2nd Quarter Results- Part 1

Telefonica SA
25 July 2002

PART 1

Quarterly Results

January - June 2002


Table of Contents

Telefonica Group


        Market Size              2

        Financial Highlights     3

        Results                  5

Analysis of Results By Business Line


        Fixed Line Business                    11

            Telefonica de Espana Group         11

            Telefonica Latinoamerica Group     15

        Cellular Business                      21

            Telefonica's Cellular Business     21

        Data Business                          29

            Telefonica Data Group              29

        Media Business                         32

            Admira Media Group                 32

        Internet Business                      36

            Terra-Lycos Group                  36

        Directories Business                   38

            Telefonica's Directories Business  38

        Call Centers Business                  39

            Atento Group                       39

        Broadband Capacity Management Business     41

            Emergia                                41



Addendum


        Companies included in each Financial Statement                42

        Key Holdings of the Telefonica Group and its Subsidiaries     43

        Significant Events                                            45

        Changes to the Perimeter and Accounting Criteria of Consolidation    47



Selected Financial Data                                                      51




Note:

The financial statements for the January-March 2001 period do not reflect the
change in the fiscal year for Telefonica de Argentina, Telefonica Data
Argentina, Telefonica Comunicaciones Personales (TCP) and Cointel to adapt them
to the Group's fiscal year. As a result of this, October-March 2001 is the
consolidated period for these assets in the consolidated accounts for year 2001.

Financial Highlights

The main points to highlight in the 1H02 in the Telefonica Group results are:


  • Telefonica Group recorded a net loss of 5,574.2 million euros, strongly
    affected by the recognition in the second quarter of the year of net
    extraordinary provisions amounting 4,837.5 million euros associated with the
    write-down of cellular assets and the provision for associated restructuring
    costs in Austria, Germany, Italy and Switzerland, the write-down associated
    with the investment of Telefonica Data in Mediaways (530.0 million euros),
    the write-down in connection with the sell of Azul TV and ETI (202.3 million
    euros), and the increase in the provision associated with treasury stock by
    250.4 million euros during the quarter. Additionally, fluctuations in the
    Argentinean Peso exchange rate trimmed financial results by 445.7 million
    euros.

  • It is important to stress that the extraordinary write-downs do not entail
    a cash outflow. The free cash flows forecasted for the Group, in the future,
    once the restructuring costs have been paid, will increase significantly due
    to the higher operating results and lower capital expenditures of the Group.

  • Free cash flow generation (EBITDA - Capex) was 4,260.3 million euros for
    1H02, a 67.0% increase, when compared with the same period last year.
    Operating efficiencies and a strict control on capex (-52.3% year over
    year), mainly contributed to this growth. As a consequence of that,
    consolidated net debt for the Group was reduced by 5,455.2 million euros
    compared to 1H01, reaching a total of 25,788.8 million euros as of June
    2002. It is noteworthy to mention that this reduction in net debt includes
    treasury stocks purchases during the first half and it has been accomplished
    without divesting any assets.

  • During the first half, revenue and EBITDA lowered by 4.4%, while EBIT
    declined by 8.1%, mainly impacted by exchange rates adverse evolution and
    the Argentinean crisis. Excluding the Argentinean operations' contribution,
    revenue could have grown by 5.3%, and EBITDA and EBIT would have grown by
    4.6% and 2.3% respectively. For the first half, the maximum exposure of
    Telefonica Group to Argentinean operations, taking into consideration a
    exchange rate of 3.80 Pesos/US$, has been reduced to just 986.5 million
    euros, from 6,000 million euros prior to the Argentinean devaluation. This
    amount includes the equity interest in proportion to the investment,
    goodwill, and intercompany loans.

  • At the operating level, a good performance was attained when compared to
    1Q02 and year over year. Thus, excluding the exchange rates negative impact
    and the consolidation perimeter effect, revenues grew by 4.1%, EBITDA
    increased by 4.5% and EBIT decreased by 0.9%. When compared to last quarter,
    a growth of 0.9 percentage points, 0.4 percentage points and 4.9 percentage
    points were recorded for operating revenues, EBITDA and EBIT respectively.
    EBITDA margin was 41.5%, an improvement of 0.5 percentage points over 1Q02.

  • A significant recovery, in line with previous guidance, in Telefonica de
    Espana's financial results should be mentioned. Revenues, EBITDA, EBIT grew
    by 3.7%, 2.8%, and 8.0% respectively during 2Q02 when compared to the first
    quarter.

  • Once again, Telefonica's Cellular Business, the main growth contributor of
    the Group, recorded a solid operating and financial performance. Revenue and
    EBITDA increased by 14.8 % and 20.2% respectively. EBITDA margin was
    improved to 41.3%.



Telefonica Group Results

The management comments included in this report refer to the financial evolution
of the Telefonica Group according to the organizational structure by business
lines. This structure was created after the completion of the tender offers for
the acquisition of the minority stakes in various Latin American operators,
given their relative high level of capital contribution in the Group.

These pro-forma income accounts are based on the assumption that each business
line has a stake in the companies owned by the Group in the corresponding
businesses, regardless of whether this stake has already been transferred or
not, although ultimately, Telefonica, S.A. intends to transfer it in the future.

Furthermore, in order to facilitate the comparison and analysis of the results
obtained by the Telefonica Group, the companies included in each business line
have been consolidated effective January 1, regardless of when certain
consolidations were actually made throughout the period. The results
corresponding to the same period of the previous fiscal year are also on a
pro-forma basis, under the same assumptions.

It should be noted that the assumptions considered in the preparation of these
pro-forma statements by business line do not alter in any way the overall
results of the Telefonica Group, and that such results have been incorporated as
of the date of the acquisition of each stake by the Group.

Telefonica Group obtained a net loss of 5,574.2 million euros in the first half
of 2002, which compares to a net profit of 1,148.6 million euros during the same
period a year ago. This result has been strongly conditioned by the following
factors:


  • Net extraordinary provisions amounting 4,837.5 million euros associated
    with the write-down of cellular assets and the provision for associated
    restructuring costs in Austria, Germany, Italy and Switzerland. It is
    important to mention that, although these provisions cause Telefonica S.A.
    to record more losses in the first half of 2002 and net loss in the full
    year 2002, the provisions for asset write-down do not entail any form of
    cash outflow. The free cash flows forecasted for the Group in the future,
    once the restructuring costs have been paid, will increase significantly due
    to the higher operating results and lower capital expenditures of the Group.


    Furthermore, it has been realized a write-down associated to the downward
    revision of the investment of Telefonica Data in Germany (530.0 million
    euros). The value of the write-down pertaining to Mediaways' investment, in
    accordance with the prudence accounting criteria, is determined by an
    ongoing goodwill recoverability test.


  • Additional extraordinary negative results in the amount of 789.8 million
    euros in January-June 2002 versus the positive results of 203.4 million
    euros during the same period in the prior year, are explained mainly by: 1)
    a provision made to adjust the treasury stock to market values, in the
    amount of 288.2 million euros, corresponding 250.4 of them to 2Q02.
    According to Spanish accounting rules, a provision on year results must be
    made for the difference between the average purchase price of shares and the
    closing price for the period or the average price of the stock during the
    most recent quarter, whichever is lower. At June 30, 2002, the Group held
    approximately 1.5% treasury stock as of the total capital of Telefonica; 2)
    134.4 million euros capital losses from the sale of securities portfolio
    versus gains of 261.8 million euros in June 2001, relating fundamentally to
    the sale of Azul TV; 3) lower extraordinary positive results in the amount
    of 280.4 million euros related to the provision for its fixed assets made in
    prior fiscal years by Telefonica de Espana; 4) greater positive
    extraordinary results from the provision as a result of the agreements for
    the sale of ETI Austria (41.2 million euros) and the 33.8 million euros
    write-offs related to MediaPark and Fieldy BV (Rodven).

  • The difficult economic environment in Argentina affects the development of
    Telefonica's business in that country, despite the measures that have been
    implemented (cost reductions, investment reductions, control of bad debt and
    the implementation of hedging positions) in order to minimize the impact of
    the crisis and to maintain a positive cash flow in pesos.


    During the first half of fiscal year 2002, the depreciation of the Argentine
    peso against the dollar (-73.7%) has had a 445.7 million euro effect on
    financial results, in addition to that recorded in the Group's 2001 results,
    as a consequence of the fall suffered by the peso from 1 dollar per 1.7
    pesos (1 euro per 1.5149 pesos) to 1 dollar per 3.80 pesos (1 euro per
    3.4084 Argentine pesos). 2001 results already included the effect of the
    devaluation to an exchange rate of 1 dollar per 1.7 pesos (1 euro per 1.5149
    pesos), in line with the prudent accounting criteria of ICAC (the Spanish
    Accounting Regulator).

    It must be remembered that in the first quarter of 2002, the devaluation had
    a 254.4 million euro effect on the Group's results, using an exchange rate
    of 1 dollar per 2.85 pesos (1 euro per 2.4862 pesos). For this reason, the
    difference between the cumulative effect at June and that of the first
    quarter corresponds to the April-June period.

    At the close of June, Telefonica Group's maximum exposure in the various
    Argentine companies rose to 986.5 million euros, including the equity value
    assignable to those investments, the goodwill and internal financing
    provided.

    Additionally, the exchange rate of the Argentine peso in recent times has
    not produced new effects of any significance on the consolidated and
    individual results of Telefonica Group.

    One matter still to be resolved in this country's economy is the required
    renegotiation of Telefonica de Argentina's future rates, after the issuance
    of Law 25,561 of January 6, 2002, which established that rates are
    denominated in pesos at the exchange rate of 1 pesos per 1 dollar.

    It is also noteworthy that the measures the Argentine Government adopted
    have an effect on Telefonica Group's financial statements, which in turn
    could at some time cause equity imbalances such as, for example, negative
    equity, the inability to meet short-term foreign currency debt amortization
    obligations due to limitations on the convertibility of the peso, the need
    to cover accelerated payments of financing received, etc.

    To the extent that the aforementioned circumstances have not occurred at
    publication of these semi-annual results, and since their actual occurrence
    is at yet uncertain, it has not been possible to quantify their possible
    impact on the consolidated financial statements as of June 30, 2002.


  • Within net tax income, consolidated in the amount of 102.8 million euros,
    it should be highlighted the recording of credits derived from tax
    deductions and payments pending fiscal application. Following prudent
    accounting criteria, no doubts exist as to their application in the future.
    For the most part, these deductions were recorded in the first quarter of
    the fiscal year in the amount of 257.9 million euros. The deductions were
    accounted for pursuant to the stipulations of the March 15, 2002, Resolution
    issued by the Spanish Accounting Regulator (ICAC), as well as in accordance
    with international accounting standards.

Besides these circumstances the Group's customer base increased at the end of
June to 75.4 million managed customers of fixed telephony, mobile telephony and
pay television combined. These translated into an increase of 6.1 million
clients (+8.8%) over June 2001 and 758,349 over March 2002. Including total
clients, the figure grew to 80.6 million, a 9.0% increase over last year and
748,980 more than three months ago.

This growth is primarily based on cellular telephony, which contributed 5.0
million managed customers to the Group during the last twelve months (794,260 in
the last quarter), although the rate of growth has slowed from last fiscal year
due to the level of maturity reached in the Spanish market and the profitable
growth model adopted in Latin America. With respect to fixed telephony, the
number of managed customers has increased by 987,717 customers (+2.4%) over June
of last year, 505,831 of these belonged to Telesp.

By geographic area, Spain continues to be the country with the largest managed
customer base (around 53% of the total), its contribution remains similar to
that of last year in absolute term, while Latin America retains approximately
46% of total customers.

The Group consolidated financial results showed an improved operating
performance when compared to last year and 1Q02 results, as reflected by the
positive evolution of the main performance indicators after stripping the
exchange rates impact (mainly, weakened Latin America currencies against the
dollar, especially the Argentinean Peso and Brazilian Real) and the changes in
the consolidation perimeter. During the second quarter, the Group intensified
even further its efforts to maximize the generation of cash flow, by improving
operational efficiency and strict control of investments.

As a result of this, free cash flow generated (EBITDA - CAPEX) reached 4,260.3
million euros, which indicates an increase of 67.0% over the same period last
year. Investment, totalling 1,815.5 million euros, has fallen 52.3% from year
over year, and net debt finished at 25,788.8 million euros at the end of June,
2,895.2 million euros less than at March 2002.

Consolidated revenues rose in the first half of the year to 14,635.5 million
euros, representing a year over year fall of 4.4% (2.0 percentage points more
than the cumulative figure for the first quarter of 2002). This performance was
caused by the negative contribution to the growth of consolidated revenues by
Telefonica Latinoamerica (-7.2 percentage points) and Admira Media (-1.3
percentage points).

If we were to exclude exchange rate effects, which take off 10 percentage
points, and the change in the consolidation perimeter (+1.6 percentage points),
the Group's revenues would have grown by 4.1% versus the first half of 2001. It
is significant to highlight that the adjusted revenue as of March was 3.2%,
meaning that during the second quarter an improvement of 0.9 percentage points
was achieved.

Revenues at Telefonica Latinoamerica totalled 3,974.1 million euros, 23.3% lower
than in the same period of last year. The fluctuations in the exchange rate and
the deepening crisis in Argentina negatively affected this performance. This is
significant in constant terms and by adapting TASA's fiscal year, a year over
year growth rate of 0.7% would have been achieved. Telesp's revenues continued
to show strong growth, in excess of two digits in local currency (+11.5%),
thanks to the increase in average plant in service (+11.8%), which has
compensated for reductions in local currency revenue of TASA (-12.2% -
homogeneous periods -), CTC (-5.2%), and TdP (-1.8%).

In the case of Admira Media, the year over year fall in revenues in the first
half of the year (-30.0%, or 478.7 million euros) was affected by the poor
results of Endemol (due to the crisis in the advertising market), ATCO (due to
the difficult economic environment in the country and the significant
contraction in the advertising market), and the change in the consolidation
perimeter of Onda Cero.

