EMPOWERING DIGITAL LIFE:

TELEKOM AUSTRIA GROUP’S

STRATEGIC DIRECTION

Telekom Austria AG and its subsidiaries (‘Telekom Austria Group’ with headquarters in Vienna) are leading providers of fixed-line and mobile communication services serving some 24 million fixed-line and mobile communication customers in seven Middle and Eastern European countries.

Through its majority owner América Móvil, Telekom Austria Group has been part of a world-leading, multi-national telecommunications corporation since 2014. As a member of this group of companies operating globally, Telekom Austria Group capitalises on effects of scale and synergies, among others in the areas of product development, technology and purchasing.

Following its guiding principle of Empowering Digital Life, Telekom Austria Group presents itself as the perfect partner for the economy and society in the age of digital transforma- tion. Its self-image as a driver of digitalisation therefore represents an important element in Telekom Austria Group’s strategic direction. Its strategic direction (see graphic) aims at optimising its core business, expanding its product portfolio and launching targeted M&A activities. Cost and investment efficiency is the crucial premise dominating all strategic targets and decisions.

In its growth strategy, the Group not only builds on its leading role in the CEE region but — as part of América Móvil — also relies on the strength of one of the largest telecommuni- cations providers in the world, serving 280 million customers in the mobile communica- tions sector alone. Operational excellence is paramount when it comes to the corporate strategy’s implementation, in order to have the right financial leeway for investments at one’s disposal. All structures and processes as well as investment decisions are therefore constantly reviewed and questioned. The Group routinely pursues improvements to ways of thinking and work methods to become more efficient every day. Telekom Austria Group’s cross-market target is to not keep redeveloping products over and over again but to swiftly roll out proven products on other markets (‘one to many’). Internally, the strate- gy’s implementation builds upon the Guiding Principles within the corporate culture: Team, Trust and Agility (see Employees).

In all its strategic initiatives, Telekom Austria Group’s conservative financial strategy always presupposes maintaining the investment grade ratings Baa2 from Moody’s and BBB from Standard & Poor’s. This central priority, in turn, also applies to the corporate strategy’s core elements.

In terms of increasing efficiency, optimising the core business and expanding the product portfolio, the sustainability strategy is tied to the corporate strategy. In this context, sus- tainability is regarded as a long-term value driver which — besides actively embodied eco- logical and societal responsibility — also yields economic benefits, for instance through increased energy efficiency which reduces environmental impacts as well as costs.

The telecommunication market offers a wide range of attractive opportunities. High- quality and high-performance communications solutions make both professional and private life easier and more efficient. At the same time, a massive increase in data traffic, rapid technological progress and strong customer demand for first-class network and service quality pose corresponding challenges. These require ongoing and massive invest- ments and place high demands on performance capabilities and therefore, also on the infrastructure’s energy requirements. Thus, Telekom Austria Group not only faces market risks such as intense competition, unstable economic momentum and regulatory market intervention, putting pressure on prices and profitability. Progressing climate and environ- mental change as well as societal framework conditions can also influence corporate development. To prepare for such risks in a timely manner, a central risk management constantly monitors respective developments and implements appropriate counter measures when and if required. More information on the risk management at: www.telekomaustria.com/en/ir/annual-reports

-102-1, 102-2, 102-3, 102-4, 102-7, 102-10

SUSTAINABLE, SYSTEMATIC

GOALS

Digitalisation brings about immense opportunities for economic growth as well as varied ways of societal and individual development. At the same time, it furthers efficient, resource-conservation and thus more sustainable way of working and living that benefits mankind and its environment. Telekom Austria Group’s sustainability strategy aimsat consistently tapping said potentials.

A standardised system is needed to display sustainability initiatives and progress in a transparent way and on a comparable basis (peri- odic, business and industry comparisons). Such a system also pro- vides a valid basis for certification and audit certificates. The follow- ing definitions of terms and processes therefore reference to the rec- ommendations and requirements of the Global Reporting Initiative (GRI; sustainability reporting standard) as well as the annual progress report as laid down in the UN Global Compact.

The starting point of Telekom Austria Group’s systematic approach to sustainability manage- ment is the three-pillar model of sustainable development, the triple bottom line of People, Planet and Profit. Its understanding of responsibility thus includes social, ecological and eco- nomic factors. Telekom Austria Group furthermore supports the development goals ratified in 2015 by the United Nations (Sustainable Development Goals, SDG) by means of targeted activi- ties (see Sustainable Development Goals). The Group’s sustainability strategy focusses on four strategic action areas derived from a comprehensive materiality analysis (see graphic). By means of a stakeholder survey, topics relevant to the company were thereby analysed and priori- tised in accordance with social, economic and ecological aspects. Every action area is supported by clear targets and specific key figures. In 2015, new goals for 2018 were worked out and codified.

