The bottom- responding to and reporting on risks that could up identification and prioritization process is affect the achievement of Proximus’ strategic supported by a self-assessment template and development objectives. The Group’s ERM covers validation sessions. The resulting report on major the spectrum of business risks (“potential adverse risks and uncertainties is then reviewed by the events”) and uncertainties that Proximus could Executive Committee, the CEO and the Audit and encounter. It seeks to maximize value for Compliance Committee. The main findings are shareholders by aligning risk management with the communicated to the Board of Directors. Among the corporate strategy, assessing the emerging risk from risks identified in the ERM exercise of 2016, the regulation, new technologies on the market, and following risk categories were prioritized: developing risk tolerance and mitigating strategies.  Competitive market dynamics Proximus ERM has been reviewed and updated  Human Resource cost flexibility every year since 2006. This risk assessment and  Business model evolution evaluation takes place as an integral part of  Customer experience Proximus’ annual strategic planning cycle. All  Innovation relevant risks and opportunities are prioritized in

36 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Competitive market dynamics

Proximus’ business is primarily focused on Belgium, partnering with content and OTT players to offer a a small country with a few large telecom players, broad portfolio of content (Sports, Netflix, families & among which Proximus is the incumbent. Proximus kids, …) , developing an omnichannel strategy and is operating in growing (e.g. smartphones, mobile improving digital customer interfaces, … Proximus data, M2M, IT), maturing (e.g. Fixed Internet, post- has build up an advantageous and solid competitive paid mobile), saturated (e.g. fixed voice) or even position providing the company with other levers declining (e.g. prepaid mobile) markets. than just price, reducing the risk to churn and price disruption exposure. The market is in constant evolution, with competitive dynamics at play that might impact market value Cable operators have chosen to vertically integrate going-forward. The Telenet-Base merger, the entry the value chain, by buying content or even of Mobistar (renamed as from May participations in broadcast channels. Proximus is 2016) into cable, the transfer of Telenet MVNO responding to these threats through a convergent customers to the BASE network freeing up capacity and bundled approach and by offering new services on the network of Orange Belgium, the acceleration (e.g. TV Replay, Proximus Cloud, Smart and Safe of adoption of OTT applications disrupting the value Living) and opting for an aggregator model, putting of voice and messaging are important, non- at disposal the best content to its customers (e.g. exhaustive, factors that could lead to further Netflix). pressure on the market. In 2016, Proximus continued to leverage and Moreover, Proximus’ main competitors Orange nurture its single convergent brand. The price- Belgium , BASE and Telenet, are subsidiaries of sensitive segment is still addressed via its subsidiary Orange and respectively, all large Scarlet. The latter offers attractively priced mobile international operators able to leverage their larger and triple-play products. organisation. Nethys and Brutélé (commercial name VOO) are important local cable competitors in the In the SME market, besides the competitors also South of the country. active in the Consumer market, we face competition from niche players in the different product markets. A stronger combined competition (e.g. Telenet-Base In the large-company market, Proximus faces or a potential consolidation among cable operators), competition from internationally oriented operators a new market entrant (e.g. Orange via cable like Orange Business Services, Colt, Verizon wholesale) or radical price competition could cost Business and BT Belgium, and from integrators such Proximus market share or force the company to as Dimension Data, Getronics, Cegeka and revise prices downwards, impacting negatively RealDolmen. The scattered competitive landscape revenue and profit. drives price competition, which might further impact revenue and margins. Also Telenet’s acquisition of Substitution by OTT services of fixed line services Base could further drive price competition on the (e.g. by apps and social media like Skype, Facebook, Enterprise mobile market. Cable operators are also Whatsapp, etc.) and TV content could put further making further inroads into the Fixed Enterprise pressure on revenues and margins as these over- market. the-top services are further gaining ground. Here also, Proximus intends to respond to increasing Nevertheless, as a result of its long-term strategy competition by strengthening its voice-data-IT and continued network investments (Fiber, convergence strategy, leveraging unmatched sales VDSL/Vectoring, 4G/4G+, Mobile Coverage reach, broad portfolio and expertise. Addressing Extender, Wi-Fi Extender) Proximus has been customer business needs through solutions consistently improving its multi-play value combining core assets with innovation like IoT, propositions by putting more customers on the Cloud, Security and big data will help preserving the latest technologies, keeping the lead in mobile value. innovation, structurally improving customer service,