With respect to Telefonica de Espana Group, revenues in the first half fell by
0.6% from the same period last year, ending at 5,131.2 million euros, though
significant progress was made in recovering the company's results, as previously
announced. During the first quarter revenues fell by 2.7% from March 2001, which
means a recovery of 2.1 percentage points in the second quarter. In absolute
terms, second quarter revenues is 3.7% greater than in the first three months of
the year, going from 2,518.7 million euros in January-March to 2,612.5 million
in April-June.

In relative terms, the mobile telephony business continues as the largest
contributor of growth to the Group, 3.3 percentage points, reaching 4,677.1
million euros, 14.2% greater than in the first half of 2001. This result is
supported by the solid performance of Telefonica Moviles Espana (+20.5 year over
year), the growth of the customer base, the increased traffic and the new
companies included in the consolidation perimeter.

Telefonica Group continues with its cost containment policy, this has been
reflected in the change in operating expenses in January-June 2002, which fell
by 4.2% from the same period last year, totalling 8,543.0 million euros. This
reduction occurred principally in Admira Media (-31.2%, a reflection of the
effort made to adapt to the new environment), Telefonica Latinoamerica (-22.7%,
as TASA and CTC have implemented significant cost-cutting policies) and Terra
Lycos (-21.8%). Telefonica de Espana and the mobile telephony business are the
only affiliates whose expenses increased, by 4.6% and 12.5% respectively. In the
case of Telefonica de Espana, this is due to costs associated with the
deployment of retail ADSL, whereas in the mobile telephony business it is due to
the new centralized handset purchasing model in Spain and to the change in the
consolidation perimeter. Excluding the exchange rate effect and the
consolidation perimeter, the year over year change in expenses during the first
half of the year would have been positive 2.5%, or 1.6 percentage points less
than the growth in revenues.

With respect to the change in bad debts over the first half of the year,
Telefonica Group's ratio over revenues has increased by 0.6 percentage points
over the same period last year, finishing at 2.4%, due to improvement in the
cellular business (1.6% in June 2002 versus 3.3% in June 2001), and remaining
constant from March 2002. Telefonica de Argentina continued to maintain bad
debts to revenue ratio in the neighbourhood of 9% (9.4% as of March 2002), as a
result of the economic crisis experienced in the country, but improving by 0.4
percentage points from March 2002.

As a result of the change in revenues and expenses described above, consolidated
EBITDA at the end of the first half reached 6,075.8 million euros, falling by
4.4% from the same period last year. The variation in the exchange rate reduced
EBITDA growth by 10 percentage points, while the change in the consolidation
perimeter added 1.1 percentage points. Thus, adjusted for these factors, the
percentage change in EBITDA would become 4.5% versus last year and 0.4
percentage points better than last quarter as a result of the improvement
achieved in operating efficiency. Regarding the performance of the EBITDA
margin, it is notable that it has remained constant in year over year terms at
41.5%, and that it has increased 0.5 percentage points from the first quarter of
2002.

In relative terms, the business line that contributed the most to the Group's
consolidated EBITDA growth is Telefonica's Cellular Business (+5.5 percentage
points) which totalled 1,912.6 million euros, representing 20.2% growth over
January - June 2001, or 6.0 percentage points greater than the increase in
revenues, thus reflecting the cost control efforts undertaken. This growth is
based fundamentally on the year over year growth at Telefonica Moviles Espana.
During the first half, this company showed an increase of 33.1%. At the end of
the first half of the year, the EBITDA margin at the mobile telephony business
was 40.9% versus 38.8% in the same period last year. Particularly outstanding
was the margin achieved by Telefonica Moviles Espana, more than 50% (51.5%).

On the other hand, Telefonica Latinoamerica contributed -10.3 percentage points
to the Group's EBITDA growth, reaching a figure of 1,927.1 million euros, or
25.3% less than the cumulative period of January - June 2001. This reduction
occurred principally because of the behaviour of exchange rates (-2.1% excluding
this effect), the poor performance of Telefonica de Argentina (-68.7% in euros -
homogeneous periods- and -15.4% in local currency). On the positive side, it
should be noted the strong performance of Telesp, +12,3% growth on its local
currency EBITDA. If we were to exclude the exchange rate variation and adjust
TASA's fiscal year in 2001 to the current one, Telefonica Latinoamerica's EBITDA
would have fallen by 1.4%.

Telefonica de Espana Group had an important turnaround in its EBITDA during the
second quarter. For the fourth consecutive quarter, Telefonica de Espana is the
biggest contributor in absolute terms to consolidated EBITDA (37.6% of the
total). This reverses the trend for the first half of 2001, in which Telefonica
Latinoamerica was the largest contributor to the Group EBITDA (31.7% of the
total versus 40.6% in June 2001). During the first half of the year, EBITDA
reached 2,285.5 million euros, which represented a fall of 6.3% from the first
half of 2001, and contributed with negative 2.4 percentage points to the Group's
EBITDA growth. This decline is 4.0 percentage points less than that recorded in
the first quarter of the fiscal year, in line with the announced recovery
forecast. The decrease is caused by the reduction in revenues after the price
cuts pursuant to the price cap system, the loss of market share, and increased
spending from the launch of retail ADSL service. It is significant to note that
in absolute terms, EBITDA in the second quarter of 2002 increased to 1,158.6
million euros, or 2.8% above the first quarter. As has occurred with revenues,
the downward trend in EBITDA will be attenuated over the course of the fiscal
year until both reach levels, in absolute terms, similar to those of last year
as stated last March.

At the Group level, it is important to note that, despite the increased rate of
decline from year over year in cumulative EBITDA as of June 2002 (-4.4%) from
cumulative EBITDA at March 2002 (-2.7%), the operating profit showed the
opposite trend, falling to a lesser degree (-8.1%) at June than at March
(-10.9%). This behaviour is caused by the 1.6% fall in depreciation and
amortization compared to the first half of 2001, mainly due to the impact of the
exchange rates in the Telefonica Latinoamerica depreciation and amortization.
That contrast with the growth presented in the first quarter of the year (+3.6%
quarter-over-quarter).

Furthermore, financial expenses increased to 1,609.0 million euros in the first
half of the year, or 73.6% greater than during the same period last year.
However, this growth stems from the impact of the devaluation the Argentine peso
had during the semester, which was 679.5 million euros. If we were to exclude
these effects, financial expenses for the first half of the year would have been
929.5 million euros, similar to those of the first half of 2001.

Net debt at the close of the second quarter of 2002 was 25,788.8 million euros,
down 3,152.8 million euros from the net debt of 28,941.6 million euros posted at
the end of fiscal year 2001 without having to divest. This decreased was mainly
due to the 1,995 million euros of operating cash flow generated by the Group in
the period, as well as to the appreciation of the euro against the dollar and
the Latin-American currencies, accounting for another 2,030 million euros
decreased of non-euro denominated debt. The decreased of the net debt due to
these two factors has, into some extent, been offset by the financial
investments of the period, 664 million euros, and the increase of 209 million
euros of debt related to changes in the consolidation perimeter.

Finally, Telefonica Group's tangible and intangible investment accentuates the
generalized reduction versus last fiscal year. Thus, in the January-June 2002
period, investment reached 1,815.5 million euros, a decline of 52.3% from a year
ago. Telefonica Latinoamerica continues to be the business line with the
greatest year over year reduction caused by the control policy established and
the investment rationalization after Anatel's goals fulfilment and the
Argentinean crisis. It is appropriate to recall the cyclical component of
investment, for which reason this performance should not be extrapolated for the
entire year.





Telefonica de Espana Group

The change in the domestic fixed telephony business continues to be determined
by compliance with a very strict regulatory framework for Telefonica de Espana.
During the second quarter of the fiscal year, the intense activity shown by the
competition during the first quarter of the year has continued, especially by
cable operators.

In first place, it is worth to mention the 5.5% loss in market share of the
access business at the end of June. Thus, main competitors have obtained more
than one million direct accesses, which has translated into a decrease of
201.117 analogue and basic accesses ISDN lines during the first half of the
year. Furthermore, the number of preassigned lines reached 1,600,997, of which
1,193,047, or 74.5%, are globally preassigned lines.

With respect to traffic, estimated minute volume reached 73,64.2 million,
growing by 6.2% over the prior year, thus showing a slight improvement against
the first quarter of 2002. Outgoing traffic, with a total volume of 50,600
million minutes, remains practically in line with the first half of 2001, -0.3%,
showing an improvement versus the negative 1% growth reached in the first
quarter of the present fiscal year. Metropolitan and interprovincial traffic,
although they continued to show signs of market share loss, suffered during the
first half of 2002 a more moderate loss than in march, -7.8% and -4.0%,
respectively, versus the -10.1% and -5.7% as of the first quarter, which
partially explains the improved performance in outgoing traffic. Furthermore,
provincial and fixed-mobile traffic continued on last quarter's trend, showing
year-on-year growth rates of 23.4% and 4.3%, respectively. International traffic
continues to be affected by the rationalization of the traffic reseller
business. This occurred at the beginning of the year, and shows a year over year
fall of 22.3%.

It is important to note that the fixed voice market in Spain, has not grown over
the last months, whereas Telefonica de Espana voice minutes reached 31,984
million, falling by 2.9% with respect to the same period last year.

The growth in Internet traffic of recent quarters has slowed due to the effect
of substitution of the switched Internet traffic by the ADSL service, showing a
growth rate at the end of June of 4.5%, for a total of 18,616 million minutes.

Incoming traffic reached 31.3% of total traffic and showed a growth rate of
24.0% with respect to the first half of 2001.

Sales of minute packages continue to be well received by the market. At the
beginning of the year three new discount plans were launched, as part of a very
selective sales policy, of which the Long Distance Savings Plan (a free plan
that offers a discount of up to 12% as a function of monthly usage) stands out.
This plan showed a total of 215,455 new customers at the end of June. The
remainder minute packages and flat rate plans have also kept an upward trend.
Thus, local traffic packages subscribers totalled 2,748,671, and the total
number of discount plans was 4,099,691.

Total usage measured in terms of minutes per line per day reached 22.77 and grew
by 7.2% over last year, being the traffic coming from the Internet (+5.4%) and
Wholesale businesses (+25.1%), the main drivers of this growth.

A key point in Value-Added Services is that the number of active voice mailboxes
rose to 10,636,875 in the month of June, while Caller ID registered 4,101,423
subscribers, which translates into 54.0% greater than the same period in the
previous fiscal year.

As we announced in the first quarter of this fiscal year, and despite the
demanding regulatory and competitive environment in which Telefonica de Espana
operates, the results for the second quarter show the path to recovery, in
accordance with previously announced forecasts. Thus, Telefonica de Espana
Group's operating revenue grew by 1.6% over the second quarter of 2001, whereas
in the first quarter of 2002 it suffered a decline of 2.7% versus the same
period of 2001. Likewise, in the second quarter of 2002, the attained EBITDA
showed a decline of 2.2% from the second quarter of 2001. This decline reached
10.3% in the first quarter of 2002 versus the same period in 2001.

It is of relevance the comparison of consecutive quarters due to the experienced
growth in the second quarter of 2002 against the first quarter of 2002 of
Telefonica de Espana Group revenues and EBITDA of 3.7% and 2.8%, respectively,
turning around the decreasing trend of the previous year.

Telefonica de Espana Group's operating revenues at June 2002 reached to 5,131.2
million euros, a slight fall of 0.6% with respect to the figure obtained in the
same period last year. The parent company Telefonica de Espana's operating
revenues for the first six months of 2002 reached 4,930.3 million euros, a fall
of 1.1% versus a reduction of 2.8% at the end of the first quarter. This result
from the increase in revenues in the second quarter of 82.2 million euros over
those obtained in the first three months of the year, representing growth of
3.4%. During the first half of the year, considerable progress have been made on
offsetting the deterioration in revenues experienced by the traditional business
with revenues which are being generated in the Broadband business.

Revenues from the traditional business, which reached 3,942.6 million euros and
represented 80% of total revenues, fell by 1.9% at the month of June. The change
in this business reflects the impact of the significant Price Cap-related price
reductions during 2001 and changes in prices occurring in 2002, (a reduction in
provincial and interprovincial traffic) partly offset by an increase in the
monthly fee for Basic Telephone Service, with a neutral effect on the Price Cap.
Furthermore, effective revenues from consumption fell by 14.4% as a result of a
decrease of 12.4% in average effective per-minute revenues.

On the other hand, revenues from the wholesale business progressed as expected,
reaching 671.1 million euros, although it had decreased by 3.6% as of June. The
reduction in the wholesale business' revenues is mainly the result of the growth
in incoming traffic that is not fully offset by the effective price reduction in
interconnection approved as part of the 2001 Reference Interconnection Plan, OIR
2001.

Revenues from the Internet and Broadband business reached 316.6 million euros
and grew by 17.1% with respect to the first half of 2001. In the narrowband
Internet business, the migration of switched Internet traffic to ADSL and growth
in non-peak times as a result of Flat Rates for Internet, created a reduction in
effective average revenue per Internet minute of 23.9%.

Revenues from the retail ADSL business reached 106.8 million euros, and users of
this service, who as of June numbered 391,006 representing 50.3% of total
Broadband access in the Spanish market. Total ADSL end users reached 660,861,
making an average daily installation rate for the second quarter of the year of
approximately 2,800 installations, in line with the objective of reaching
900,000 customers at the end of the fiscal year. Total Broadband revenues
generated in the period (including the wholesale business) reached 146.9 million
euros.

The rebalancing of tariffs, together with the greater contribution from the ADSL
business, is allowing the proportion of fixed revenues to increase, representing
51.9% of total revenues as of June 2002, increasing 8.2 percentage points with
respect to the same period of 2001.

Telefonica de Espana Group's operating expenses reached 2,877.5 million euros,
4.6% greater than in June 2001. This growth is mainly due to the change in
Telefonica de Espana's expenses associated with the deployment of the new retail
ADSL business begun in September 2001. When this impact is deducted, Telefonica
de Espana parent company's total expenses, which represented almost 93% of the
Group, fell by 1.1%.

