2nd Quarter Results - Part 2

Telefonica SA
3 September 2001

PART 2


BUSINESS PERFORMANCE BY GEOGRAPHIC REGION 

Spain 

The Spanish cellular market had around 26.6 million customers at the end of June
2001, equivalent to a 66.6% penetration rate for the total Spanish population, 
which reflects an increase of 2.8 p.p. in the second quarter of the year, 
similar to that of first quarter. As had been anticipated, on the basis of 
patterns seen throughout Europe, growth is gradually slowing down, although we 
could see some recovery at certain times of the year (e.g., summer and 
Christmas) in line with the seasonal fluctuations of the business. 

Telefonica Moviles Espana had 14,853,336 active customers at the end of June
2001 (219,530 of ETACS-MoviLine and 14,633,806 of GSM-MoviStar) with two thirds 
of the total accounting for prepaid. This subscriber base implies a 30% increase
on the previous year and an absolute increase 5% higher than the advance 
achieved in the first quarter of the year, so underscoring the success of the 
new growth model. 

Telefonica Moviles Espana's estimated share of declared customers at the end of 
June was 55.8%, a mere 0.1 p.p. lower than at the end of March and just 1.7 p.p.
below the level at the end of June 2000, which represents the lowest share 
market loss since the liberalization of the Spanish market. Telefonica Moviles 
Espana's estimated share of traffic stands at 61%, far above its customer market
share, due to the fact that it uses more conservative criteria to calculate the 
customer base than its competitors and its higher quality customers. These 
results have been obtained thanks to a more than 53% estimated share of net adds
in the second quarter, outstripping both first quarter 2001 and second quarter 
2000 levels even though the competitive environment has toughened since then. 

The Company continues to benefit from its customer loyalty programme, with a
sharp decline in the churn rate of around 45%. More important still is that
the economic churn rate, which measures the economic impact of the 
disconnections over sales, is approximately 30% less than the conventional churn
rate (measured by number of lines), as the average usage of Telefonica Moviles 
Espana's disconnections is far lower than that of its customers.
 
In addition, traffic totaled 6.52 billion airtime minutes in second quarter, an 
increase of 7% from first quarter (against only 4% growth in the customer base) 
and nearly 30% increase from the same period last year. 

At present, Telefonica Moviles Espana's customers use their mobile telephones 
for communication purposes 85 times a month (including conventional calls and 
SMS), compared with less than 80 times a month in the first half of last year. 
This improvement, which underscores the real growth potential for the use of 
mobile telephony in Spain, was made possible by the concurrence of the following
factors: 

* The significant increase in SMS, which allows the Company to introduce        
  customers to the use of basic data transmission services in a natural way and
  registered year-over-year growth rates of 200%. Data services now account for
  nearly 12.5% of customer revenue, virtually double the figure in first half
  2000. 

* Stabilisation in the number of billable minutes per client (MOU), derived from
  the more stable communication patterns of increasingly mature users, despite 
  the 30% increase in the customer base, have caused the annual trend of decline
  in this measure to slow steadily. As a result of these, the MOU in first half 
  2001 was a mere 2.5% lower than in the second half of 2000, in spite of the 
  increase in the number of short messages.

As a result, average revenues per user (ARPU) in the second quarter 2001 were
down just 12% on the same period of last year, marking the lowest annual decline
to date and in line with the upbeat prospects for this indicator in the medium 
term. This ARPU performance looks more impressive still, when we consider that 
it was coincident with two sharp reductions in call termination rates. 

Regarding the launch of new services this quarter, it should be noted the roll-
out of new GPRS services like MoviStar Intranet GPRS and Correo Movil GPRS, 
which are destined to become essential services for business users in the coming
months, further strengthening the popularity of this technology. 

Other increasingly important factors are efficiency levels, the achievement of 
economies of scale and tight cost control policies - all particularly important 
in the light of the Spanish macroeconomic and regulatory environment of the last
few months. The near 40% decline in SAC in comparison with the first half of 
2000 leads to a considerable improvement in operating margins. Likewise, 
productivity ratios shows improvements, reaching more than 3,500 connections per
employee, one of the highest among European operator. 

