Assurance

To the Management of Telefonica O2 Europe

We have been asked to review O2 Telefonica Europe’s (O2) Corporate Responsibility Report 2006 (the Report) in order to provide assurance on its contents.  The Report is made up of two parts: the printed review of key issues entitled ‘A communications revolution – that won’t cost the earth’ and the ‘online resource’ which is available at www.o2.com/cr2006, O2 is responsible for the collection and presentation of information within the Report. 

Our responsibility in performing this work is to the management of O2 only and in accordance with the terms of reference agreed with them.  We do not therefore accept or assume any responsibility for any other purpose or to any other person or organisation. Any reliance a third party may place on the Report is entirely at its own risk. 

What we did to form our conclusions
Our assurance engagement has been planned and performed in accordance with the Institute of Social and Ethical Accountability’s AA1000 Assurance Standard and the International Federation of Accountants’ ISAE3000¹.  The AA1000 Assurance Principles of Materiality, Completeness and Responsiveness have been used as criteria against which to evaluate the content of the Report.

Our review consisted of the activities outlined below:

1. Interviews with a selection of O2 management and functional staff at O2 headquarters to understand the current status of corporate responsibility activities and progress made during the reporting period.

2. Visit to the O2 UK operating business to review the systems and processes in place for managing corporate responsibility issues and to review evidence in support of claims made in the Report regarding O2’s corporate responsibility performance.

3. Reviewing the data processes used to collect and report  Safety,  Environmental, Social Investment and Human Resources data by:

• Conducting interviews at group level to understand the processes in place for gathering the data from the operating businesses.
• Conducting one day visits to each of the six operating businesses to review the data processes used and testing supporting documentation for selected data points.
• Reviewing the data validation and collation processes by following a sample of data collected at the operating businesses visited through to its aggregation at the Group reporting level.

4. Testing the scope and balance of the information contained in the Report against:

• Internal documents such as Board papers, Governance Committee papers and Corporate Responsibility Forum minutes and papers.
• A selection of external media sources relating to O2’s management of corporate responsibility issues.
• Outputs of internal and external stakeholder engagement on O2’s corporate responsibility performance including internal and external opinion surveys prepared by external agencies.

Level of Assurance
Our evidence gathering procedures have been designed to obtain a limited level of assurance on which to base our conclusions. The extent of evidence gathering procedures performed is less than that of a reasonable assurance engagement (such as a financial audit) and therefore a lower level of assurance is provided.

The limitations of our review

Our review did not include:

• Conducting external stakeholder dialogue activities.  Therefore, our conclusions on materiality and responsiveness are based on the review of outputs of stakeholder dialogue provided to us by O2.
• Testing the scope of the Report against issues reported on by O2’s peers.

Our conclusions
Based on the scope of our review our conclusions are outlined below:

Materiality
Has O2 provided a balanced representation of material issues concerning O2’s corporate responsibility performance?

• We are not aware of any material aspects concerning O2’s corporate responsibility performance which have been excluded from the report.

Completeness
Does O2 have complete information on which to base a judgement of what is material for inclusion in the Report?

• We are not aware of any material issues excluded or misstatements made in relation to the information provided to the Corporate Responsibility Forum on which judgements are made in respect of the content of the Report. 
• We have reviewed information or explanation on the statements on O2’s corporate responsibility activities presented in the Report and we are not aware of any misstatements in the assertions made.
• With the exception of the gaps and assumptions noted against the data which affect data quality, we are not aware of any other issues that would materially affect the aggregated data of O2.

Responsiveness
Has O2 responded to stakeholder concerns?

• We are not aware of any issues highlighted in the outputs of stakeholder dialogue provided to us by O2 that are not currently included in the Report’s scope and content.

Selected observations on particular aspects of our engagement
Our observations and areas for improvement will be raised in a presentation to O2’s management.  Selected observations are provided below.  These observations do not affect our conclusions on the Report set out above.

• We have observed significant variation at a business level in the methodologies applied to the collection, aggregation and in many cases extrapolation of environmental data and to a lesser extent other non-financial data. There is significant scope for improvement in the processes used for gathering environmental data across O2 businesses to support improved consistency, accuracy and completeness.
• We met with representatives of the newly formed Governance Committee and the Corporate Responsibility Forum as well as reviewing minutes of the meetings held over 2006.  We found that the key corporate responsibility initiatives and issues observed through our work were presented and discussed at these meetings.
• This year the processes for determining materiality in the context of the Report have been developed further and been informed by a number of stakeholder surveys and other inputs. While progress has been made in this area, it could be further improved through maintaining a systematic record of stakeholder engagement activities.
• We saw evidence that a range of stakeholder engagement activities had taken place through the year at various levels in the organisation. Of particular note was the work done by O2UK to canvas the opinions of employees in the development of the People Promise charter.

Our independence
As auditors to Telefonica Group, Ernst & Young are required to comply with the independence requirements set out in the Institute of Chartered Accountants in England & Wales (ICAEW) Guide to Professional Ethics. Ernst & Young’s independence policies, which address and in certain places exceed the requirements of the ICAEW, apply to the firm, partners and professional staff. These policies prohibit any financial interests in our clients that would or might be seen to impair independence. Each year, partners and staff are required to confirm their compliance with the firm’s policies.

We confirm annually to Telefonica whether there have been any events including the provision of prohibited services that could impair our independence or objectivity. There were no such events or services in 2006.

Our assurance team
Our assurance team has been drawn from our UK and German corporate responsibility services teams.  All members of the team are experienced in social, ethical and environmental assurance having worked on similar engagements for a number of significant UK and international businesses.  

Ernst & Young LLP
London, 29 June 2007

¹ International Standard for Assurance Engagements Other Than Audits or Reviews of Historical Financial Information

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