Telefonica de Espana Group's personnel expenses, which reached 1,068.2 million
euros, grew by 2.2% over the prior year. The reduction in average headcount was
0.6%, placing the number of employees at the end of the first half at 40,908.
Average productivity in terms of lines per employee reached 518.1 and grew by
2.3% from June 2001.

Telefonica de Espana Group's supply expenses, which totalled 1,284.0 million
euros, grew by 6.0%. Expenses related to the parent's Fixed-to-Mobile
Interconnection, which represent 66.1% of the parent Telefonica de Espana's
supply expenses, remained at practically the same level as the first half of
last year. These fell by 0.3%, whereas the change in Fixed-to-Fixed
interconnection expenses, stemming from growing competition and the impact of
the ADSL business on the rest of supplies, are the reason for the growth of 6.0%
in real terms with respect to last year.

Telefonica de Espana Group's external works, supplies, and services reached
440.5 million euros and showed a growth rate of 8.6% at the end of the six-month
period, growing in line with forecasts and the business plan of the Broadband
services development.

Now that the restructuring of the PUT (public use telephony) traffic reseller
business has been restructured, the provision for bad debts is at reasonable
levels for our business and show a reduction at June of 15.4% with respect to
the January-June 2001 period, which improvement will continue to strengthen
throughout this year due to the good results of the control measures applied.

Telefonica de Espana Group's EBITDA for the first half reached 2,285.5 million
euros, which represents a year over year reduction of 6.3%. The Group's EBITDA
margin has reached 44.5%, 2.8 percentage points less than that obtained at June
2001, whereas the parent company is 46.3%.

The downward trend in revenues and EBITDA with respect to the previous year, as
was anticipated last March, will be further attenuated throughout the fiscal
year until revenues and EBITDA levels are reached similar in absolute terms to
those of last year. The growth in the Broadband market, which will allow the
reductions in revenues from the Traditional and Wholesale business (caused
principally by the rate cuts from Price Cap and OIR 2001 approved in August and
by the loss in market share for the traditional business), will allow us to
obtain the same level of results in the second half of the year as in the first
half. Together with the gradual decrease in income volume for fiscal year 2001,
this will cause us to reach likely revenues and EBITDA levels at the end of the
year similar to those of fiscal year 2001.

As a result of the company's operating performance and the decrease in the level
of amortizations at Telefonica de Espana, which fell by 2.0%, Telefonica de
Espana Group's operating results reached 932.2 million euros, 12% less than that
obtained at June 2001, compared to the fall of 22.6% in the first quarter of
2002. The operating results of the second quarter of 2002 experienced a 0,9%
increase compared to the same quarter of 2001, and an 8.0% increase compared to
the first quarter of 2002.

CAPEX at June 2002 reached 738.4 million euros at parent company and fell by
14.3% compared to the same period of 2001. It is important to highlight that the
first half of 2002 CAPEX figure should not be extrapolated to the whole 2002
fiscal year due to seasonability effects.

Of total investment, 54.3% has been allocated to the investments in the
Traditional business (STB, ISDN, Circuits...), and the remaining 45.7% has been
applied to business transforming investments, mainly Internet and Broadband.

FCF, defined as EBITDA minus CAPEX minus net financial expenses minus taxes,
reached 1,233.6 million euros and grew 16,9% versus June 2001.







Telefonica Latinoamerica Group

Telefonica Latinoamerica's results for the first half were affected by the
economic situation in the region and the volatility of its currencies,
especially the Argentine peso, and in the last three months the Brazilian real.
To counteract this situation and in order to preserve cash flow generation, the
operators have taken several measures to control costs (both operating and
investment), thus allowing high levels of free cash to be generated, in line
with the Group's commitment.

Telefonica Latinoamerica's financial statement for the first half of the year
include the effects derived from the impact on the debt of Argentine operators
of the devaluation of the Argentine peso from 1 euro per 1.5149 Argentine pesos
(1 dollar per 1.7 pesos) to 1 euro per 3.4084 Argentine pesos (1 dollar per 3.80
pesos), given that the December 2001 financial statements already included the
effect of the devaluation by correcting Argentine debt in foreign currency to 1
euro per 1.5149 Argentine pesos (1 dollar per 1.7 pesos), following the prudent
criteria established by the Spanish accounting regulatory agency (ICAC).
Furthermore, when consolidating the results of Telefonica de Argentina, the
average exchange rate for the period was applied, 1 euro per 2.4234 Argentine
pesos (1 dollar per 2.70 pesos).

Moreover, starting in January 2002 the fiscal years of Telefonica de Argentina
and Cointel run from January to December, coinciding with the fiscal years of
the rest of the Group's companies. However, Telefonica Latinoamerica's financial
statements for 2001 include the accounts of TASA and Cointel, with a quarter
delayed (October 2000 - March 2001).

Operating revenues for the first half reached 3,974.1 million euros, which
represents a year over year fall of 23.3%, which performance has been affected
by the depreciation of the Argentinean peso (-63.0% on average), the Brazilian
real (-11.9% on average) and the Chilean peso (-8.6% at the end of the period)
against the dollar, whose average exchange rate with the euro was practically
unchanged against the first half of 2001. In constant terms, revenues remained
practically unchanged, with a slight year over year fall of -0.4%, which however
would have been 0.7% if using homogenous periods for TASA. Telesp recorded
revenues growth of 11.5% in local currency terms, thanks to the greater average
plant in service (+11.8%), which managed to compensate a large degree for the
decreases in revenues in local currency terms of TASA (-15.5%, which, under a
homogenized period would have been reduced to -12.2%), CTC (-5.2%) and TdP
(-1.8%).

In this period, Telefonica Latinoamerica's total operating expenses, 2,114.9
million euros, showed a fall of 22.0% (-0.1% in constant terms), derived from
the spending cutbacks made by CTC (-4.7% in local currency terms) and TASA
(-10.1% in local currency terms), as a result of the different cost reduction
policies implemented by both companies starting in the second half of last year,
in order to counteract the lower revenues earned. On the other hand, Telesp and
TdP had operating expenses greater than those of last year (+9.6% and +2.4%,
respectively). In Telesp's case, these expenses resulted from an increase in
average plant, and in TdP's case principally stemmed from greater
interconnection expenses, almost entirely offset by controlling other operating
expense items.

Consolidated EBITDA recorded during the first half of 2002 was 1,927.1 million
euros, showing a fall of 25.3% principally as a result of the change in TASA's
EBITDA, both due to the economic situation of the country and the devaluation of
the Argentine peso. If these exchange rate effects and the differences in TASA's
consolidation periods were eliminated, the reduction in EBITDA would have been
limited to -1.4%.

During the first half EBIT decreased by 40.8% compared to first half a year ago,
this drop was strongly impacted by the adverse fluctuations in exchange rates.
Thus, in constant euros the decreased in EBIT would have been -19.3% compared to
first half of 2001.

The net result for the first half recorded a loss of 223.6 million euros versus
a positive result of 653.2 million euros last year. In this regard, it must be
stated that the results of the first half of 2001 included the sale of the
interest in Cablevision, for a gain of 256 million euros. The result for the
present fiscal year, on the other hand, is decisively influenced by the
inclusion of negative 376.2 million euros derived from adjusting the exchange
rate of TASA's, THA's and Cointel's debt (net of taxes), an effect of the
adjustment of debt from 1 euro per 1.5149 Argentine pesos (1 dollar per 1.7
pesos) to 1 euro per 3.4084 Argentine pesos (1 dollar per 3.80 pesos). It must
be remembered that in the first quarter of the fiscal year the net result was
reduced by 234.3 million euros due to adjusting the exchange rate of the
Argentine companies' debt from 1 euro per 1.5149 Argentine pesos (1 dollar per
1.7 pesos) to 1 euro per 2.4862 Argentine pesos (1 dollar per 2.85 pesos).

Accounts for the first half of the year showed a positive provision for taxes of
154.3 million euros, which included activation of the DAEX (Export Activity
Deduction) tax credit. This process generated income of 59.2 million euros,
already recorded in the first half of the year, as well as the tax credit
derived from exchange rate losses owing to the devaluation of the Argentine peso
(198.3 million euros cumulative at June). This tax credit compensated for the
tax provisions of the other operators.

At the close of June, Telefonica Latinoamerica managed a total of 21.5 million
lines, 2.7% more than in June 2001, of which 58.2% belonged to Telesp. During
the first quarter, Telefonica Latinoamerica's lines fell by approximately
130,000, given the net negative gain in lines reported by Telesp and TASA. In
the case of Telesp, it reflected both the smaller number of new lines added,
after completion of the waiting list and establishment of stricter entry
filtering processes, as well as the increase in lines eliminated. This evolution
is leading to an improved quality in the customer base, after the advances made
toward disconnection of bad debt customers. In the case of TASA, the negative
net gain in lines during the first half of the year is the result both of not
adding new lines and the investment containment policy, as well as the increase
in lines eliminated due to the Argentinean crisis.

The Broadband market continues to be a key target in Telefonica Latinoamerica's
strategy, which has led to reaching a figure of 356,946 users in service, 30.5%
more than at the end of the first quarter 2002.

Telefonica Latinoamerica continued with its priority to maximize the efficiency
of its operators. This has translated into additional staff reductions in the
second quarter: 646 fewer employees at Telesp and 661 employees at Telefonica
del Peru. Therefore, as of June the headcounts of Telefonica Latinoamerica's
fixed telephony operators was 25,789 (29,376 including Sonda and Cablemagico).

Cumulative investments during the first half fell by 75.0%, going from 1,620
million euros to 406 million euros after an investment rationalization effort
responding principally to the new environment that followed early completion of
Telesp's goals and the Argentine crisis. Cuts in investment were also made to
protect the generation of free cash flow which, in aggregate terms, was 1,060.4
million euros versus the 449 million euros generated during the same period last
year (+136.3% year over year in euro terms), of which 48.7% comes from Telesp.
These investment cutbacks place the CAPEX / Revenues ratio at 10.2% in local
currency terms, 21 percentage points less than in 2001.

Brazil

After having received certification of completion of the Anatel's goals last
March, and the granting of a long distance license (April 26), Telesp began to
operate an international long distance service from Sao Paulo last May 7,
reaching a 16.4% cumulative market share as of June 2002 after just two months
of operation. Although Anatel granted Telesp the license for domestic long
distance service from Sao Paulo, the legal injunction filed by Embratel against
Anatel, prevented Telesp from providing this service for the time-being. This
resolution to this injunction is expected to be resolved in the next weeks.
Furthermore, the good performance of estimated market share for intrastate long
distance within Sao Paulo, which reached a cumulative 79.0% at June, continues,
exceeding by 1 percentage point the market share recorded at June 2001.

Furthermore, last June 25 Anatel approved Telesp's annual tariff increase, which
is on average 8.07% (8.3% for the local services basket), which was charged to
customers starting on June 28. Also notable are the 13.9% increase in
residential subscriber fees and 9.97% for business lines.

During the first half, Telesp had more than 12.5 million lines in service, which
translated into a year over year growth rate of 4.2%. In this period the company
recorded negative net gain in the number of lines (-104,491), by speeding up the
process of disconnecting customers who had bad debt problems, as well as by
establishing stricter controls for new lines, which is leading to a
restructuring and improvement of customer base quality. In this regard, Telesp
has implemented a more flexible debt financing model, while following up with
customers who wish to discontinue service in order to offer them products more
in tune to their needs. All these measures had a positive effect in June, when a
net positive gain of 10,540 lines was recorded. The company expects to maintain
this positive trend in the second half of the year.

In the second quarter, after the launch of several promotions, there was a
notable recovery in the rate of new ADSL lines added, increasing by 152.6% over
the first quarter, with lines in service totalling 282,269 customers, 42.3% more
than in December 2001. Thus, the net gain of ADSL customers increased from
17,365 customers in the first quarter to 66,598 in the second.

Besides the retirement program implemented in the last quarter of 2001 in order
to adapt the company's structure to the more competitive environment once the
Anatel's goals were met, in May and June of this year the company undertook
another severance program (646 employees through June 2002). Thus headcount fell
by 20.2% in year over year terms, and lines in service per employee at June
totalled 1,243, for year over year growth of 30.6%.

Revenues recorded by the company in the first half increased by 11.5% in local
currency (-1.7% in euros) thanks to the increase in average plant in service
(+11.8% year over year) and the average rate increase of 10.4% that occurred in
July 2001. The increase in revenues compensated for greater expenses (+9.6% in
local currency) due to the increase in activity and bad debts (due to the
application of a more conservative provisioning policy since May 2001, in line
with the criteria applied by the other Telefonica Latinoamerica Group
operators), placing the bad debt provision over revenues at 3.8%. The better
performance of revenues versus expenses led to a 12.3% increase in EBITDA in
local currency.

Early achievement of the Anatel's goals translated into a significant reduction
in CAPEX (-74.6% year over year in euros), which placed the CAPEX over Revenues
ratio at 19.0% in local currency, versus 57.5% in the same period last year.

All these factors have led to a generation of free cash flow of 516.8 million
euros versus a negative free cash flow of 359.4 million euros at June 2001.

Argentina


  • TASA's results in the first half of the year were affected by the economic
    crisis in Argentina, notably:

  • Depreciation of the peso to 1 dollar per 3.80 pesos at the end of June,
    which has caused negative exchange rate differences of 5,238 million pesos.
    According to Argentinean accounting regulation, companies based there could
    not account for the effects of the devaluation of the peso on their 2001
    financial statements, given that this occurred in 2002. Consequently, TASA's
    results presented here include the entire effect of the devaluation of the
    peso from the 1 dollar to 1 peso exchange rate to 1 dollar per 3.80 pesos.

  • High inflation rates were recorded in the first months of the year
    (cumulative 30.5% at June), although a deceleration has been seen in the
    last two months. It must be remembered that this effect is not being offset
    by tariff increases due to the restrictions imposed by the Public Emergency
    Law.