Proximus Group Annual Report 2016 I 37 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

The upcoming roaming regulation could also trigger which customers are able to change providers. If new kinds of competition on the market as from these two elements (volatility and unit price mid-2017. pressure) should continue and/or if BICS does not offset price decreases with increased volume on The international carrier services market continues new activities, BICS’ growth rate, operating revenue to be characterized by high volatility within its voice and net profit could come under pressure. In segment. Unit margins for both the legacy voice and addition, the competitive pressure on the mobile data segments continue to be under significant data market continues to increase and therefore pressure as a result of price competition, affect the growth profile of the International Carrier consolidation of competitors and the ease with Services.

Human resources cost flexibility

Even though Proximus is back on the path of growth resources in very specific domains like security, since 2015, strong competition, the impact of digital front-ends, data science, agile IT, … This regulation and fast market evolution require that we shortage could hamper the realization of our need to further reduce costs in order to remain convergent and customer-centric strategy and delay competitive and preserve EBITDA. A significant part some of our ambitions in innovation. This is why the of Proximus’ expenses is driven by the cost of the company is putting so much attention on training workforce (whether internal or outsourced, programs, internal mobility, and selective hiring of expensed or capitalized). Expressed as a ratio of young graduates from relevant fields of knowledge. turnover, Proximus total cost of workforce lies Proximus’ attractive employer brand is definitely clearly above the average of international peers and helping to attract and retain the right talents. main competitors. In 2016, a voluntary early leave plan prior to Moreover, Belgium applies automatic inflation- retirement for employees above 60 years old was based salary increases, leading to higher costs, not agreed by the unions (with implementation started only of Proximus’ own employees but also of the and ongoing). However, the need remains to get outsourced workforce, with the outsourcing unions approval on new measures to enhance companies being subject to the indexation as well. employability, to obtain more flexibility to move employees within the organization, to adapt the At Proximus Group level, about one in three workforce faster in line with the actual workload, employees is statutory. The application of HR rules and to align remuneration items with common for statutory employees is quite strict and doesn’t market practices. allow high flexibility. This may restrict Proximus’ ability to improve efficiency and increase flexibility to Proximus will continue to adapt and simplify the levels comparable to those of its competitors. organizational structure in order to evolve towards a high-performance organization. Major efforts will be needed to increase flexibility and mobility within the organization. Business Different initiatives are ongoing to safeguard the complexity is continuously increasing, creating a balance between workforce and workload (both in need for upgraded skills and up-staffing mainly in numbers and competencies), to optimize in- and customer-facing functions. outsourcing, to stimulate (internal) mobility, and to drastically simplify and/or automate Proximus’ In the digital era, knowledge workers are a products, services, processes and systems. competitive asset if they have the right skills and mindset. Proximus could face a shortage of skilled

38 I Consolidated Management Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Business model evolution

Proximus’ business model and financial performance from innovative services, but the margins delivered have been and will be impacted by (disruptive) by these new services are, on average, lower than technologies, such as eSIM smartphones and OTT the ones from legacy activities. (over-the-top) services. Proximus’ response to new technologies and market developments and its In response to this competition, Proximus aims at ability to introduce new competitive products or providing an improved answer to the needs of its services, meaningful to its customers, will be customers by offering them integrated solutions essential to its performance and profitability in the that are composed of convergent products, long run. including fixed and mobile communications solutions, service level agreements and managed The direct relationship with customers is a source of services. Adding meaningful innovation and value and losing part or all of it to those new embracing selected OTT partners will be entrants could affect revenues, margins, the instrumental to remain relevant to its customers . financial position and the outlook of Proximus classical telecommunications products & services. Proximus will continue to increase collaboration with partners and open more and more assets to them, Like other operators, Proximus will continue to playing a new role of enabling company. experience a decline in traditional services (voice and access), partly offset by the increase in revenues