In all, Telefonica Moviles Espana's financial results continue to show solid
growth, reflecting the Company's competitive position and ability to foresee
shifts and trends in the market.

* Operating revenues in the first half of 2001 were 2.67 billion Euros, an
  increase of 20% on the same period in 2000. Operating revenues in the second
  quarter of 2001 (1.37 billion Euros) were 5.5% higher than in the first
  quarter of 2001, in line with the seasonal nature of the business. It should
  be noted that the sums accrued by contract clients as 'points' under the
  loyalty programmes are deducted from revenues, and that the fact the Company
  has stepped up its efforts in this respect in recent months, has had an
  effect on growth rates. In fact, stripping out the impact of these programmes,
  revenues would have been 24% higher than in the previous year. In addition, 
  the reductions to call termination rates introduced this year (17%) should 
  also be noted, as these have had a negative impact on revenue growth. 

* EBITDA reached 1.24 billion Euros, 52.9% higher than in the first half of
  2000. This growth far outstripped growth in both revenues and customer 
  numbers, thanks to the improved operating efficiency of Telefonica Moviles
  Espana, and the sharp decrease in SAC, as shown by the comparison of growth
  between first quarter and second quarter (13.4% increase in EBITDA compared
  with 5.6% rise in revenues). To properly compare EBITDA growth with the
  previous year, as we pointed out last quarter, it is important to consider
  the accounting criteria generally used by the Company, whereby the costs of
  launching new technologies are capitalized until their commercial launch,
  since they are considered start-up costs. This policy affects the costs of
  developing UMTS technology, including the fee for use of the spectrum assigned
  to Telefonica Moviles Espana for the future operation of this technology, as 
  it has since the Company obtained the license in April 2000. Of the total     
  117.4 million Euros of fees accrued in 2001, 81.5 million Euros corresponding 
  to UMTS licenses have been capitalized. 

Rest of Europe 

The second quarter saw a number of significant events that helped the Company
advance towards its goal of bringing forward the commercial launch of operations
in Germany, Italy, Austria and Switzerland through the launch of services using 
GSM/GPRS technology, which will enable it to sign up customers in these markets 
prior to the launch of UMTS services.
 
On April 27, the Company concluded a roaming agreement with E-Plus in Germany
that will allow GSM/GPRS services to be launched in the next few months.
Negotiations for similar roaming agreements with operators in the other 
countries are being carried out. 

In Italy, an interconnection agreement with Telecom Italia was reached in June 
and the initial interconnection tests have been completed successfully.
Subsequent to the end of the first half, on 17 July, an interconnection 
agreement was reached in Germany with Deutsche Telecom. At the same time, 
negotiations for interconnection agreements in Austria and Switzerland are in
the advanced stages and should result in similar agreements in the short term. 

Also, the Company has already contracted the GSM/GPRS network switching 
equipment, as well as the most important service platforms, with installation
set to begin towards the end of July. 

Meanwhile, the management teams of the German and Italian operators are now
complete at top level, and will very soon be in Austria and Switzerland, where
the CEOs have already been appointed. Currently, more than 600 people are
working directly on launching these companies in Germany, Austria, Italy and
Switzerland. 

At the same time, Telefonica Moviles has made significant progress towards
setting up a common operational framework that allows synergies in Europe to
be maximised. These include reducing installation time in the areas of operating
systems, platforms and service portfolios. 

Additionally, on 5 June the German regulator (RegTP) announced a proposal for
a new UMTS infrastructure sharing rule that includes virtually all the points
Group 3G had submitted previously. Specifically, the rule includes the
possibility of two or more operators sharing network sites and radio equipment 
and network roll-out via agreements for area sharing. Negotiations are currently
underway with other mobile operators to reach deals of this type, in Germany and
elsewhere. This would significantly decrease the level of capex estimated 
initially and the operating expenses associated with the networks, which 
explains the delay in the supply and financing contracts with suppliers needed 
to adapt them to the new scenario. 