As a result of another materiality analysis in the spring of 2017, the topics of data security and protection as well as communication infrastructure emerged as the most important ones. Compared to the materiality analysis conducted in 2015, the topic of data security and protection has gained in importance. Both customers and suppliers rank this topic as the most significant one. Employees, on the other hand, regard fair and flexible working as the most important topic. Overall, stakeholders give topics such as waste and employee health less priority. When compared to 2015’s, the methods of 2017’s survey have changed in that one can now better differentiate between individual topics. 2017’s materiality analysis fur- thermore put greater emphasis on impacts when compared with 2015’s. A complete com- parison is not entirely possible since the results of 2017’s materiality analysis have been illustrated in a different way.

Telekom Austria Group engages in continuous dialogue with its stakeholders. This ex- change takes place on three levels: Through systematic information via various informa- tion channels, through talks and surveys as well as by giving them the chance to actively participate through memberships and partnerships. Depending on topic and group, differ- ent formats such as informational events, idea competitions or surveys conducted with customers or employees are used. However, personal talks with suppliers, customers or NGOs are also employed in the framework of meetings, conferences or road shows.

-102-43, 102-44, 102-49

AWARD

-1st place in the category Socially Responsible Brand (velcom)

-102-40, 102-43, 102-46, 102-47, 103-1

INVOLVED STAKEHOLDERS

1. TOPIC IDENTIFICATION

-Identifying 68 relevant topics considering the requirements of the GRIReporting Standard (top- ics, indicators, sector supplement). Topics determinedin the course of the ongoing stakeholder dialogue as well as sector-specifictopics were also covered in the process.

-Two-stage evaluation process resulting in 21 summarised topic groups

-Topic validation by external and internal experts

Internal experts, external

experts from the fields

of science, research and

from NGOs

2. IMPACT EVALUATION

-Evaluation of potential impact of selected topics in the course of a workshop andin talks

with external and internal experts (on a scale of 1 to 4 depending on impact magnitude)

-Assessment of relevant initiatives’ contribution in the light of the UN’s Sustainable Development Goals (see Sustainable Development Goals)

3. ONLINE SURVEY

-Assessment of the 21 selected topic groups by internal and external stakeholders

in the course of an online survey (response: 700 participants)

-Selection and rating of top 10 topics in order of importance

Employees, customers, suppliers, the economy, politicians & special interest groups, media, the scientific, research & education communities

MATERIALITY MATRIX

Ball size represents business relevance for Telekom Austria Group.

A topic’s importance is based on its impacts on the environment, society, economy as well as how interesting it is to Telekom Austria Group’s stakeholders. Thus, the topics most important to Telekom Austria Group are those that have the biggest impact and those that are most relevant to the stakeholders.

As an additional dimension, the topics were assessed with regards to their business relevance for Telekom Austria Group. This allows for a perspective that takes into account the topics’ sustainability context and their economical significance for the company.

TELEKOM AUSTRIA GROUP‘S VALUE CHAIN

The diagram depicting Telekom Austria Group‘s value chain below gives an overview of the processes involved in its business operations.

The necessary resources are also shown as input factors and the results as outputs. The issues identified along the value chain have been taken into account in the process of the materiality analysis.

-102-9, 102-46

1) Baseline for targets is 2015. 2) Baseline for target is 2012. 3) Due to a new strategic direction, the Group-wide goal of implementing a health pass was replaced bythe goal to promote continuous learning. Health promotion initiatives are implemented locally by the respective subsidiary.

The material topics of compliance, responsible purchasing and data security & protection are assigned to the management chapter. On the basis of 2017’s materiality analysis,the highlighted topics emerged as material topics. You can find the management approach (103) towards these topics here: www.telekomaustria.com/en/csr/sustainability-reports

THE SUSTAINABILITY MANAGEMENT’S

ORGANISATIONAL STRUCTURE

SUSTAINABLE MANAGEMENT

Since 2010, Telekom Austria Group has been using a Group-wide, integrated sustainability management system which is progressively developed. CEO Alejandro Plater, supported by CFO Siegfried Mayrhofer, is the principal and patron of sustainability agendas. A Corporate Sustainability Team, as part of Group Communications and Sustainability, reports directly to the CEO. This team manages and coordinates the implementation of the sustainability strate- gy in collaboration with the respective person responsible at the subsidiaries. Its cross-natio- nal approach guarantees compliance with the superordinate Group targets. At the same time, the sustainability strategy provides the flexibility necessary to honour regional features and a basis for exchange.