Customer experience

A lack of customer focus could negatively impact The following main achievements have been loyalty and growth ambition . realised in 2016: For Proximus , delivering a superior customer  Anticipating what matters for the customer, experience remains a daily challenge considering ; preventing as much as possible what might  the fast evolution of market expectations impact him negatively by visiting customer  the large & complex offer of product & services proactively so that they can benefit from a  the process /legacy IT application complexity optimized in-home multi-screen experience To support Proximus ambition to deliver a superior  Best Mobile Experience customer experience an ambitious transformation  Improved Speed : 73,3% of digital homes have program was set up to address these challenges, line speed >30Mb/s steer and monitor the transformation of Proximus  Improved business continuity also for small organization into a customer centric one in line with enterprise with same day repair the Proximus sense of purpose to connect everyone  Improved first time right and everything so people live better and work  Improved staff friendliness leading to a better smarter. customer satisfaction  Improved Enterprise Service Team tailored to business customer need  Simplified invitation to pay/invoice

Proximus Group Annual Report 2016 I 39 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Innovation

To succeed the Telco industry has to innovate, solutions, …) and devices with increased data diversify and shorten their time to market capacity, data traffic volumes will continue to grow As the Telco ecosystem evolves and reshapes, steadily. getting to market first with new service propositions Operators like Proximus need to ensure that they is a primary route to value. In a world being stand at the cutting edge of innovation rather than revolutionized by the digitalization of services and act as fast followers and that they respond by channels, innovation needs to be multi-facet: from engaging and interacting in new ways with new technology to business models, from enhancements ecosystems combining leading sector actors, the of core products to development of totally new world of technology startups and other revenue streams. complementary service providers. The quest to attract the best in new talent and develop new skills With the new technologies ( incl. IoT, Cloud will be key.

Operational risk relates to risks arising from systems, Approach) methodology. A dedicated “as-if” adverse processes, people and external events that affect scenario risk register has been developed in order to the operation of Proximus businesses. It includes make stress tests relevant. product life cycle and execution; product safety and performance; information management, data Proximus is covered by extended general and protection and cyber security; business continuity; professional liability, property damage and business supply chain; and other risks, including human interruption insurance as well as a dedicated cyber resources and reputation. Depending on the nature security insurance program. Nevertheless, those of the risk involved and the particular business or insurance programs may not provide indemnification function affected, Proximus is using a wide variety of if the traditional insurance exclusions (non- risk mitigation strategies, including adverse scenario accidental event) should apply. stress tests, back up/business continuity plans, business process reviews, and insurance. Proximus’ The most prominent examples of operational risk operational risk measurement and management factors are stipulated below. relies on the AMA (Advanced Measurement

Business Continuity

Interruptions to our ICT infrastructure as well as to crashes, natural disasters, supply chain problems the infrastructure that supports our businesses and more. (including those provided by third-party vendors such as power suppliers) could seriously impact our For each critical business function, business revenues, our liabilities and our brand reputation. continuity plans have been developed in order to:  identify and prevent risks where possible Therefore, building and improving resilience of our  prepare for risks that we can't control products and services is and remains a top priority.  respond and recover if an incident or crisis We are convinced that good business continuity occurs plans will keep our company up and running through interruptions of any kind: power failures, IT system Proximus is closely following the Business Continuity

40 I Consolidated Management Report 2016

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

Institute (BCI) best practices guidelines. The level of Proximus has put in place and is continuously testing preparedness (relevant KPIs and score cards) is a crisis management process called PERT (Proximus submitted annually to the Audit & Compliance Emergency Response Team). Committee. In case of a major adverse event,

Cyber Security

Increased global cyber security vulnerabilities, customers’ data are also at risk. threats and more sophisticated and targeted cyber- We are taking the necessary actions & investments related attacks pose a risk to the security of to mitigate those risks by employing a number of Proximus as well as its customers’, partners’, measures, including employee training, monitoring suppliers’ and third-party service providers’ testing, and maintenance of protective systems and products, systems and networks. The confidentiality, contingency plans. availability and integrity of Proximus and its

Supply chain

Proximus depends on key suppliers and vendors to The following actions have been taken into account provide equipment needed to operate its business. in order to keep an acceptable supply chain risk level:  Top critical suppliers or their sub-suppliers Supply chain risk management (SCRM) is defined as under constant watch “the implementation of strategies to manage both  Stock management every day and exceptional risks along the supply  Consideration of alternative sourcing chain, based on continuous risk assessment with the arrangements objective of reducing vulnerability and ensuring  Business interruption / contingency plans continuity”  Risk assessments and Audits  Awareness campaigns and training programs  Strict follow up of critical suppliers contractual liability & Service level Agreement (SLA) clauses