Morocco 

Medi Telecom closed June 2001 with 754,821 customers, more than triple the 
prior-year figure, and has achieved a market share of 32.6% in its first 15
months of operations. Growth in the second quarter was particularly strong, with
nearly triple the level of net adds in first quarter of 2001, reflecting the 
success of advertising campaigns designed to boost prepaid recharges.

Financially, the company became EBITDA positive for the first time since the
launch of operations in the month of June, setting it well on track to achieving
its goal of EBITDA breakeven by the end of 2001. 

Latin America 

The performance of Telefonica Moviles' subsidiaries in Latin America in the
first half of 2001 has been characterised by the continued growth of the prepaid
segment, which still leads the increases in operators' customer bases and allows
for a reduction of bad debt risk and subscriber acquisition costs. At the end of
June, the prepaid segment represented 68% of the customer base managed by 
Telefonica Moviles in the region which, excluding customers in Mexico, reached 
9.9 million subscribers. Taking into account the Mexican operators in the north 
of Mexico, total customers under management in the region (including Mexico) 
reached 10.9 million.

The efforts made in the area of customer loyalty through various initiatives
aimed at both the prepaid and the contract segments should also be highlighted. 
These are showing positive results, with the year-over-year churn rate down for 
the majority of operators.
 
It is worth noting the positive financial performance of the main operators in 
their local currencies, which show an improvement in the profitability of 
operations. This positive margin performance is the result of cost control 
efforts made by all the operators. Of note on the marketing front is the
continued across-the-board trend towards lower SACs, which, as a result of
operators' policies to improve customer profitability, has shown an average
14% decrease in euro terms. 

Brazil 

At the end of the first half of 2001, the Brazilian operators managed by
Telefonica Moviles - TeleSudeste Celular, Celular CRT and TeleLeste Celular - 
had roughly 5.1 million customers, having achieved more than 1.1 million net 
adds over the last twelve months. This growth has largely been driven by the 
prepaid segment which, as of June 2001, represented 63% of the Brazilian 
customer base. 

The management of the three Brazilian operators in the first six months of the 
year has focused on the application of a selective and profitable growth
model. As a result, although the total volume of gross additions continues to
rise, the current exchange rate climate has prompted operators to focus their
efforts on customer retention. This commercial strategy has enabled the three
Brazilian operators to maintain their leads, in spite of growing competitive
pressures, in their respective markets, with average market shares of 65%
and, in the case of Celular CRT, 71%.
 
The measures adopted to increase the retention rates for higher-value customer 
contributed to an improvement in the chum rates of the contract segment which, 
on average, dropped 0.6 p.p. between January and June.
 
The changes in the pattern of customer usage should also be stressed. Although 
in year-over-year terms this has logically dropped with the addition of new 
subscribers with a lower MOUs, in the contract segment the MOU has stabilised 
compared to previous months. 

Operating revenues for Telefonica Moviles subsidiaries consolidated by the
global integration method in Brazil (i.e., TeleSudeste Celular and Celular CRT) 
showed an 11.4% growth in local currency terms over the same period last year. 
This performance is explained by the increase in the customer base, which was 
partially offset by the lower ARPUs. 

The operators' margins showed an excellent performance with respect to the first
half of 2000, with a 41.7% margin as a whole (compared to 36.1% in 2000), This 
performance can be attributed to positive results from cost control policies and
to the constant improvements in productivity, which allow for EBITDA growth in 
local currency terms of 29%, or 17.4 p.p. higher than the growth in revenues. 

In euro terms, this growth slowed by the depreciation of the real against the
euro over the last 12 months. 

Argentina 

TCP at the end of June 2001 had 1.86 million customers, representing year-over-
year growth of 35.6%, narrowing the gap with its main competitor. In the last 
twelve months, it has seen a growth of 488,000 customers, representing 25% of 
the total net additions in the Argentinean market. 

This growth has been achieved thanks to the prepaid segment. In one year it has 
almost doubled its weighting within the total customer base (reaching 64% in 
June 2001), thereby reducing bad debt risk. 