  • The economy suffered a contraction in the first quarter of the year (GDP
    reduction of 16.3%). This is reflected mainly in the contraction of the long
    distance market (-17%) and an increase in bad debt, that has remained stable
    through the first half.


    In this context TASA recorded EBITDA of 244.4 million euros, falling by
    15.4% in local currency (-68.7% in euros) with respect to January-June 2001,
    with an EBITDA margin of 50.7%, or 2.0 percentage points less than last
    year's. The fundamental cause for this reduction is the 12.2% fall in
    revenues (-67.5% in euros) due to the impact of the crisis that is affecting
    consumption, and to a greater degree the long distance business.

    The company managed the business by implementing measures to minimize these
    negative effects, and here the results obtained are noteworthy:


  • Limited declines in the plant in service (negative net gain of 111,462
    lines since the beginning of the fiscal year, but only 2,793 fewer lines
    than the plant in service in June 2001): a plan has been implemented
    consisting of converting regular lines with bad debt problems to prepaid or
    consumption control products, at the same time as the debt is financed.

  • Control of Bad Debts: Intensification of the actions to recover debt prior
    to lines disconnection and implementing more flexible payment plans
    (bonuses, financing plans), having achieved, first of all, a slight increase
    in average daily collections in peso terms in the first half of 2002 (3%)
    compared to the second half of 2001 (when the crisis was deepening), and
    second a reduction in the percentage of bad debts over revenues: although it
    remained high (9.0% versus 6.0% in the first half of 2001), a slight
    improvement has been seen in recent months.

  • Significant Cost Reductions: The cost control policies implemented, and to
    a lesser degree lower activity, have caused operating expenses to show a
    10.1% reduction in local currency (18.2% if we exclude the provision for bad
    debts and taxes).

  • CAPEX Control: TASA invested 13.4 million euros in the first half of the
    year. This reduction (-74.2% in local currency and -94.2% in euros), is the
    result of both the highly restrictive policy that has been applied since the
    end of 2001 and the renegotiation of contracts in foreign currencies, which
    has managed to soften the impact of the devaluation.

  • Retention of Market Shares, both in local and in long distance, with
    respect to the market shares recorded in 2001.

  • Positive Free Cash Flow: Operating expense controls and the investment
    rationalization have allowed TASA to continue to generate a positive free
    cash flow of 147.6 million euros during the half-year.

Chile

Telefonica CTC Chile's lines in service remained virtually the same as last
year, showing an increase of 0.6%. It should be noted that this growth is based
principally on the increase in regular lines versus prepaid lines, which were
the growth factor in 2001. In the long distance business, CTC has retained and
even slightly increased its market shares from the same period in 2001 (domestic
long distance 38.3% and international long distance 27.8%).

Revenues of Telefonica CTC Chile (Fixed Telephony Operator (FTO) + Sonda) during
the first half were 623.6 million euros, or 5.2% lower in local currency than
revenues in the same period in 2001 (-13.4% in euros). It should be noted that
this performance was affected by the change in the contract with Publiguias.
Because of this, the revenues recorded since September 2001 from the agreement
with Publiguias have fallen significantly. If this effect is eliminated, CTC's
revenue would have only fallen by 2.9% in local currency. Also affecting the
fall was the change in local telephone revenues (-2.6%) caused by the
composition of lines in its portfolio, wherein flat rate and prepaid lines have
increased since last year, as well as the cannibalization of mobile telephony.
For its part, the long distance business, despite the market contraction (a 12%
fall in traffic), showed revenues 7.3% greater than last year's in local
currency. ADSL performed positively (+122.3% more new additions in the second
quarter than in the first), with 54.1% more users than at the end of March and
an upward trend in revenues in the last few months.

Operating expenses continued to perform well, 4.7% lower than those recorded in
2001 (-12.9% in euro terms). This decrease is based on lower personnel expenses,
due to the reduction in personnel that occurred in June of last year and lower
provisioning expenses for the cost reduction plans that have been implemented.
This favourable change in expenses allowed the fall in revenues to be partially
offset, having recorded cumulative EBITDA in the first half of 258.1 million
euros, for a reduction of 7.1% in local currency with respect to June 2001
(-15.0% in euros), although if the change in the Publiguias contract is
eliminated, this decrease would have been reduced to -1.6%.

Investment rationalization continues by giving priority to profitable or high
strategic value projects, which resulted in a notable reduction in investment
(-20.8% in local currency), which placed the CAPEX over Revenues ratio at 8.0%.
Free Cash Flow was 165.2 million euros.

Peru

Telefonica del Peru continued to lead the local and Public Telephony markets,
the latter consolidating the good performance shown in the first quarter
(revenue growth of 9.0% in local currency terms). In the first half of the year
the company's results were affected by significant changes in the regulatory
environment: during 2001 successive interconnection rate reductions were
implemented, and in September the price cap system was introduced, which led to
a 7% year over year fall in tariffs, added to the introduction of multicarrier
dialling system starting last April 15. The combination of these factors, as
well as downward pressure on rates, translated into more intense competition and
a reduction in long distance market shares. All this affected revenues of
Telefonica del Peru (Fixed Telephony Operator (FTO), including Cablemagico as
the most important affiliate), which fell by 0.7% in local currency (-0.6% in
euros). It is worth mentioning the reduction in long distance revenues (-28.2%
in local currency), behaviour caused principally by the introduction of
multicarrier dialling and the downward evolution in accounting rates in line
with international trends.

In terms of operating expenses, an increase of 2.4% was seen in local currency,
explained principally by the 9.7% increase in interconnection expenses
(excluding this effect, expenses would have fallen by 0.6% in local currency).
In line with Telefonica Latinoamerica Group's productivity improvement, the
company introduced a restructuring plan that led to a reduction of 661 workers
during this period, which constituted one of the principal measures to improve
efficiency and decrease costs.

The negative change in operating revenues and expenses led to a decrease in the
company's EBITDA of 10.1% in local currency terms, to 308.0 million euros.

The expansion of the plant in Peru (+3.0%) continues to be driven by prepaid and
consumption-controlled products, for the purpose of maximizing the profitability
of existing plant and minimizing the risk of bad debt. These products currently
represent 33.4% of the plant in service, after experiencing a 25.2% increase
with respect to the first half of last year.

With respect to broadband services, the Company manages a customer base of
15,718 to which it provides ADSL and cable modem services, which translated into
a 60% growth over the customer base recorded in the first quarter of 2002.

In line with the rationalization of investments, a 43.5% reduction was recorded
versus last year, in local currency, leading to the generation of a 229.4
million Free Cash Flow, 6.8% year over year growth.





Telefonica's Cellular Business

In the first half of 2002 Telefonica Moviles recorded a net loss of 4,333
million euros due to the recognition in the second quarter of the year of net
extraordinary provisions amounting to 4,902 million euros associated with the
write-down of assets and the provision for associated restructuring costs in
Austria, Germany, Italy and Switzerland.

Excluding the impact of these net extraordinary provisions, Telefonica Moviles
would have recorded a net income of 569 million euros in the first half of the
year, a 50.3% year-over-year increase.

It is important to mention that, although these provisions cause Telefonica
Moviles to record a net loss in the first half of 2002 as well as for the full
year 2002, the provisions for asset write-down do not entail any form of cash
outflow.

The free cash flows forecasted for the Group, in the future, once the
restructuring costs have been paid, will increase significantly due to the
higher operating results and lower capital expenditures of the Group.

Operating profit was primarily driven by the favourable performance of
Telefonica Moviles Espana's business which more than made up for the negative
impact of exchange rate fluctuations in Latin American currencies -which
worsened in the second quarter of 2002-, mainly because of the depreciation of
the Brazilian real.

Key aspects of these results are as follows:


  • Sound growth in operating revenues, with a year over year advance in the
    first half of 2002 of 14.8%, and quarter-over-quarter growth of 13.1% (2Q02
    vs. 2Q01).


    If we strip out the impact of changes to the consolidation perimeter and the
    impact of fluctuations in exchange rates, consolidated revenues would have
    had a year over year increase of 12.9% in the first semester of 2002.

    By components, we would underline the significant growth of the customer
    bases of operators fully consolidated (+20.8%, and +11.5% excluding the
    Mexican operators and TeleLeste Celular), despite economic slowdown in most
    markets. In addition, the traffic carried by these operators had year over
    year growth of 20% in minutes accompanied by a higher volume of SMSs (+53%).
    By contrast, ARPUs in local currency had an annual average decline of 12%,
    mainly due to the larger weighting of the prepaid segment in the operators'
    customer bases.

    Telefonica Moviles Espana's revenues accounted for 71.2% of consolidated
    revenues, with a year over year increase of 20.5% from first semester 2001.

    Latin American operators fully consolidated contributed 28.5% of Group
    revenues. The performance of these revenues, which in euros grew by 2.6%
    from first semester 2001, was mainly shaped by the changes to consolidation
    sphere criteria mentioned above - which accounted for 26.8 p.p. of this
    growth-, and the negative impact of the devaluation of the Argentinean peso
    and the depreciation of other Latin American currencies - which reduced the
    growth rate in revenue from Latin America by 21.2 percentage points.


  • Strict cost control initiatives have been put in place, in line with the
    Company's target of increasing cash flow generation. These initiatives
    resulted in improvements to productivity and efficiency in all operators.


    Accordingly, year over year growth in consolidated operating expenses was
    13.5%, 1.3 percentage points less than the figure for revenues.


  • Continuous improvement in operators' and Group EBITDA margins both.
    Accordingly, the consolidated EBITDA margin for the first half of 2002 was
    41.3% from 39.4% a year ago. In quarter-over-quarter terms, the margin in
    second quarter 2002 was 42.0%, an improvement of 1.9 percentage points from
    second quarter 2001 and of 1.5 percentage points from first quarter 2002.


    Consolidated EBITDA in absolute terms was 1,864.4 million euros, 20.2%
    higher than in the same period of 2001. Excluding the impact of changes to
    the consolidation perimeter and the impact of fluctuations in exchange
    rates, organic growth in consolidated EBITDA, assuming constant exchange
    rates, would have been 21.9%.

    By geographical areas, Telefonica Moviles Espana made the largest
    contribution to Group EBITDA. In 1H02 the Spanish operator's EBITDA posted a
    year over year increase of 33.1%.

    EBITDA for the fully consolidated Latin American operators showed an
    increase, in total and in euros, which was 10.3 p.p. higher than that for
    revenues, and reaches 12.9%. Assuming constant exchange rates and excluding
    the contribution of Telefonica Moviles Mexico and of TeleLeste Celular in
    the first half of 2002, this growth would have been 17%.

    The German, Austrian and Swiss subsidiaries combined contributed with a
    negative EBITDA of -160.4 million euros in the first half of 2002.

In regard to extraordinary items, the following should be mentioned:


  • Sharp increase in net extraordinary expenses with respect to the first
    half of 2001, mainly due to the recognition of net extraordinary provisions
    amounting to 4,902MM€ associated with the write-down of assets and the
    provision for associated restructuring costs in Austria, Germany, Italy and
    Switzerland.


    The recognition of these extraordinary provisions for the write-down of
    assets resulted from recently obtained valuations. Taking into account the
    specific circumstances of each particular market and the uncertainty
    regarding the commercial profile of the UMTS technology and the evolution
    and the products and services it will support, Telefonica Moviles decided at
    the beginning of July to engage the services of third party independent
    experts to evaluate the various business plans. The hiring of third parties
    to perform independent valuations is in line with the recommendations of the
    Securities and Exchange Commission ('SEC') of the United States.

Meanwhile, capex continues to decline. Year over year reduction was 36.0%,
amounting to 9.9% of consolidated revenues (17.7% in 1H01): In absolute terms,
consolidated capex in first half 2002 was 444.9 million euros (696.1 million
euros in 1H01).

Capitalized costs totalled 139.4 million euros in the first semester of 2002, a
year over year reduction of 54.3%. These include the provision for the 3G
spectrum fee assigned to Telefonica Moviles Espana for the future operation of
this technology (10.5 million euros), start-up and operating expenses of Group
3G (1.3 million euros) and financial expenses associated with the acquisition of
the 3G license in Germany (127.6 million euros). Capitalized expenses
corresponding to TEM based on its shareholdings in each company amounted to 10.5
million euros, 0.7 million euros, and 59.5 million euros respectively, in the
first half of 2002.

Revenues derived from the wireless business segment, including Telefonica
Moviles and Startel, were 4,677.1 million euros during the first half of 2002, a
14.2% increase compared to 1H01. EBITDA totalled 1,912.6 million euros, a 20.2%
growth year over year.

SPAIN

The Spanish cellular market ended June 2002 with 31.4 million declared
customers, leaving a penetration rate of 75.2%, 11 percentage points higher than
in June 2001. Telefonica Moviles Espana (TME) increased its customer base by
over 830,000 subscribers in the first half of the year. Net adds in the second
quarter were 309,000 customers (+337,000 in contract and -28,000 in prepaid,
explained by migrations from prepaid to contract). The Company ended June 2002
with over 17.6 million customers, remaining leader of the Spanish cellular
market, with an estimated market share at the end of June 2002 stable from June
2001.

Churn rate control is behind TME's commercial success. The annual churn rate was
approximately 12% at June 2002, similar to the previous quarter's level and over
10 percentage points lower than 12 months earlier. We would underline the fact
that there is little difference between churn rates for contract and prepaid
customers. In addition, the financial impact of disconnections remains small, as
usage of disconnected lines is 40% lower than the average usage of the Company's
customer base.

As a result of TME's policies to encourage migration the weight of the contract
segment increased in the second quarter of the year to 32.9% of the total
customer base (+ 1.4 percentage points vs. 1Q02). The positive effects which
migrations from prepaid to contract (more than 213,000 in the second quarter)
have on the Company's ratios should be taken into account.

TME registered MOU of 104.9 minutes in the second quarter of 2002, an increase
of 7.7% from the previous quarter. Although in year over year terms (2Q02 vs.
2Q01) MOU has remained almost stable, with a slight decrease of 0.8%.