Data protection & privacy

Data protection laws exist to strike a balance between the rights of individuals to privacy and the Proximus is committed to protect personal data and ability of organizations to use data for business privacy, and the company has taken the following purposes. actions : General Data Protection Regulation ‘s (GDPR) unification of data protection standards across the  Appointment of a Data Protection Officer (DPO) European Union has raised the privacy bar on for Proximus (& subsidiaries) who reports to personal data by requiring organizations to locate, EXCO & the Audit & Compliance Committee and understand its purpose and appropriately secure it. who is responsible for privacy compliance & Our objective is to ensure compliance with the EU implementation of privacy laws, e.g. GDPR. General Data Protection Regulation (GDPR) without costly disruptions to Proximus data flow and  Since end of 2015, a Proximus Privacy business operations Committee (PPC) has been established, which

Proximus Group Annual Report 2016 I 41 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

reports to the Executive Committee and consists describes the Proximus’ approach to privacy and of C-level members from all business units. The serves as an internal compass to assess use Committee decides on the framework and cases and to respect our stakeholders’ privacy, …. conditions for new and privacy sensitive use cases (“privacy by design”) and provides  In view of the EU General Data Protection recommendations on all other pertinent aspects Regulation, Proximus performed a GDPR related to privacy. readiness assesment and developed a  A Proximus Privacy Charter, adopted in 2016, compliance roadmap.

In 2016, the Risk Management & Compliance The RMC objectives are: Committee (RMC) has held 4 sessions . The related 1. To oversee the company's most critical decisions have been reported to EXCO & the Audit & enterprise & operational risks and how Compliance Committee. RMC meetings give management is monitoring and mitigating those opportunity to review files where decisions have to risks. be taken by finding the balance between risk taking 2. To enhance pending/open internal Audit action and cost in line with the Group risk appetite. points where significant resources have to be re Proximus has general response strategies for allocated managing risks, which categorize them according to whether the company will avoid, transfer, reduce or A disciplined approach to risk is key in a fast-moving accept the risk. These response strategies are technological and competitive environment, in order tailored to ensure that risks are within acceptable to ensure that we only accept risk for which Proximus risk and compliance guidelines. Proximus is adequately compensated (risk/return optimisation).

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

New transactions and evolving accounting standards

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

42 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091

Consolidated Management Report

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

Changes in tax law and regulations

Changes in tax laws and regulations (corporate well as interpretations of existing tax laws by the income tax, VAT,...) or in their application by the tax authorities. Based on laws, doctrine, case law tax authorities could significantly impact the and political statements as well as draft laws financial statements. To ensure compliance, it is available etc., an impact analysis is made from a often required to set up, in a short timeframe, financial perspective and from an operational additional administrative processes to collect point of view. The outcome of the analysis is relevant information or to implement updates to reflected in the corresponding financial existing IT systems (e.g. billing systems). statements in accordance with the applicable framework. The tax department continuously follows potential changes in tax law and regulations as

Financial statement closing process

The delivery of timely and reliable financial systems are locked, validation meetings and statements remains dependent on an adequate reporting deliverables. financial statement closing process. For every process and sub-process, different Clear roles and responsibilities in the closing controls are performed, including preventive process of the financial statements have been controls, where information is tested before being defined. During the monthly, quarterly, half- processed, as well as detective controls, where yearly and annual financial statement closing the outcome of the processing is being analyzed processes, there is a continuous monitoring on the and confirmed. Specific attention is given to different steps. In addition, different controls are reasonableness tests, where financial information performed to ensure quality and compliance with is being analyzed against more underlying internal and external requirements and guidelines. operational drivers and coherence tests, where financial information from different areas is For Proximus and its major affiliates, a very brought together to confirm results or trends, etc. detailed closing calendar is established, which Tests on individual accounting entries are includes in detail cross-divisional preparatory performed for material or non-recurrent meetings, deadlines for ending of specific transactions and on a sample basis for others. The processes, exact dates and hours when IT sub- combination of all these tests provides sufficient assurance on the reliability of the financials.

WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Proximus Group Annual Report 2016 I 43

Consolidated Management Report

The Proximus Board of Directors is responsible for systems, procedures and practices. Proximus the assessment of the effectiveness of the cannot guarantee that this internal control will be systems for internal control and risk management. sufficient in all circumstances as risks of misuse of assets or misstatements can never be totally Proximus has set up an internal control system eliminated. However, Proximus organizes a based on the COSO model, i.e. the integrated continuous review and follow-up of all the internal control and enterprise risk management components of its internal controls and risk framework published by the Committee of management systems to ensure they remain Sponsoring Organisation of the Treadway adequate. Commission (“COSO”) for the first time in 1992 and updated in May 2013. This COSO Proximus considers the timely delivery to all its methodology is based on five areas: the control internal and external stakeholders of complete, environment, risk analysis, control activities, reliable and relevant financial information in information & communication and monitoring. conformity with International Financial Reporting Standards (IFRS) and with other additional Belgian Proximus’ internal control system is characterized disclosure requirements as an essential element by an organization with a clear definition of of management and governance. Therefore, responsibilities, next to sufficient resources and Proximus has organized its internal control and expertise, and also appropriate information risk management systems over its financial reporting in order to ensure this objective is met.

Organization of internal control

In accordance with the bylaws, Proximus has an the consolidated financial statements, including Audit & Compliance Committee (A&CC) (see the follow up of questions and recommendations caption ‘Independence and expertise in the made by the auditors, (v) the relationship with the accounting and audit domain of at least one Group’s auditors and the assessment and member of the Audit and Compliance monitoring of the independence of the auditors, Committee’). Its role is to assist and advise the (vi) Proximus compliance with legal and Board of Directors in its oversight on (i) the regulatory requirements, (vii) the compliance financial reporting process, (ii) the efficiency of the within the organization with the Proximus’ Code of systems for internal control and risk management Conduct and the Dealing Code. of Proximus, (iii) the Proximus’ internal audit function and its efficiency, (iv) the quality, integrity The A&CC meets at least once every quarter. and legal control of the Proximus statutory and

44 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

Ethics

The Board of Directors has approved a Corporate the above-mentioned principles, and aims to Governance Charter and a Code of Conduct “A inspire each employee in his or her daily behavior Socially Responsible Company”. All employees and attitudes. The ethical behaviour is not limited must perform their daily activities and their to the text of the Code. The Code is a summary of business objectives according to the strictest the main principles and is thus not exhaustive. ethical standards and principles, using the Group values (Collaboration, Agility and Accountability) In addition, Proximus in general, and the Finance as guiding principle. department in particular, has a tradition of a high importance to compliance and a strict adherence The Code “A Socially Responsible Company”, to a timely and qualitative reporting. which is available on www.proximus.com, sets out

Policies and procedures

The principles and the rules in the Code “A Socially In the financial reporting domain, general and Responsible Company” are further elaborated in more detailed accounting principles, guidelines the different internal policies and procedures. and instructions are summarized in the accounting These Group policies and procedures are available manuals and other reference material available on the Proximus intranet-sites. Every policy has on the Proximus intranet-sites. In addition, the an owner, who regularly reviews and updates if Corporate Accounting department regularly necessary. Periodically, and at moment of an organizes internal accounting seminars to update update, an appropriate communication is finance and non-finance staff on accounting organized. policies and procedures.

Roles & responsibilities

Proximus’ internal control system benefits from centralized support, the organization is structured the fact that throughout the whole organization, according to the major (financial) processes. roles and responsibilities are clearly defined. Every These major processes include capital business unit, division and department has its expenditures and assets, inventories, contracts in vision, mission and responsibilities, while on progress & revenue recognition, financial individual level everybody has a clear job accounting, operational expenditures, provisions description and objectives. & litigations, payroll, post-employment benefits and taxes. This centralized support, organized The main role of the Finance Division is to support around specific processes and IFRS standards, the divisions and affiliates by providing accurate, allows for in depth accounting expertise and reliable and timely financial information for ensures compliance with group guidelines. decision making, to monitor the business profitability and to manage effectively corporate The consolidation of all different legal entities into financial services. the Consolidated Financial Statements of the Proximus Group is done centrally. The The team of the Corporate Accounting Consolidation department defines and distributes department assumes this accounting information relating to the implementation of responsibility for the mother company Proximus accounting standards, procedures, principles and and the major Belgian companies. They also rules. It also monitors changes in regulations to provide the support to the other affiliates. For this ensure that the financial statements continue to