Over the last quarter the Company continued to develop measures to cut SACs, the
most important of which entailed a reduction in handset subsidies, lower 
commissions to distributors and fewer traffic promotions, in line with the
policy of selective growth the company is pursuing in the new operating context.

TCP'S operating revenues for the first half of 2001 (i.e., from October 2000 to 
March 2001) came to 388.1 million Euros, an increase of 5% year-over-year. This 
performance can be attributed to the moderate growth in additions and to lower 
ARFUs despite the increased volume of minutes derived from the growth in the 
customer base. 

For the six months ending 31 March 2001, EBITDA reached 38.9 million Euros, or 
2.5% of Telefonica Moviles consolidated EBITDA. It should be noted the positive 
performance of EBITDA margin with respect to previous months, reflecting the 
cost control policies being implemented, focused principally on the following: 
lowering SAC's, reducing spending on advertising, strict restrictions on network
costs and general expenses, corporate reorganization - which has included 
transferring customer care service activities to Atento - as well as adjusting 
capex in line with levels of demand. 

All this reflects a clear improvement in operations in recent months, as is
shown in the increase in EBITDA margin, which in the second quarter of 2001
(which ended in March) reached 10.5%, an increase of 1 percentage point from the
previous quarter. This improving trend in the company's margins has persisted 
through June.

Peru 

Telefonica Moviles SAC ended the month of June with 973,065 customers, 
maintaining its leadership, with an estimated market share of 66%. It should be 
pointed out that despite the increase in the number of competitors since the 
start of the year, in the second quarter Telefonica Moviles SAC increased its 
share of net adds by 14 p.p. from the first quarter. 

On the commercial front, in the last three months the company broadened the
data service and the Red Privada Movistar (Movistar Private Network) offer aimed
at the corporate segment. These initiatives are already proving to be 
successful, with a 23% rise in the corporate customer base in the second quarter
of the year. 

Telefonica Moviles SAC also continued with its loyalty programmes, encouraging 
calls between mobile phones using its network and offering lower tariffs which 
allowed it to reduce the contract-client chum rate by 65% compared with the 
first six months of 2000. 

In the first half of 2001, Telefonica Moviles SAC obtained revenues of 142.6
million Euros, up 16% on the same period last year. This rise is explained by
the increase in the customers base, which was partially offset by lower ARPUs
derived from the increase in the number of prepaid customer (79% vs. 73% in
June 2000). 

The EBITDA margin improved significantly in the second quarter of the year over 
the first, rising by 7 p.p. to 34%, giving an accumulated figure of 31%. In 
absolute terms, EBITDA reached similar figures to June 2000, marking a turning 
point in the downward trend followed in the first quarter of the year. This was 
largely due to the slowdown in the growth of operating costs, especially in 
commercial areas, the year-over-year decline in per unit SACs and the reduction 
of interconnection expenses after new termination rates for fixed-mobile calls 
were set in March 2001. 

Chile 

At the end of June 2001, Telefonica Movil, the subsidiary of Telefonica CTC
Chile managed by Telefonica Moviles, had 1.4 million clients, 15.6% more than at
the same period of last year. The pace of growth of new subscribers is clearly 
improving, despite the decline in SAC, with net adds exceeding 120,000 in the 
second quarter (+70% from first quarter 2001). We would point out the 
increasingly narrow gap in customer numbers between the operator and its main 
competitor, which in second quarter 2001 decreased by more than 46% compared to 
first quarter 2001. 

Meanwhile, Telefonica Moviles is bidding for new 1900 MHZ mobile licenses, with 
awarding process expected to be announced in the coming months. 

Mexico 

During the second quarter of 2001, the management of Bajacel, Movitel, Norcel
and Cedetel has focused on customer loyalty initiatives, which have lowered the 
chum rate by 3 p.p. in the last few months. These operators had a customer base 
of 1,060,159 customers at the end of June. In spite of the stepped-up activity 
of new entrants, since Telefonica Moviles began managing these companies there 
has been a reversal in the trend of diminishing customer numbers, with positive 
net adds in all customer segments. 