In 2Q02 TME achieved ARPU of €28.8, 4.1% higher than in the previous quarter
despite including the full impact of the price cuts made throughout the first
quarter. The year over year decline in ARPU seems to be decelerating. In the
second quarter of 2002 this was 6.6% (2Q02 vs. 2Q01), mainly due to the change
in the customer mix and the price reductions of the last twelve months, but this
was 4 percentage points smaller than the year over year decrease registered in
1Q02.

With regard to data and content, the ratio of SMS per customer per month in the
second quarter of 2002 amounted to 35 messages, with the growing importance of
SMS Premium -logo and ringing tone downloads, TV program voting, etc- standing
out. These services already account for approximately 13% of data billing. In
all, total data services revenue accounted for 14.6% of total customer revenue
in 2Q02, registering year over year growth of 3.2 percentage points.

TME continued to develop policies aimed at improving operating efficiency and
optimising use of resources in the second half of the year. To this end, the
weighting of SACs and SRCs over adjusted operating revenues reached 6.5% in the
second quarter of 2002 (-6.3 percentage points vs. 2Q01), with annual reductions
both in SAC per customer and SRC per customer. Also, advertising and network
costs over revenues showed important annual declines.

As a result, TME presents solid financial results:


  • TME's second quarter operating revenues had year over year growth of 19.9%
    and 4.4% from the previous quarter. In cumulative terms, operating revenues
    increased by 20.5% compared with the first half of 2001, an increase that
    would stand at 14% excluding handset sales in both years.

  • Accumulated EBITDA in the first half grew by 33.1% year-over year, similar
    to the quarter-over-quarter growth figure (2Q02 vs. 2Q01:+32%)

  • TME registered an EBITDA margin of 53.1% in the second quarter of 2002
    (+4.9 percentage points vs. 2Q01), resulting in a margin of 51.5% in the
    first half of the year.

  • TME achieved an EBITDA per customer of €16.7 in the second quarter of
    2002, among the best in Europe, with year over year growth of almost 10% and
    prices below the European average.

Lastly, we would highlight that TME has rolled out its UMTS network in 21
Spanish cities, fulfilling the requirements established in the license in order
to release the collateral guarantee. This has not prevented the operator from
maintaining a capex as a percentage of revenues ratio at 8.4% in the first half
of 2002, one of the lowest ratios in the sector and 3.5 p.p. lower than that
registered in the first half of 2001.

REST OF EUROPE

Once second quarter was closed, Telefonica Moviles has decided to redefine its
short and medium term objectives in Austria, Germany, Italy and Switzerland, as
a result of the delay in the availability of UMTS technology and the need to
update the current business plans, taking into consideration the current market
conditions in these countries.

In this sense, the shareholders of Group 3G (Quam), Telefonica Moviles and
Sonera, have decided to halt all commercial activities in Germany after seven
months of operations as a GSM/GPRS Mobile Virtual Network Operator (MVNO). In
the coming months, Group 3G will adjust its activities and organizational
structure to implement the decision taken by its shareholders. It is anticipated
that this restructuring process will be completed before the end of the current
year.

This decision is a consequence of a series of circumstances that at this time
determine, once the minimum period of activity necessary to evaluate the
commercial feasibility elapsed, the halt of all commercial activities.

This decision is in line with the decision taken by the IPSE2000 shareholders in
January of this year. At the same time, the non-essential activities in Austria
and Switzerland will continue to be reduced.

In these four countries, all decisions with regards to UMTS will be postponed
until there is a significant improvement in the technological and market
conditions.

The strategy of the Telefonica Moviles Group has been redefined as a result of
the changes occurred over the past couple of years, from a competitive,
technological, financial and regulatory perspective which have caused Telefonica
Moviles to reevaluate and update the assumptions of the business plans of its
subsidiaries in Austria, Germany, Italy and Switzerland and to reconsider its
overall short and medium term strategy in these countries.

Group 3G ended June 2002 with 197,000 active customers in Germany, which
represented a net add of 106,045 customers in the second quarter of the year. Of
the total customer base, 57.9% corresponded to the prepaid segment.

With regard to financial results, in the first half of 2002 Group 3G achieved
operating revenues of 39,9 million euros . Accumulated EBITDA to June stood at -
129.2 million euros, with operating losses having increased by 22.9% during the
quarter compared to 1Q02, in line with the more net adds. Capex in the first
half of 2002 stood at 55.8 million euros .

In Italy the restructuring process of the business approved at the beginning of
the year is progressing accordingly, with activity levels significantly reduced.
As part of this process, and with the aim of adapting the company's structure to
the new situation, IPSE 2000 has reduced its workforce by 35% since the
beginning of the year. This company's contribution to Group results is reflected
in the results of associate companies and amounted to -29.4 million euros in the
first half of 2002.

In Austria and Switzerland there was no significant activity during the quarter.
Telefonica Moviles' subsidiaries in these countries contributed negative EBITDA
of -31.2 million euros in the first half of the year.

MOROCCO

Medi Telecom had 1,321,213 customers at the end of June 2002, a year over year
increase of 75%. The lower net adds in the second quarter (86,709 customers) in
relation to the first (121,912 customers) is due to the larger number of gross
adds registered in the previous quarter because of the continuation of the
Ramadan campaign.

The increase in revenues registered in the quarter, together with the reining in
of commercial costs, led to positive and growing EBITDA in relation to the first
quarter of 2002.

LATIN AMERICA

Brazil

The operators managed by Telefonica Moviles in Brazil exceeded 6 million
customers in the second quarter of 2002, with a year over year growth of 19.2%.
Of the total customer base, the 68.5% corresponded to the prepaid segment, being
the main driver of growth in customer numbers. However, the contract segment
continued to show slight increases compared with June 2001.

The average market share of the operators in their areas of operation remained
at around 64% in the second quarter, similar to the same period of 2001. This
demonstrates the benefits of customer loyalty and retention initiatives
developed by the companies to counter the entry of new operators in their
markets, something which has already occurred in the state of Rio de Janeiro.

Turning to financial results, total operating revenues of the companies in local
currency had year over year growth of 22.6% in relation to the first half of
2001, or 7.5% excluding Teleleste Celular's revenues in 2002 - this company has
been fully consolidated since January 1, 2002. The increased sales were due to
the aforementioned growth in the customer base, partly offset by the reduction
in average ARPU (-9% in local currency).

Total EBITDA after management fees of the operators in local currency had a
15.9% increase on first six months of 2001. Excluding Teleleste Celular, EBITDA
from the Brazilian operators had a year over year increase of 3.3% in local
currency as a result of the operators' improved efficiency. This is being
reflected in an average decline in SAC in local currency close to 8% compared
with the first semester of 2001.

The combined EBITDA margin, for the first half of the year was 39.3% (40.1%
excluding TeleLeste Celular), reducing the differential with respect to the same
period a year ago, and showing a year over year improvement of 1.9 p.p. from
second quarter of 2001.

Finally, it should be noted that in recent months, the regulatory and
competitive outlook in Brazil has improved significantly compared to the
beginning of the year. Progress continues on the work required to create the JV
with Telefonica Moviles and Portugal Telecom's assets as soon as regulatory
approval is given.

Mexico

Telefonica Moviles Mexico had 1,28 million customers at the end of June 2002, an
increase of 20.8% year over year, fuelled mainly by the growth of the contract
segment (+34% vis-a-vis 1H01). Net adds in the first half of 2002 amounted
approximately 69,000 customers set against the negative trend in the same period
of the previous year. Although net adds in 2Q02 grew by more than 10% compared
with 2Q01, the figure fell by 17% compared with the previous quarter. The main
reason for this is the commercial repositioning of the Company's offering aimed
at attracting higher-value customers and increasing the average life of the
customer base.

With regard to the distribution network of Telefonica Moviles Mexico, a
significant increase was registered in the number of points of sale from the
first quarter of the year (+86%). A commercial agreement was also recently
signed with Marcatel that envisages the sales force of this company distributing
the products and services of Telefonica Movistar. Telefonica Moviles Mexico also
reached an agreement in July with Grupo Elektra, that will sell Telefonica
Moviles Mexico's products and services nationwide.

As regards the operators' financial operating revenues in local currency
increased by 16% compared with the first quarter of 2002, fuelled by the rise in
the customer base and traffic.

EBITDA for the second quarter, in local currency, rose by 1.5% compared with the
previous quarter. The lower growth compared with revenues is attributable to the
higher commercial costs resulting from the repositioning of the company's
offering to attract higher-value customers, which offset improvements in
productivity - the workforce was cut by 12% compared with the previous quarter.
Consequently, the EBITDA margin for the quarter was 9.6%. The IEPS (Special Tax
on Products and Services) was recorded in 1H02. Excluding this item, the EBITDA
margin for the first half of the year was 13.1%.

Argentina

The estimated penetration rate for mobile telephony in Argentina was slightly
below 18% at the end of June, showing a slight fall from March. In this context,
TCP's customer base at the end of the first half of 2002 reached 1,66 million
customers, maintaining its market share and its position as the second-largest
operator in the country. Although the company continues to focus on higher-value
customers, the number of disconnections in 2Q02 fell substantially compared with
the previous quarter. Prepaid segment customers represented 68% of the customer
base, 4 p.p. more than in June 2001, which limits the risk of bad debt.

During 2Q02, TCP increased its local currency tariffs. In addition, a new line
of prepaid cards, was also launched in May, aimed at encouraging customers to
recharge in larger amounts. The results of this initiative have so far exceeded
expectations.

As regards cost control, the reduction in SACs, which began in 3Q01, continued
to decline by over 40% in local currency vs. 1Q02.

Traffic levels in the second quarter of 2002 increased by 3% with respect to the
previous quarter, although, logically, they remained 15% lower than in the same
period of 2001.

TCP's revenues in local currency for the second quarter remained constant in
relation to those for the first quarter, compensating the decline in the
customer base with higher traffic volumes. In cumulative terms, operating
revenues showed an annual decline of 19% in local currency as a consequence of
the smaller customer base, lower interconnection revenues and the fall in
outgoing traffic.

Operating expenses fell more than revenues resulting in year-over year
improvements in EBITDA, both in absolute terms (+27% vs. 1H01) and in margins
(+8 p.p. vs. 1H01). However, in 2Q02 higher costs from the devaluation of the
local currency began to have an impact. These, via both the indexing of
contracts and the new prices of materials and/or services fixed in foreign
currency, caused a slight increase in expenses in relation to 1Q02 and a
moderate decline in the EBITDA margin.

Peru

At the end of June 2002, the Peruvian wireless market had 2 million customers,
with an estimated penetration rate of 7.6% from 5.7% in June 2001.Telefonica
Moviles Peru ended June 2002 with a customer base of 1,180,549 (+21% vs. June
2001), registering a year over year increase in the cumulative net add of 25%.

Telefonica Moviles Peru has maintained its market leadership despite the more
competitive environment, with an estimated market share of 59% and a stable net
add share in relation to the first half of 2001.

Turning to financial results, operating revenues in dollars remained stable in
relation to first half of 2001 figures, fuelled primarily by increased
interconnection revenues, handset sales and the increase in traffic, especially
prepaid, as a consequence of the larger customer base and the launch of prepaid
cards in local currency, at the beginning of the year. These factors offset the
year over year fall in ARPUs, the result of stiffer competition.

The increase of commercial activity resulted in a slight fall in quarterly
EBITDA in absolute terms. The EBITDA margin for the second quarter of 2002 was
33.8%, remaining stable over first quarter and despite the larger number of net
adds. In cumulative terms, the EBITDA margin reached 33.1%, 2.1 p.p. higher than
in the first half of 2001.

Chile

Telefonica Movil, a subsidiary of Telefonica CTC Chile managed by Telefonica
Moviles, had a customer base of 1.71 million customers at the end of June, year
over year growth of 20.8%. Of its total customer base, 76% are prepaid
customers.

The improvement in adjusted EBITDA margins should be highlighted as it increased
8.7 p.p. in relation to the second quarter of 2001, standing at 30.7% in the
first half (+5.4 p.p. vs. 1H01).

In July, Telefonica Movil has been awarded two 10Mhz blocks in the 1900 band,
which will allow the development of cellular digital technology without spectrum
restrictions.

Guatemala & El Salvador

Telefonica Moviles' operators in Guatemala and El Salvador had 355,698 customers
at the end of June 2002, 2% less than their customer base at the end of March.
This decline is the result of the operators focusing on higher-value customers.

The two operators' first half 2002 operating revenues in euros registered year
over year growth of 5.9%. EBITDA continued to improve in the second quarter
compared with 2001, with a margin of 20.8% in first half 2002 from a negative
margin in previous year.





Telefonica Data Group

In line with the strategic objectives set during the first quarter of 2002 for
the rest of the fiscal year, Grupo Telefonica Data has shown progress in its
operating efficiency and focus on the provision of high Value-Added Solutions
for large corporations, following a strict investment control policy.

Telefonica Data Group's results in the first half of 2002 were influenced by a
highly competitive environment, with continuous downward pressure on prices and
by many companies' containment of their investments in telecommunications, as
well as the crisis scenario in Latin America and its impact on the performance
of their currencies' exchange rates against the US dollar.

These results are also reflecting the consolidation of ETI (Telefonica Data's
affiliate in Austria) under the equity method up to the date of its sale in the
second quarter of 2002.

During the first half of the fiscal year 2002, Telefonica Data Group's operating
revenues reached 911.3 million euros, 1% below the revenues for the same period
last year. The change in revenues in this period was strongly affected by the
change in exchange rates in Latin America. Without this effect, revenues would
have grown by 6%.

Thus, in line with our forecasts, EBITDA improved significantly, growing by 99%
over the first half of 2001, exceeding 44.1 million euros, with an EBITDA margin
of 4.8%, doubling the figure of the same period last year and improving by 1
percentage point the cumulative EBITDA for the first quarter of 2002.

Notably, Telefonica Data Espana saw positive change in operations which, in a
highly competitive environment, managed to increase its revenues and improve the
profitability of its operations.

In Latin American countries (Argentina, Brazil, Chile, and Peru), despite the
unfavourable evolution in exchange rates, significant advances were made in
expense containment and their overall EBITDA doubled the figure obtained during
the first six months of 2001.