Proximus Group Annual Report 2016 I 45 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

be prepared in accordance with IFRS, as adopted purposes, but also includes detailed deadlines and by the European Union. The monthly instructions items requiring particular attention, such as for consolidation set forth not only the schedules complex issues or new internal guidelines. for preparing accounting information for reporting

Skills & expertise

Adequate staffing is a matter to which Proximus mandatory. These internally and externally pays careful attention. This requires not only organized accounting seminars cover not only sufficient headcount, but also the adequate skills IFRS but local accounting rules & regulations, Tax and expertise. These requirements are taken into and Company law & regulations as well. In account in the hiring process, and subsequently in addition, the knowledge and expertise is also kept the coaching and formation activities, facilitated up to date and extended for more specific and organized by the Proximus Corporate domains for which staff is responsible (revenue University. assurance, pension administration, financial products, etc.) through attendance to seminars For financial reporting purposes, a specific and self-study. Furthermore, employees also formation cycle was put in place, whereby junior attend general formations session on Proximus as well as senior staff have to participate new business products & services.

Major risks and uncertainties are reported in the caption ‘Risk Management’.

Mitigating factors and control measures are reported in the caption ‘Risk Management’.

46 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

Financial reporting IT systems

The accounting records of Proximus and most of The organizational set-up and access its affiliates are kept on large integrated IT management are designed to support an systems. Operational processes are often adequate segregation of duties, prevent integrated in the same system (e.g. supply chain unauthorized access to the sensitive information management, payroll). For the billing systems, and prevent unauthorized changes. The set-up of which are not integrated, adequate interfaces and the system is regularly subject to the review by a monitoring system have been developed. For the internal audit department or external auditors. the consolidation purposes, a specific consolidation tool is used.

Effective Internal communication

Most of the accounting records today are kept controlling activities is established under IFRS. A under IFRS as well as local GAAP. In general, common financial language used throughout the financial information delivered to management organization positively contributes to an effective and used for budgeting, forecasting and and efficient communication.

Reporting and validation of the financial results

The financial results are internally reported and comparison with historical figures, as well as validated on different levels. On the level of budget-actual and forecast-actual analysis. processes, there are validation meetings with the Validation requires (absences of) variances to be business process owners. On the level of the analyzed and satisfactorily explained. major affiliates, a validation meeting is organized with the accounting and controlling responsible. Afterwards, the financial information is reported On Proximus group level, the consolidated results and explained to the Executive Committee are split per segment. For every segment, the (monthly) and presented to the A&CC (quarterly). analysis and validation usually includes

Proximus Group Annual Report 2016 I 47 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

The effectiveness and efficiency of the internal • The A&CC reviews the quarterly interim control are regularly assessed in different ways reporting and the specific accounting and by different parties : methods. The main disputes and risks facing the Group are considered; the • Each owner is responsible for reviewing recommendations of internal audit are and improving its business activities on a followed-up; the compliance within the regular basis: this includes a.o. the process Group with the Code of Conduct and documentation, reporting on indicators Dealing Code is regularly discussed. and monitoring of those. • Except for some very small foreign • In order to have an objective review and affiliates, all legal entities of the Proximus evaluation of the activities of each Group are subject to an external audit. In organization department, Proximus’ general, this audit includes an assessment Internal Audit department conducts of the internal control, and leads to an regular audits across the Group’s opinion on the statutory financials and on operations. The independence of Internal the (half-yearly and annual) financials Audit is ensured via its direct reporting line reported to Proximus for consolidation. In to the Chairman of the A&CC. Audit case the external audit reveals a assignments performed may have a weakness or identifies opportunities to specific financial processes scope but will further improve the internal control, also assess the effectiveness and recommendations are made to efficiency of the operations and the management. These recommendations, compliance towards the applicable laws the related action plan and or rules. implementation status are at least annually reported to the A&CC.