With the introduction of Workplace (‘Facebook at Work’), Telekom Austria Group established a digital Group-wide knowledge, work and exchange platform in 2016 (see Employees). Since then, the Group Sustainability Board — consisting of top management members — has been communicating and coordinating their activities through this social network as well. In parti- cular, this digital platform furthers the transnational networking of employees and managers all the way to the top management as well as international exchange and know-how transfer within Telekom Austria Group. The Board and other decision-makers will use designated groups to directly report on progress and current topics from the field of sustainability at re- gular intervals. This measure aims at reaching the goal of maximum integration of sustainabi- lity aspects in the framework of the business strategy. 102-18

CERTIFIED ENVIRONMENTAL MANAGEMENT SYSTEMS

A1

-ISO 14001 for environmental management (since 2004)

-ISO 50001 for energy management (since 2008)

-EMAS (since 2013)

A1 SLOVENIJA1

-ISO 14001 (since 2009)

-EMAS (since 2014)

VIP MOBILE

-ISO 14001 (since 2015)

1) Si.mobil d.d.’s renaming into A1 Slovenija d.d. came into effect in the course of the rebranding in April 2017.

PLAYING IT SAFE WHEN ITCOMES TO DATA PRIVACY

VOLUNTARY MEMBERSHIPS (SELECTION)

A1

-klimaaktiv mobil project partner (since 2014)

-Austria Cyber Security Forum of Kuratorium Sicheres Österreich

(since 2014)

-Code of Conduct on Data Centres Energy Efficiency (since 2009)

MOBILTEL

-Bulgarian Red Cross (since 2004)

-Bulgarian Charity Aid Foundation (since 2004)

A1 SLOVENIJA

-Forum EMS (since 2008)

-Green Network (since 2001)

VIP MOBILE

-Responsible Business Forum (since 2008)

More memberships at www.telekomaustria.com

-102-13

All subsidiaries of Telekom Austria Group are committed to complying with the highest data privacy and security standards. In addition to the statutory requirements in the respective countries, all subsidiaries follow the data security standards created for this purpose as well as other data privacy and data security directives specific to their countries. In the case of Aus- trian subsidiary A1, for instance, comprehensive certifications such as ISO 27001, ISAE 3402 and ECO Datacenter 3.0 warrant these high security standards.

At the Austrian subsidiary A1 the data protection officer has been serving as a contact person for compliance with statutory and internal data protection regulations for years.

The European Union’s General Data Protection Regulation currently presents a significant challenge and will continue to do so in the years to come. With the respective ruling in May of 2016, data protection law in the EU was harmonised and subjected to mostly uniform rules. It focusses on the protection of personal data and aims at the following: Offering effected per- sons increased control over their data and comprehensive information on its use, improving protection of children as well as facilitating access to legal protection.

The EU’s basic data protection regulation will come into effect on 25 May 2018 and has already been gradually implemented by Telekom Austria Group since 2016.

COMPLIANCE

Honest, fair and transparent operation is an important part of Telekom Austria Group’s corpo- rate culture. To live up to these standards of integrity, the Group utilizes and elaborate Comp- liance Management System. The top management’s role model effect as well as employees ac- ting with a high degree of personal responsibility are thereby of particular importance.

To prevent potential misconduct, Telekom Austria Group has established clear rules for legal- ly compliant and hones conduct in all business relationships. Furthermore, adequate controls were integrated into the business processes. Applicable across the Group, its Code of Conduct was reworked in early 2017 and adjusted to the new Guiding Principles (see Employees). Apart from the Code of Conduct, a version of which is available to all subsidiaries in their respective country’s language as well as in English, detailed compliance rules provide help on specific topics. These include corruption prevention and conflicts of interest, gifts and invitations, dealing with confidential information, management counselling and lobbying, sponsoring, donations and advertising, capital market compliance and antitrust law. The compliance gui- delines provide support in making sure that moral integrity is a matter-of-fact part of every- day work. The effectiveness of the compliance management system is furthermore increased by means of regular communication measures and trainings, the help desk ask.me, audits as well as anonymous whistleblowing platform tell.me.