The change in Telefonica Data Group's revenues is supported by its quality and
services breakdown. Revenues are derived mainly from end customers and have
increased the relative weight of services which tend to meet the communications
needs of its customers in an ever more integrated solution, thus obtaining a
higher level of customer loyalty. The increase in revenues from Hosting services
(25% higher than that obtained in the first half of 2001) is also noteworthy. In
this regard, during the second quarter a new business line, called Soluciones
has been created from the integration of systems and consulting activities,
initially comprised of Telefonica Systems in Spain.

In order to reinforce the management and operating capacity of the Internet Data
Centers in Spain, in May 2002, Telefonica Data Espana signed an agreement with
IBM through which new Telefonica Data customers will be able to enjoy IBM's
experience in the field of Value-Added Applications over Telefonica's Broadband
infrastructure.

In June 2002, Telefonica Data signed an agreement with SAVIA Amadeus, the
leading electronic airline ticketing company in Spain, to upgrade its network
using Broadband services. This feature will give more stability and security to
the connections of more than 19,000 Amadeus system users.

Cumulative investments in these six months of 81 million euros, have fallen by
59% from those made in the same period last year. Investments were
geographically concentrated in the expansion in Brazil (outside the state of Sao
Paulo) and categorically concentrated in end-customer equipment.

BUSINESS PERFORMANCE BREAKDOWN BY AREA

During the first half of 2002, Spain has contributed the most to sales, with
approximately 40% of total revenues.

INCUMBENT MARKETS

Due to the new organizational structure of Telefonica Data (concentration of
systems and consulting activities in the Solutions Business Line), Spain's
financial results are comparable on a pro-forma basis with those of the same
period in 2001 without including the results achieved by Telefonica Sistemas in
Spain.

In Spain during the first six months of fiscal year 2002, operating revenues
reached 375.4 million euros, 5% greater than those for the same period last
year. Without including the nonrecurring results of the ISP business in the
first half of the year, which were transferred to Telefonica de Espana during
the last quarter, growth would have been higher than 11%.

With respect to the distribution of revenues at the parent company, the growth
in international services (47%) and Hosting (81%) must be noted. Thus, at June
2002, 64% of revenues pertained to Virtual Private Networks (VPN's), 14% to
Internet Access, 10% to Internet Traffic, 5% to revenues from international
services, 5% to Hosting services and 2% to other services. As a whole, Data and
Internet services represented 88% of total revenues.

EBITDA reached 81.1 million euros during the first half of 2002, with an EBITDA
margin of 21.6% versus the 77.7 million euros for the same period in the
previous fiscal year. The important cost containment effort that has been
implemented has resulted in an improvement of 4% in EBITDA over the first half
of 2001 and almost 2 percentage points in the EBITDA margin over the first
quarter of 2002. This improvement has occurred despite the effect of the
existence of nonrecurring results in 2001 as well as increased costs derived
from transferring the new service development activity from Telefonica Datacorp
to Telefonica Data Espana, not having taken into consideration the results of
Telefonica Sistemas (now included in the Solutions area).

In Latin America, during the first half of 2002, operations in Argentina,
Brazil, Chile, and Peru have taken place within an environment of economic
contraction.

At June 2002, revenues from those countries measured 184 million euros,
representing a decrease of 9% with respect to the same period in 2001, caused
mainly by the fall in revenues from Argentina. These revenues would have grown
by 19% if we were to exclude the effect of the exchange rate in Argentina and by
26% excluding the overall exchange rate effect of the four countries in Latin
America.

EBITDA in Latin America rose to 20.8 million euros, improving its margin over
revenues from 4.4% to 11.3%.

In the region it is worth mentioning the increase of revenues in Brazil, having
reached 85 million euros, 56% greater than the same period last year (77% in
local currency terms) whereas the EBITDA margin improved by 11 percentage
points, reaching a margin of 9% during the first six months of 2002, 3
percentage points greater than in the first quarter of 2002. For the most part,
this change has due to the growth in data and Internet services.

EXPANDING MARKETS

In Germany and the United Kingdom (mediaWays Group) revenues reached 206.3
million euros, 11% lower than the same period last fiscal year, due primarily to
the reduced revenues in Germany from price cuts for services and lower traffic
handled over narrowband. Also in the first half of 2001, nonrecurring revenues
were earned in the amount of 44 million euros, partially offset in this fiscal
year by greater revenues, close to 30 million euros, coming from the U.K.
affiliate.

In the first half of 2002, EBITDA for mediaWays Group reached 10 million euros,
with a margin over revenues of 4.8%, 46% below EBITDA for the first half of
2001. This reduction is the result of the higher expenses derived from the
launch of DSL service offerings.

Revenues in Italy in the first half of 2002 amounted to 89.4 million euros, 61%
greater than those of the same period in 2001, as a result of the full range of
products and services offered throughout the country.

In the first half of 2002, EBITDA was negative 21.6 million euros, similar to
that obtained in the same period of the prior year because of continued
significant operating expenses to achieve national coverage in services and to
develop DSL-based broadband services.

With respect to countries in the Americas, Telefonica Data is operating as a new
entrant in Colombia, Mexico, and Puerto Rico markets, and is making a presence
in Miami (USA). Cumulative revenues derived from those countries at the first
half of 2002 reached 24.4 million euros, an increase of 62% over the 15 million
euros obtained during the same period in 2001.

EBITDA in the first half of 2002 was negative 20.2 million euros. In the same
period in 2001, with operating activity practically absent from the USA and at a
very low level in Mexico, EBITDA was negative 11.8 million euros. These results
are due to the fact that operations in those markets were still in the
development phase.

INTERNATIONAL MARKETS

During the first half of fiscal year 2002, revenues from International Network
reached 42.9 million euros, for a growth rate of 38% with respect to the same
six-month period in 2001. EBITDA in the first half of 2002 was negative 11.5
million euros, for a 25% improvement versus the negative figure of 15.3 million
euros in the first half of 2001.




Admira Media Group

In line with the message delivered at the 2nd Investors Conference in Seville,
on May 30, 2002, the Board of Directors of Admira Media Group decided to start a
procedure to split the company into two parts, the first of which will keep the
Admira name and the second of which will be called Telefonica Contenidos.

Furthermore, the new Admira will include the shareholdings in Antena 3, Onda
Cero, the Atco group in Argentina comprised of Telefe and Radio Continental, and
the shareholdings in the Pearson Group, thus comprising a solid, profitable,
growth-driven, and market-oriented Hispanic broadcast media group.

Furthermore, Telefonica Contenidos will include the interests in Endemol, Via
Digital, and the remainder of assets not included in the new Admira. The
objective of this new group is to lead the convergence of content and
multiplatform applications in the Telefonica Group.

An analysis of Admira Media Group's consolidated results of the first half of
2002 will need to consider to the same corporate structure as during the first
quarter of 2002, taking into account the following relevant events:


  • The general economic slowdown has influenced a reduction in advertising
    investment, which is a variable very sensitive to changes in major
    macroeconomic indicators. Likewise, the main macroeconomic variables in
    Argentina continue not to show signs of improvement, which has had a strong
    impact on Admira Media Group's investments in that country.

  • In April 2002, the sale of 4.11% of Admira Media's interest in Hispasat
    (consolidated using the equity method) was closed, generating capital gains
    of 26.1 million euros. As of this date changing Admira's stake in the
    company is to 13.23%.

  • In Argentina on July 4, 2002, Azul TV was sold to the H.F.S. MEDIA S.A.
    Group. The sale of Azul Television occurred pursuant to the regulations in
    effect in Argentina that prohibited a single business grouping from having a
    presence in more than one television channel.

  • As was already announced in the first quarter of 2002, the sale of Admira
    Media's interests in the Uniprex Group (Onda Cero Radio and Radio Voz) to
    Antena 3 Television has meant a change in the Group's consolidation
    perimeter starting in January 2002.

Another relevant aspect of the period has been the announcement of the merger of
Admira Group's and Sogecable's digital platforms, which is currently awaiting
decision from the appropriate authorities.

In the first half of the fiscal year, Admira Media Group had revenues of 478.7
million euros, 30% less than those in the same period of the prior fiscal year.
The reason for this negative change is due principally to ATCO in Argentina (88
million euros less than in 2001), due to the crisis that is affecting that
country; Endemol (77 million euros less than the prior fiscal year), due to the
contraction in the principal European markets where it operates, and to the
change in the consolidation criteria of Onda Cero Radio (a 35 million euros
impact on consolidated revenues).

Despite the adverse economic environment, the Group has managed to maintain a
positive EBITDA of 60.7 million euros, 12% less than that of the same period in
2001, which has been achieved thanks to a policy of strong cost savings. This
policy has allowed the Group to adapt to the new situation and to absorb part of
the sales reduction having fallen the operating expenses by 31.2% from the same
period in the prior year. The net result is negative -305.6 million euros,
especially weighed down with extraordinary negative results of 192.3 million
euros, the majority from the sale of Azul TV, which led to the recording of
extraordinary losses of 161 million euros. In addition to the above, the
contribution of Admira's subsidiaries to its net results, consolidated under the
equity method, were affected in the period by the recognition of losses from
fiscal year 2001 published by the Pearson Group and losses recorded by Antena 3
Group.

The 45.4 million euros in investments made over the six-month period are 55%
less than those of the same period in the prior fiscal year. The greatest
reductions have occurred in Argentina and in Via Digital, in order to limit
Admira Group's cash requirements.

Content Business

ENDEMOL

Endemol recorded consolidated revenues of 373 million euros during the first
half of 2002, 17% below the same period last year, This is due to the negative
trend in some of its traditional markets, especially the Netherlands, which
caused its main customers to adopt policies replacing outsourced production with
in-house production and, therefore, exerting downward pressure on prices. With
considerable success, the company is transferring this slowdown in revenues to
control operating costs. Therefore, it was able to show EBITDA margin of 18.5%,
1.8 percentage points lower than that obtained last year.

At the same time, Endemol continues to bet on new markets for its products, such
as the United States. This bet extends to the planned expansion in Latin
America, where it continues to develop companies together with TV Globo in
Brazil and Televisa in Mexico.

Broadcast Television and Radio Business

ANTENA 3

The television advertising market continues without recovering to last year's
levels despite a slight improvement in the second quarter of the year. The
forecasts for the second half are optimistic, but in any case, a decrease of
around 4% is expected with respect to 2001. In addition, the change in the TVE
network's commercial policy must be mentioned, which has continued, first of
all, its aggressive rate policy (which has caused a fall in advertising prices)
and, second, increasing the time allocated to advertising.

Antena 3 continues to be the most viewed channel after TVE-1 with a 20.9%
cumulative viewer share during the first half of the year, thus improving its
position over the same period in 2001, and over the first quarter of 2002. Its
immediate competitor, Tele 5, has seen its viewer share fall to 19.7% in the
first half of 2002, from 20.3% in the same period in 2001.

The good performance achieved in audience terms has been obtained in part thanks
to excellent results of the World Cup football championship in Japan and Korea.

The aforementioned aspects are reflected in cumulative revenues at June 2002,
which has risen to 278.3 million euros, which implies a decrease of 3% from the
same period in 2001. EBITDA, on the other hand, has deteriorated by 87% to 10.3
million euros. The reduction in EBITDA is fundamentally due to the financial
impact of purchasing the broadcast rights to the World Cup.

It should be noted that the acquisition of Onda Cero Radio by Antena 3
Television continues on course, having already been approved by Antena 3's Board
of Directors and the General Meeting of Shareholders.

During the first half of 2002, Onda Cero increased its revenues by 11.4% over
the same period in 2001, to 38.7 million euros, due principally to a 7.5%
increase in advertising revenues (continuing the trend started in the first
quarter of 2002, thanks to the good performance of advertising in local radio
stations), and despite the contraction of the advertising market in general.
This has translated into a 55% fall in negative EBITDA, which showed a loss of
1.7 million euros.

In the second phase of the 2002 Estudio General de Medios Survey, Onda Cero
showed an audience share of 19.5%, and it continues to be the second option in
radio broadcasting market in Spain, with some 456,000 more listeners than the
closest competitor.

ATCO

The worsening crisis in Argentina seriously affected Telefe's business for the
first half of 2002. This has had material repercussions on the broadcast
television advertising market, which at June 2002 showed a 53% decrease from the
same period in 2001.

All this has translated into a significant decrease in revenues and a
deterioration in EBITDA during the first half with respect to the same period of
2001. In local currency terms, revenues reached 58.4 million pesos in 2002,
which implies into a 42% fall with respect to the same period of 2001. For its
part, negative EBITDA reached 26.1 million pesos, compared to the positive 0.2
million pesos in the prior fiscal year.

In audience terms, Telefe has lost the leadership position it enjoyed in the
first half of 2001 (41.1%) and it has attained in the first half 2002 period a
30.8% audience share, due fundamentally to problems with renewing its
programming. Consequently, Telefe's cumulative advertising market share went
from 42.9% in the first half of 2001 to 33.5% in the first half of 2002. However
this is not having as negative an effect as expected on the gross margin, due
precisely to the recession in advertising investment itself and to the savings
on programming costs that are being obtained.

PAY TV AND DISTRIBUTION BUSINESS

Via Digital

During the first half of the year Via Digital continued developing its strategy
based on adopting measures to improve the quality of its current customer
portfolio and improve the efficiency of its operations. The current customer
base is 810,958 subscribers, indicating a year over year increase of 14.2%.

The effect of this strategy on Via Digital's accounts is a 55.3% increase in
revenues to 205.1 million euros over the same period in the prior fiscal year.
At the same time, the company's EBITDA showed a 15.7% improvement, to finish
with a loss of 122.8 million euros, this effect is derived from the increase in
revenues and the expense reduction policy.

Last May 9, Sogecable and Telefonica reached an agreement to integrate their
digital platforms through an increase in Sogecable's capital destined for Via
Digital's shareholders. The integration falls within the rationalization
framework of pay TV and the content industry that is currently underway in
Europe and is subject to ratification of the agreement by the appropriate
authorities.