48 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

In 2016, the Research & Development of innovation programs with relevant elements that Proximus continued activities, started a number of fit our long term company strategy. new studies and introduced new technologies & services in numerous domains, in quite some In 2016, an increased focus has been put on cases in co-operation with other &D actors. closer collaboration with start-ups to feed the R&D and innovation funnel. A partnership has Proximus makes sure to capture major trends in been signed with co-station, a leading Belgian innovation & venturing linked to technology as scale-up acceleration working space. Active well as the outcomes from standardization & participation in the organization of Hackathons led industry policies bodies and continuously feeds to close collaboration with early stage digital companies.

Study of potential new technologies

Fixed access network

 Proximus investigated the potential offered by networks by implementing the Multipath TCP the new ultra-Vectoring technology (VDSL2 standard to combine fixed and mobile 35 MHz) to provide an evolution path for the networks using existing infrastructure. The copper network towards the delivery of higher customers’ benefits are more bandwidth, speeds. higher reliability and greater security while  Proximus studied the concept of a small VDSL combining multiple networks. In 2016 the distribution point that could be deployed project moved into a pilot phase with a deeper in the network to provide improved deployment in the city of Frasnes-Lez- performance thanks to shorter distribution Anvaing. loop length.  A pilot has been launched to investigate the  Activities continued with the start-up Tessares potential of G.Fast for the re-use of the last in which Proximus invested. The objective of meters of the existing copper pair or existing these activities is to develop a solution for the coax introduction cable for connecting the bundling of available capacity on access home to a fiber network.

Mobile access network

 Proximus continued investigations on how to  Proximus was the first operator in Belgium to further extend capacity in the mobile network demonstrate the capabilities of 4.5G, allowing on the long term. In this respect, a pilot with download speeds of over 1 Gbps. Proximus small cells was conducted in Antwerp. also showed what 5G could bring by Proximus believes that small cells will be key demonstrating a pre-5G technology achieving for the introduction of 5G in some years. 70 Mbs download speed.

Proximus Group Annual Report 2016 I 49 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

Service platforms

 Proximus started Proof of Concepts related to to further collaboration in 2017. the introduction of new Function Virtualization  Together with some major Belgian (NFV) and Software Defined Networks (SDN). broadcasters, Proximus is testing via a Proof of These concepts are aiming at creating network Concept how advertising on TV can be done in abstraction for automated and fast a smarter and more personalized way, with the deployment of services. . In a Call-for- aim to offer a better user experience and Innovation, in partnership with Swisscom and creating new business models for the Telia, Proximus called for disruptive solutions advertising sector. for SDN/NFV within the startup scene leading

Launch of new technologies or further enhancements of existing technologies

Fixed access network

 At the end of 2016 Proximus announced an companies already passed by the end of the ambitious plan to roll-out Fiber-To-The- year. Home with the objective to cover 50% of the  In parallel, Proximus continued the homes in the country within 15 years. A pilot deployment of VDSL vectoring technology. deployment is in progress on the Brussels Vectoring is a technology that enables the Anspach Boulevard. Preparation activities have cancellation of interferences between copper also started in 5 other cities (Antwerp, Ghent, lines and thereby increases substantially the Charleroi, Namur and Roeselare). Proximus data throughput that can be offered. During also continued to deploy FTTH in all new the year Proximus made significant progress residential zonings. towards the objective of equipping all ROPs  In addition to the ongoing roll-out of Point-to- with vectoring technology, making the Point fiber to corporate customers, Proximus technology available for 63% of the homes at has also begun rolling out GPON fiber to the end of the year. The implementation of the business customers to reach 85% of the same concept on the upstream is also in companies within 10 years. Deployments have progress and will deliver similar benefits as on started in 6 cities in late 2016 with hundreds of the downstream.

Mobile access network

 As first operator in Belgium, Proximus rolled  To evaluate the quality of our mobile out 4G+ (or LTE-Advanced) technology in 20 network, Proximus put itself in the shoes cities. With a compatible smartphone, 4G+ of our customers and asked an enables mobile download speeds of up to 225 independent company to test real Mbps. smartphone usages (call, surf, watch  Proximus continued the deployment of its video…) in different situations and commercial Internet of Things network based locations. By defining this “experience on the LoRa technology and expanded dashboard” based on more than 100 use significantly LoRa coverage in Belgium and cases, Proximus shows how it delivers a Luxemburg and added geo-localisation very high Mobile Experience in Belgium. functionality.