An annual compliance risk assessment guarantees the needs-based development of the compliance programme. In 2013, Telekom Austria Group’s compliance management system was reviewed and certified in accordance with the IDW PS 980 standard by an external audi- tor. In 2016, additional elements of the Compliance Management System were successfully reviewed on their effectiveness by the Group’s Internal Audit and Group Compliance. To this end, communication measures to promote moral integrity and measures relevant to compliance when hiring new managers and employees were audited. Also reviewed were process and documentation requirements regarding donations and sponsoring as well as compliance with internal regulations concerning gifts and invitations.

Some 50 % of all approximately 30 leads submitted through the tell.me whistleblowing platform in 2016 were substantiated and relevant to compliance. Depending on the nature of the trans- gression, the consequences ranged from individual trainings or process improvements to the termination of collaborations with business partners as well as employees. The internal ask.me helpdesk dealt with some 300 inquiries regarding compliance in 2016. Approximately 4,200 classroom training courses and 2,600 online training courses on compliance in the fields of cor- ruption prevention, data protection, antitrust law and capital market compliance were held this year. A total of approximately 6,800 employees and managers attended the compliance training courses (approx. 3,000 of which focussed on corruption prevention). 205-2

Further information on Telekom Austria Group’s Compliance Management System at:

www.telekomaustria.com/en/group/compliance 102-16

EXTERNAL INITIATIVES TELEKOM AUSTRIA GROUP (SELECTION)

TELEKOM AUSTRIA GROUP

-Diversity Charta (since 2014)

-Next Generation Mobile Networks Alliance (since 2014)

-UN Global Compact (since 2012)

-ETNO (since 1996)

-GSM Memorandum of Understanding (since 1988)

-102-12

MEASURES TAKEN IN PURCHASING

-Employee protection and work conditions in accordance with the regulations of the International Labour Organization (ILO) have been included in the Code of Conduct, the purchasing conditions and framework contracts

-Behavioural guidelines for suppliers regarding sustainability implemented

-Social and ecological requirements toward products and services (including life-cycle perspective)

-Environmental and social criteria for regular vendor rating introduced at Austrian A1

-Sustainability criteria integrated into tenders

-Sourcing 100 % of electricity from renewable sources at the Austrian subsidiary A1, 66 % at the Slovenian

A1 Slovenija

SUSTAINABILITY HAS ITS ROOTS PRIOR TO THE CORE BUSINESS

The sustainability of business activity is not just represented in the immediate ecological and social effects of one’s own business processes. That is why Telekom Austria Group also inclu- des upstream business processes, meaning the purchase of goods and services, into the re- spective assessment of its value chain. According to a 2013 study conducted by GreenBiz.com2) in cooperation with Trucost, upstream processes such as resource extraction, manufacturing, transport and packaging account for a not insignificant 85 % of all sustainabi- lity effects in the telecommunication industry.

Telekom Austria Group’s core business accounts for the majority of the purchasing volume: This concerns infrastructure components for its fixed-line and mobile communication net- works, end-user devices (mobile phones, tablets, set-top boxes, modems, routers …), IT and hardware components as well as power required to operate the networks. Office equipment, on the other hand, only represents a small portion of the overall purchasing volume.

Apart from commercial criteria, Telekom Austria Group — depending on the respective requi- rements — also considers ecological criteria such as environmental friendliness or energy ef- ficiency in its purchasing activities. At the same time, it includes labour rights, corruption prevention regulations and data protection factors in its considerations. The use of so-called conflict minerals such as tin, tantalum, tungsten and gold which are often extracted under critical conditions presents a challenge to the industry in the production of ICT products. Te- lekom Austria Group does not manufacture such products, but uses and sells them in the course of its business activities.

Telekom Austria Group pursues the approach to anchor sustainability in its supply chain to the greatest extent possible. For this purpose, a perennial project was created together with the purchasing section in 2012. Various measures such as the integration of ESG3)- criteria into the vendors self-assessment — especially at Austrian subsidiary A1 — or the acquisition of resources from sustainable sources were successfully implemented in the past three years (see box above). Only long-term and effective measures can guarantee permanent and successful deep anchoring of sustainability aspects in the purchasing process. This is why Telekom Austria Group intends to consistently follow its chosen path.

102-9, 102-10

2) The State of Green Business 2013, GreenBiz und Trucost 3) Environmental Social Governance