Se sigue haciendo un esfuerzo en la reduccion de gastos generales, que
descienden un 15% en relacion al mismo periodo del ejercicio anterior y una
contencion en los costes de programacion.



Terra Lycos Group

The results for the second quarter of fiscal year 2002 continued to suffer from
the weakness in the international macroeconomic situation, with few signs of
improvement in the different areas where Terra Lycos operates. Added to
uncertainty about the consolidation of the recovery in the U.S. market, from its
timid beginnings in the first quarter, there is the instability in Latin
America, with its impact on exchange rate volatility. Media business, due to its
dependence on the advertising market, is the most affected.

In this still-difficult operating environment, Terra Lycos obtained revenues in
the second quarter of 161.0 million euros, a figure equivalent to the revenues
recorded in the first quarter of 2002, obtaining negative EBITDA of -37.9
million euros.

From the operating standpoint, Terra Lycos continues to actively implement its
OBP (Open, Basic, Premium) model, slowly reducing its dependence on the
advertising market and increasing the stability of the revenue base by
increasing recurring revenues.

The implementation of the OBP model is reflected both in the evolution of the
pay customer base and in the launch of new pay products and services.

In customer terms, Terra Lycos ended the quarter with more than 900,000 pay
customers from portal subscription services and the sale of communications
services, which translated into an increase of 420,000 new subscribers in the
quarter, 67% more than in the preceding quarter.

Those customers represented 9% of revenues for the quarter, compared to a 6% in
2001.

The total figure of pay customers, including access pay subscribers, reached 2.3
million, indicating a 22% increase with respect to the preceding quarter. Of
these, 301,000 are ADSL customers and 1.05 million are pay dial-up customers.
With respect to the same quarter last year, Terra Lycos' pay customer figure
increased by 900,000, or 79%.

Including free access, total customer base reached 5 million at the end of the
period. This figure, similar to that of 1Q02, is affected by discontinuing free
access service in Mexico during the quarter, which translated into a loss of
300,000 subscribers.

With respect to new products, pay products and services have been launched in
the United States such as Domain Registration Services (the user can register
domains directly for $34.95 per year), Lycos mail Plus (a premium service that
includes differentiating features with respect to the basic product for $19.95
per year), and Lycos Music (a digital music subscription service starting at
$4.95 per month). In Spain and Latin America, the range of Internet access
packages, communications, and content services such as the virtual hard disk
which is now offered under the flat rate in Spain, or the email protection
services (antivirus and antispam) on offer in Brazil, continued to improve.

The average audience, measured by number of pages viewed, reached 416 million
per day, which translates into a 10% decline with respect to the prior quarter,
fundamentally due to the fact that Terra Lycos is focusing on generating pay
audiences. Furthermore, the unique users figure for the entire Group was 116
million in June.

From the financial standpoint, revenues for the six-month period reached 320.5
million euros, recording a year over year fall of 10%.

Access revenues for the period attained a year over year growth of 12% (+17% in
constant currency), and represented 42% of total sales. Media revenues,
continued to be affected by the advertising market crisis in the United States,
showing a 13% reduction with respect to the same period a year.ago Media
revenues represent 58% of total sales.

From the geographic standpoint, 58% of revenues are generated in Spain and Latin
America, principally in Brazil and Mexico, while the other 42% comes from the
United States.

Terra Lycos has continued to adapt its cost structure to the current operating
environment, reducing the fixed operating costs base by 27% year on year (85
million euros), as a result of rationalizing marketing efforts, restructuring of
personnel, and the reducing cost of content by renegotiating contracts.

As a result, EBITDA reached -73.1 million euros in the six-month period, which
translates into a 70.8 million euros improvement versus the January-June 2001
figure.







Telefonica's Directories Business

During the first half of 2002, Grupo TPI experienced significant growth in
revenues, EBITDA and net revenues. Revenues grew by 25.0% to reach 191.0 million
euros, EBITDA reached 30.5 million euros (+153.1%) and the net income improved
by 69.3% to reach a total of 13.1 million euros. These good results are due
fundamentally to:


  • The good performance of TPI Spain, whose revenues grew by 10.9% to reach
    125.6 million euros.

  • Since the beginning of the year, the inclusion for this fiscal year of TPI
    Peru in the Group's consolidated accounts, with a contribution of 31.7
    million euros to revenues, and 9.1 million euros to EBITDA in the first half
    of the year.

  • The publication of the second edition printed of GuiaMais in the capital
    of Sao Paulo during the second quarter of the year, with an organic growth
    rate of 1.1% in local currency terms, and a major clean-up of the customer
    base whose effect has been a significant improvement in bad debt levels.

  • The increase in Publiguias' margin as a result of the new contract signed
    with the operator Telefonica CTC Chile.

It is important to recall yet again the seasonal nature of revenues, due to the
accounting criteria in place once each guide was actually published, which makes
it impossible to compare quarterly results because they are neither comparable
nor can they be extrapolated at the end of the year.

The sustained growth across business lines maintains guidance provided during
the first quarter, when considering exchange rates as of the first half. Should
exchange rates average at the same current levels , EBITDA guidance will be
valid, and yet revenues guidance could be affected.

Spain contributes 66.6% of the Group's revenues. Its contribution to
consolidated EBITDA measures 36.7 million euros. Revenues grew by 10.9% to 125.6
million euros, due fundamentally to the publication of 7 more White Pages phone
books and to the different Yellow Pages publication schedule. Moreover, the
organic growth of these revenues was 5.3% for the Yellow Pages and 9.5% for the
White Pages. Furthermore, the good performance of the Internet product is
noteworthy, whose revenues grew by 44.1% with respect to the first half of last
year.

Latin America represents the remaining 33.4% of revenues and contributed to the
Group a negative EBITDA of -6.1 million euros, compared to negative EBITDA of
-20.6 million euros for the first half of 2001.


Atento

With respect to Atento's financial results, operating revenues in the first six
months reached 312,0 million euros, which translates to a year over year
decrease of 1.6%, this results were fundamentally affected by the depreciation
in Latin American currencies. If the exchange rate effect were eliminated,
revenues would have shown positive growth (around 7%), due to the increase over
June 2002 in the contribution of customers outside the Group. These customers
have been increasing since last year, due to the contribution of countries that
started operations in 2001 (Japan, Venezuela, Mexico). During this fiscal year,
the entry of BBVA was significant, leading to the establishment of a four-year
contract for banking operations.

With respect to the diversity of external customers, of special interest is the
increase in the financial sector, which occurred at the end of June 2002 (23%
vs. 15% for June 2001). The increase took place after the consolidation of
operations with BBVA upon the signing of long-term contracts in Mexico and
Venezuela. This consolidation is principally joined to the growth of operations
with Unibanco, Redecard and Losango in Brazil. Nevertheless, the
telecommunications sector continues to be the main contributor (around 65%), as
it joins the list of companies already providing services up to March 2002 such
as, for example, AT&T, NTT, Avantel, Intelig others such as Cable & Wireless in
Japan, Smartcom and VTR in Chile, Vesper in Brazil, as well as the return of
Centennial in Puerto Rico.

Average monthly revenue per occupied position reached 2,537 euros in the quarter
compared to the 2,548 euros in the first quarter, 0.4% lower as a result of the
increase in the number of occupied positions.

Operating expenses in the first half of the year reached 292.0 million euros,
which translates into 0.3% more than the same period in the prior year. This
behaviour is due to the 6.4% year over year increase in personnel expenses
stemming from the 8% salary increase agreement in Spain, and the provisions made
in Brazil because of an increase of 6%. These were partially offset by the
reduction in external services and supplies, which fell by 13.1% and 12.9%,
respectively.

As a result of the above, in the first half EBITDA totalled 16.1 million euros,
which translates into a 37.2% decrease from the first half of 2001. The EBITDA
margin finished at 5.2%, or 2.9 percentage points less than at June 2001 and 1.4
percentage points less than that obtained in March 2001.

At the operations level, Atento had 28,037 positions in place during the first
half of the year. This compares to the 28,238 existing at March 31, 2002 and the
28,628 units at the end of June 2001. This reduction is caused by the current
focus on making installed capacity more profitable and on increasing usage
levels, which led to the closure of Atento operations in Italy, Uruguay, and one
of the three call centers in Argentina, as well as a capacity reduction at other
centers, such as, for example, Birman in Brazil.

The aforementioned number of positions were serviced by 47,575 employees at the
end of the first half, 2,099 employees more than at March 2002 and 506 more than
at June 2001. The occupancy level was 83% in June, 6 percentage points above
that at the end of March 2002 due for the most part to the increase in units
used in Brazil, Chile, Spain and Mexico.

With respect to the different types of services provided, traditional
information and service services, together with telesales, accounted for more
than 90% of revenues. Telecollections have increased in importance (above all in
Argentina, Chile and Central America, around 5%). Value-added and consulting
services accounted for an average of 5.3% in the January-June period versus 4.5%
in the prior quarter.

Finally, cumulative CAPEX at June increased to 11.1 million euros, 82% lower
than that recorded in the same period during the prior year as a result of the
consolidation of existing operations.







Emergia

As occurred in the first quarter of the fiscal year, Emergia's financial results
in the first half of the year were conditioned by a very demanding competitive
environment, marked by the financial problems of its principal competitors and
customers.

Operating revenue during the first half of the year reached 15.6 million euros,
the result of the sale and leasing of capacity. For their part, operating
expenses reflected the effort the company is making to reduce costs. Among other
initiatives, one should note the renegotiations of maintenance contracts that
are currently underway. In all, operating expenses reached 40.4 million euros.

As a result of the changes in revenue and expenses, cumulative EBITDA for June
reached negative 24.8 million euros, which translates into a 14.2% improvement
over the first half of 2002.

It should be noted that comparisons between these results and those for the same
period last year are not meaningful, given that Emergia's operations did not
start until April 2001. However, if we look at the isolated behaviour for the
second quarter of 2002, the change was similar to that of the first quarter of
the year in terms of EBITDA and net income.

Among the most important events of the quarter, one should note that, last May,
Emergia obtained the license required by ANATEL, which allows Emergia Brasil to
operate multimedia communications services nationally and internationally for an
indefinite period. These services include the sale of capacity access services
on Emergia's SAM 1 ring in Latin America.

Furthermore, as a result of capacity exchange agreements that Emergia has
undertaken with the main infrastructure operators, the company has reinforced
its capacity along the Lisbon-Madrid-London route in Europe. In this regard, it
is important to mention that in July, Marconi, an affiliate of Portugal Telecom
that operates international communications and manages its broadband networks,
leased a 10Gps circuit along that ring. This route reinforces Emergia's products
portfolio in Europe, where there is considerable demand for capacity not only
from Telefonica Group, but also from third parties.

Finally, it is important to mention that Emergia has followed a conservative
accounting policy for capacity exchange (swap) operations with other operators.
In this regard, the Company's financial statement records the capacity sold over
the useful life of the cable as a revenue, and the capacity purchased (accrued
in the same manner) as an expense.

Durante el primer trimestre del ano 2002, Emergia ha manteniendo un nivel
operativo de alto performance lo que la ha ayudado a posicionarse en el mercado
como el principal proveedor de ancho de banda en Latinoamerica, en un entorno
competitivo complejo.







Companies included in each Financial StatementAsimismo, se selecciono a SAP R/3
como solucion ERP. En este trimestre comenzo su diseno e implementacion que se
estima finalizar en Diciembre del 2001. Con el, se podra uniformizar los
sistemas utilizados en todos los paises donde Emergia tiene operaciones e
implementar la contabilidad analitica y costeo por ABC para una gestion mas
eficiente de costos.




  • Telefonica, S.A. directly participates in the share capital of Endemol
    Entertainment Holding, N.V. and Mediaways GmbH Internet Services, S.A.,
    which have been considered into Admira Media Group, S.A. and Telefonica
    Data, S.A., respectively.

  • Telefonica Holding Argentina, S.A. (the former CEI Citicorp) holds 26.82%
    of Atlantida de Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A.
    which, for the purposes of the pro-forma financial statements, are 100%
    consolidated in Admira Media Group.

  • In the case of Company de Telecomunicaciones de Chile, S.A. (CTC),
    although its process of segregation has not yet finished, the activities of
    the mobile telephony business in Chile has already been assigned to
    Telefonica Moviles.

  • The activities of the data business in Brazil, although it is participated
    by both Telecomunicaciones Sao Paulo, S.A. (Telesp) and Telefonica Data,
    have been assigned to Telefonica Data in the consolidation process.

  • With regard to the businesses that remain consolidated within TASA under
    Telefonica Latinoamerica, the previously mentioned reorganization, we note
    that these companies will continue to include their respective directories
    activities which have also been added on a proforma basis to the TPI Group,
    in line with our vision for Telefonica's directories business.

  • Following the agreement with Iberdrola, Telefonica S.A. has acquired in
    December 2001 and February 2002, several participations in the fixed and
    cellular companies in Brazil. This participations has been consolidated in
    Telefonica Latinoamerica and Telefonica Moviles financial statements,
    according to the presentation of Telefonica results by global business
    lines, and assuming these stakes will be transfer to the above mentioned
    subsidiaries.




Significant Events


  • On July 12, 2002, Telefonica Moviles and Pegaso PCS received the pertinent
    authorisation of the Mexican anti-trust authority (COFECO) to finalise
    Telefonica Moviles' acquisition of 65% of the capital stock of Mexican
    mobile telephone operator, Pegaso PCS. CNIE (Comision Nacional de Inversion
    Extranjera), had granted the corresponding authorization. As of today, the
    proper authorization by COFETEL (Comision Federal de Telecomunicaciones)
    remained to be granted. In May, Telefonica Moviles signed an agreement with
    Grupo Pegaso to purchase 65% of the capital of the Mexican mobile telephony
    operator, Pegaso PCS, from Sprint Corp., Leap Wireless, and other
    non-Mexican financial investors for USD87mn in cash. The company was valued
    at 1,360 million dollars.