50 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

Network simplification

 Proximus started the implementation of the ensuring that customers can be moved to a future transport network architecture and future-proof solution. For instance, the move supporting technologies, aiming to cope with of customers from legacy networks, such as disruptive traffic growth, higher resilience, as PSTN and ATM, to IP-based technology well as backbone network simplification. enabled us to power off over 200 switches in  Proximus invests in simplifying its networks, the network.

Service platforms

 Proximus launched the Enabling Company the use of programmable interfaces (API). (EnCo) market place aiming at the  For its TV service, Proximus continued the roll- monetization of tailored final end-user out of the re-designed TV user interface products by using the modular assets of offering a common look and feel irrespective Proximus and third parties and engaging of the screen, be it TV, tablet or smartphone. customers, partners and developers through

Open-innovation activities co-operating with other R&D actors

Next to these initiatives in the various phases of Through the Digital Tech Fund in Luxembourg, technology development, Proximus also has re- Proximus supports the financing and enforced its open-innovation activities co- development of start-ups active in the field of ICT operating with other R&D actors. (such as, cyber security, FinTech, Big Data, Digital Health, media, and next-generation Proximus collaborates with leading universities, communication networks, digital learning, the industrial partners and several other bodies, such Internet of Things, telecommunications, and as IMEC (Flanders’ world-leading research and satellite services). innovation hub in nanoelectronics and digital technologies). Collaborations either take the form As a reminder, Proximus also invests in Belgian of partnerships in R&D&I projects, as well as of start-ups active in the field of new technologies, sponsoring & advisory activities through Proximus’ such as Tessares, a spin-off created with the involvement in projects’ Industrial Advisory Catholic University of Louvain to optimize Internet Committees. connection capacity through fixed-mobile aggregation, or Awingu, which has developed a In 2016, Proximus continued the Shift-TV project, web platform that makes it possible to integrate a an R&D project realized in partnership with company’s applications on any device. Proximus is industrial partners and universities to investigate also involved in Eggsplore, an incubator that advanced solutions for video streaming, including works on smartfin technologies in order to 4K. The participation to this project is partly promote them internationally. funded by Innoviris (The Brussels Institute for Research and Innovation) under the framework of Proximus has received confirmation from the ICON, the iMinds’ Cooperative Research Program. Belgian Science Policy Office (BELSPO) that the company is engaged in recurring R&D activities.

Proximus Group Annual Report 2016 I 51 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

Disclosures related to rights, commitments and contingencies are reported in note 35 of the consolidated financial statements.

Disclosures related to the use of financial instruments are reported in note 33 of the consolidated financial statements.

Circumstances which may considerably impact the development of the Group are reported in the sections “ Risk Management ” and “ Internal Control ” of this management report.

Disclosures related to treasury shares are reported in note 17 of the consolidated financial statements.

52 I Proximus Group Annual Report 2016 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091 Consolidated Management Report

The purpose of the Group’s capital management creation. This also includes confirming appropriate is to maintain net financial debt and equity ratios levels of distributable reserves. that allow for security of liquidity at all times via flexible access to capital markets, in order to be Furthermore, as confirmed and approved by the able to finance strategic projects and to offer an Proximus’ Board of Directors on December 15 attractive remuneration to shareholders. 2016, Proximus’ Board of Directors intends to pay out a stable dividend of EUR 1.50 per share The latter was updated by the Proximus’ Board of (interim dividend of EUR 0.50 and ordinary Directors of 25 February 2010 and Proximus now dividend of EUR 1.00) for the next 3 years to commits to return, in principle, most of its annual come (2017, 2018 & 2019), provided Proximus’ cash flow before financing activities (or “Free Cash financial performance delivery in line with the Flow”), to its shareholders. The return of free cash strategic plan. flow either through dividends or share buybacks will be reviewed on an annual basis, in order to Over the two years presented, the Group did not keep strategic financial flexibility for future issue new shares or any other dilutive growth, organically or via selective merger and instruments. acquisition projects, with a clear focus on value

Disclosures related to post-balance sheet events are reported in note 40 of the consolidated financial statements.

On behalf of the Board of Directors,

Brussels, February 23, 2017

Dominique Leroy Stefaan De Clerck

Chief Executive Officer Chairman of the Board of Directors

Proximus Group Annual Report 2016 I 53 WorldReginfo - 3feb2acf-bfc8-41df-9d11-e2aaec500091