    Grupo Pegaso, headed by Alejandro Burillo Azcarraga, will maintain its 35%
    stake in Pegaso PCS and remain within Telefonica Moviles' shareholder base
    as a strategic partner, contributing its broad knowledge of the Mexican
    market.

    Once the other Mexican authorities have given satisfactory permission,
    Telefonica Moviles and Grupo Pegaso will carry out a capital increase in
    Pegaso PCS, to amortise short-term debt and enhance the company's financial
    strength. This capital increase will have an estimated value of between 326
    and 488 million dollars, of which Telefonica Moviles will subscribe 65% and
    Grupo Pegaso the other 35%.

    Telefonica Moviles and Grupo Pegaso will subsequently combine Pegaso PCS and
    the operations of Telefonica Moviles in the north of Mexico into a new
    company, in which Telefonica Moviles will hold between 90% and 92%.


  • On July 11, the Spanish Telecommunications Market Commission (CMT)
    approved a 17.13% reduction in Telefonica Moviles Espana's termination fees,
    applicable from when this reduction is requested by those operators who
    terminate calls in this operator's networks, and not before August 1 2002.

  • At the end of June, shareholders' loans granted by Telefonica Moviles and
    Sonera to group 3G to pay for its UMTS license owned by Group 3G were
    converted into equity. The total amount of the loans and of the capitalized
    accrued interest was 7,129 millions of euros . Of this total, 4,078 millions
    of euros corresponded to Telefonica Moviles and the rest to Sonera.

  • On June 28, 2002, Terra Lycos, announced, in a series of transactions,
    that it has agreed to sell its stake in Lycos Korea and has entered into a
    strategic agreement to license the Lycos brand and certain Lycos products to
    Lycos Korea. This allows Terra Lycos to maintain a presence and continue as
    one of the leading consumer Web brands in Korea. Separately, SK Telecom
    announced that it has agreed to acquire a stake in Lycos Korea and will
    manage the company's operations.

  • On June 24, 2002, Telefonica de Espana, presented its new Text Messaging
    Services, that allows sending and receiving messages through the wireline.
    Costumers will be able to use their own home terminals to send text messages
    to other fixed terminals, faxes, mobile handsets and in the near future to
    e-mail addresses.


    Telefonica de Espana becomes the first fixed telephony operator in the
    Spanish market to launch this service, entering the group of leading
    European incumbent companies that offers this service. The service has no
    subscription cost or monthly fees and can be directly engage by clients.


  • On June 4, 2002, Telefonica Moviles has developed the structure necessary
    for the commercial launch of Multimedia Messaging Services (MMS) by the
    Group's operators. With MMS services, customers will be able to use their
    cell phones to send photos, video and other images, as well as polyphonic
    melodies. The commercial launch of MMS will take place in the coming months
    in Spain and Germany, once a sufficient number of compatible terminals are
    available. The services will later be introduced in other markets where
    Telefonica Moviles is present.

  • On May 31, 2002, the Board of Directors of Admira Media, named Pedro
    Antonio Martin Marin as Chairman of the Group. The Board also decided to
    split up the company in two. The first division will keep the Admira name ,
    and will hold the stakes in Antena 3 and Onda Cero, in ATCO Group (Telefe
    and Radio Continental, both in Argentina), in Pearson Group and in Torneos y
    Competencias. The second company will receive the name of Telefonica
    Contenidos and will hold the stake in Endemol, in Via Digital and in the
    rest of media assets not included in the new Admira. Luis Abril will be the
    chairman of Telefonica Contenidos once the split up has been concluded.

  • In May, Telefonica Moviles, S.A. carried out two capital increases via the
    issuance of 26,801,494 shares, with a nominal value of €0.5 each, in
    exchange for the shareholdings transferred by Telefonica S.A. in various
    Brazilian companies, including TeleLeste Celular.



Changes to the Perimeter and Accounting Criteria of Consolidation

During the period ended June 30, 2002, the following changes in the
consolidation perimeter took place:

Telefonica

In January, Telefonica, S.A. acquired 50,000 shares in Endemol Entertainment
Holding, N.V. (Endemol) for 2 million euros. With this operation, Grupo
Telefonica has a 99.47% capital interest in Endemol. The company continues to be
incorporated in the consolidated financial statements of Grupo Telefonica by the
global integration method.

In January, Telefonica, S.A. created the fully-owned subsidiary Telefonica
Capital, S.A., contributing 6 million euros, all of the initial capital of the
company in question. The company was incorporated into the consolidated
financial statements of Telefonica Group at its purchase price, since its
activities have not yet been initiated.

In February, Telefonica, S.A. participated in establishing the Brazilian company
Telefonica Factoring do Brasil, S.A., subscribing and paying out 0.96 million
euros, 40% of the company's initial capital. The company has been incorporated
into the consolidated financial statements of Telefonica Group by the equity
method.

The corporation Zeleris Espana, S.A. (formerly Telefonica Servicios de
Distribucion, S.A.) a fully owned subsidiary of Telefonica, S.A., increased its
capital in January by 1.92 million euros. These were subscribed and paid out in
their entirety by the principal company. Subsequently, in June, Zeleris
Soluciones Integrales, a full affiliate of Telefonica, S.A., increased its
capital by 0.82 million euros, subscribed to and paid in totality by Telefonica
S.A. by delivering Zeleris Espana, S.A. as a non-cash contribution. Both
companies continue to be included in the consolidated financial statements of
Telefonica Group using the global integration method.

In March, the last part of the agreement was completed between Telefonica, S.A.
and Iberdrola, S.A., whereby the former will acquire all shareholdings
previously held by Grupo Iberdrola in the Brazilian operators where both groups
are shareholders, directly or indirectly. Telefonica, S.A. has acquired 3.38% of
the capital in Tele Leste Celular Participacoes, S.A., in exchange for 799,411
shares in Telefonica, S.A.

Once Telefonica S.A. completed acquisition of these investments held by Grupo
Iberdrola in May of this fiscal year, Telefonica, S.A. contributed shares that
it owned in the aforementioned Brazilian companies to its affiliate Telefonica
Moviles, S.A. These shares translated into 7% of TBS Celular Participacoes, S.A.
and Sudestecel Participacoes, S.A., as well as 3.38% of Tele Leste Celular
Participacoes, S.A. and 62.02% of Iberoleste Participacoes, S.A. Telefonica S.A.
received all the new shares issued (26,801,494 new shares with a par value of
0.5 euros each) by the affiliate company in the two capital increases executed
in that month.

After this transaction, the percentage that Telefonica Group holds, directly and
indirectly, in those Brazilian companies are the following: 67.95% of capital in
TBS Celular Participacoes, S.A., 83% of capital in Sudestecel Participacoes,
S.A, 25.70% of capital in Tele Leste Celular Participacoes, S.A., and 92.74% of
capital in Iberoleste Participacoes, S.A. All these companies have been included
in the consolidated financial statements of Telefonica Group using the global
integration method (in fiscal year 2001, Tele Leste Celular Participacoes, S.A.
was included in the consolidated financial statements of Telefonica Group using
the equity method).

Telefonica Group, after May's capital increases in Telefonica Moviles, S.A.,
held a 92.74% interest in that company's capital. The company continues to be
included in Telefonica Group's financial statement using the global integration
method.

During April, Telefonica, S.A. acquired 592,465 shares of the affiliate Terra
Networks, S.A. for 4.69 million euros. With these purchases, Telefonica Group's
direct and indirect interest in the capital of said company reached 38.56%. The
company continues to be consolidated under the global integration method.

On May 31, 2002, the Dutch company Atento N.V. was established through a
non-cash contribution of 100% of the American company Atento Holding Inc., and
the cash payment by Telefonica, S.A. of 400 euros. The new company, fully held
by Telefonica, S.A., has capital of 91,000 Class A shares and 350 Class C
shares, all with a par value of 1 euro. The company has been included as part of
Telefonica Group's consolidation using the global integration method.

In June, Telefonica Group acquired 100% of the Mexican company Telefonica
Gestion de Servicios Compartidos, S.A. de C.V. for 5,500 euros. The company is
included in Telefonica Group's financial statements using the global integration
method.

Telefonica Datacorp Group

In January, Telefonica Datacorp, S.A. acquired 100% of the HighwayOne Germany
corporation, paying out 1.38 million euros in the transaction. The company is
being incorporated into the consolidated financial statements of Telefonica
Group by the global integration method.

Austrian company European Telecom International, GmbH, a fully-owned subsidiary
of Telefonica Data Holding, S.L., which is in turn a fully-owned subsidiary of
Telefonica Datacorp, S.A., which had been incorporated during fiscal 2001 by the
global integration method, has been consolidated since the beginning of this
fiscal year based on management criteria, using the equity method. In June, an
agreement was signed to sell this company. The sale took place in July.

Whereas the Uruguayan company Telefonica Data Uruguay, S.A., a full affiliate of
Telefonica Datacorp, S.A. was included in fiscal year 2001 using the global
integration method, since April 1 of this year it has been consolidated, based
on management criteria, using the equity method.

In May, the affiliate Telefonica Data do Brasil Ltd. took part in the capital
increase at T. Data Brasil Holding, S.A., After the contribution, it had
acquired 53.66%, disbursing 482.9 million reals in the transaction. After this
transaction, Grupo Telefonica increased its interest in the company's capital,
directly and indirectly, from 87.48% to the current 93.98%. The company
continues to be included in Telefonica Group's.

In June, the affiliate Telefonica Data Mexico, S.A. de C.V., held a capital
increase through which Telefonica Group increased, directly and indirectly, its
interest in the company's capital from 92.23% to 94.235%. The company continues
to be included in Telefonica Group's consolidated financial statements using the
global integration method.

Telefonica de Espana Group

During the first half of this year, the fully-owned subsidiary of Telefonica de
Espana. S.A., Telefonica Cable, S.A., acquired the following:


  • 10% capital in Telefonica Cable Catalunya, S.A.

  • 10% capital in Telefonica Cable Madrid, S.A.

  • 11% capital in Telefonica Cable Navarra, S.A.

  • 15% capital in Telefonica Cable Galicia, S.A.

  • 27% capital in Telefonica Cable Andalucia, S.A.

  • 46% capital in Sociedad General de Cablevision Canarias, S.A.

  • 46.25% capital in Telefonica Cable Castilla y Leon, S.A.

With these acquisitions, Telefonica Cable, S.A., the parent company in all of
these companies, holds 100% of the capital in these companies, except for
Telefonica Cable Castilla y Leon, S.A., where it holds a 97.25% stake, for
Sociedad General de Cablevision Canarias, S.A., where it holds a 97% stake and
for Telefonica Cable Galicia, S.A., where the new percentage is a 85%. The
payout made was 5.52 million euros. The companies continue to be incorporated
into the consolidation perimeter of Telefonica Group by the global integration
method.

In April, full affiliate Telefonica Soluciones Sectoriales, sold all its
interest in the companies related to Madrid 112, S.A. (24.5%) and Fitex, S.A.
(30.93%), obtaining gains of 115,000 and 30,000 euros, respectively. The
companies, which were integrated in Telefonica Group's consolidated financial
statements under the equity method, caused a reduction in the group's scope of
consolidation.

Telefonica Moviles Group

Telefonica Moviles, S.A. sold 2% of its associate company Mobipay Internacional,
S.A., obtaining a capital gain of 80,000 euros, reducing its percentage in the
company's capital to 36%. The company continues to be incorporated into the
consolidation perimeter of Grupo Telefonica by the equity method.

Telefonica Moviles, S.A. acquired an additional 16.3% in the capital of
subsidiary Telefonica El Salvador Holding, S.A. de C.V., paying out 28.67
million euros in the transaction. The company continues to be incorporated into
the consolidation perimeter of Telefonica Group by the global integration
method.

Telefonica Moviles, S.A. acquired an additional 16.3% in the capital of
subsidiary Telefonica Centroamerica Guatemala Holdings, S.A., paying out 28.67
million euros in the transaction. The company continues to be incorporated into
the consolidation perimeter of Grupo Telefonica by the global integration
method.

Admira Media Group

Pursuant to existing commitments for the sale of a stake in Grupo Uniprex by
Grupo Admira Media, S.A. to Grupo Antena 3 de Television, the financial results
of these companies are now incorporated by the equity method.

In April, Grupo Admira Media transferred 4.11% of its interest in Hispasat, S.A,
obtaining gains of 26.10 million euros. Grupo Admira Media, which holds a 13.23%
interest in the capital of Hispasat, S.A., continues to include that company in
its consolidated financial statements using the capital equivalency method.

During this fiscal year, Mediapark, S.A. formalized a capital increase in which
Grupo Admira Media did not participate, thus diluting its interest to 10.35%,
for which reason the aforementioned interest was included in Telefonica Group's
financial statements at June 30, 2002, at its purchase price.

In June 2002, Admira sold its interest in Prime Argentina, owner of the channel
Azul Television, for $12 million. The company, which was included in Telefonica
Group's consolidated financial statements using the equity method, caused a
reduction in the perimeter of consolidation.

Grupo TPI

On February 11, 2002, Telefonica Publicidad e Informacion, S.A., acquired 100%
of T.P.I. Peru, S.A.C., from Telefonica Internacional, S.A., for $31.2 million
U.S. The company continues to be consolidated under the global integration
method, with Telefonica Group's effective interest in that company going from
97.07% to 59.90%.

Grupo Katalyx

In May, the full affiliate Adquira, Inc., sold half of its interest, 50%, in
Adquira Mexico, Ltd., obtaining gains of 410,000 euros. The company, which was
included in Telefonica Group's consolidated financial statements under the
global integration method, is now included under the equity method.

Grupo Atento

In May, Atento Holding Inc. executed capital increases, in the overall amount of
39.69 million euros, in companies in which it already had an interest. The
percentage interest in these companies reached 100% in Central America, Puerto
Rico, Italy, Venezuela and Mexico, and 99.998% in Morocco. All these companies
continue to be included in Telefonica Group's consolidated financial statements
under the global integration method.





                      This information is provided by RNS
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