On the commercial front several initiatives have been carried out to improve the
distribution network. In this regard, it should be noted the development of the 
consumer sales channel, which has entailed reaching commercial agreements with 
new distributors and large department stores and the start-up of nearly 600 new 
points of sale. The weighting of this channel in total gross adds has already 
reached 15% in only four months. Other improvements included the training of 
sales forces for the companies segment and the design of a plan for the scope of
the distribution network. 

In line with Telefonica Moviles' business model for operators, it is planned to 
set up a new logistics framework, outsourcing this activity and continuing to 
select specialist distributors, as well as developing new systems for the
settlement of commissions. 

Guatemala and El Salvador 

At the end of the first half of 2001, the customer base of Telefonica Moviles' 
subsidiaries in Guatemala and El Salvador totalled 393,343, 33.2% more than at 
the end of June 2000. Their combined market share remained stable throughout the
year despite on competition, especially in Guatemala with the recent entry of a 
fourth operator.
 
HORIZONTAL BUSINESSES 

At the end of June 2001, Terra Mobile had nearly five million registered users, 
with a 64% growth from December 2000. 

Geographically, the growth in registered users in Germany and the UK was 15% and
21% respectively on the first quarter 2001. At present, Germany accounts for 25%
of total registered users and will be a key market for the roll-out of our GPRS 
operations. 

Quarterly growth in Spain was also strong with more than half a million 
registered users at the end of June 2000 (+35% with respect to March 2001).

Turning to Mobipay, on May 30, Telefonica Moviles, BBVA, Airtel and BSCH signed 
an agreement to integrate all their mobile telephony payments systems projects. 
Other financial entities, mobile operators and payment methods processing 
companies have joined the project or have stated their intention of doing so, 
including Amena, CajaMadrid, Banco Popular, Banesto, Banco Sabadell and Xfera 
and the processors Red 6000, SERMEPA and 4B. 

DATA BUSINESS 

TELEFONICA DATA GROUP 

In line with our strategy for expansion and consolidation in Latin America and 
Europe, during the second qnarter we have come close to completing all the 
necessary steps for the integration of our affiliates in Latin America and
Germany into Telefonica Data. 

As a consequence, Telefonica Data now has a local Latin American presence in
Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela, and
local European presence in Spain, Germany, Austria and Italy. To these regions, 
we can add Puerto Rico and Miami, where a Telefonica Internet Data Center is 
currently located, with a total surface area of more than 16,000 m2 at the end 
of June.
 
Furthermore, the last weeks have seen the advancement of the geographic roll-
out, with the start-up of operations in the United Kingdom through the company 
mediaWays UK. Thus, at the end of June, Telefonica Data Group is present in 14 
countries. 

This increased geographical coverage allows Telefonica Data to increase its
international network and incorporate services to benefit both local and 
regional clients. 

As a provider of global telecommunications services for businesses,
Telefonica Data has an extensive portfolio of services including data and
Internet service, telephony, advanced integrated client solutions and all of
our new hosting services. 

From a commercial standpoint, it is worth mentioning the new agreements signed 
in this quarter with Sol Melia and Fiat Auto Espana. In the former, Telefonica 
Data signed a collaboration agreement that includes, among other points, the 
deployment of a network linking the 350 hotels of the company, located in 30 
countries, as well as the company's corporate headquarters. This will improve 
internal communications, the generation of important efficiencies and cost 
savings, and will facilitate, in the medium term, direct access to Internet from
all the establishments of the hotel chain. The second agreement involves the 
creation of a data communications network linking more than 100 concessionaires 
of the company in Spain, This network, based on the interLAN service of 
Telefonica Data, will allow for the total integration of geographically 
dispersed equipment and offices, ensure communications between concessionaires 
and between the latter and Fiat Auto Espana.

Also noteworthy is the strategic alliance signed in Brazil with Banco Itau,
strategic leader in the main States of Brazil, with a broad coverage national
network. This alliance will allow the provision of quality, value-added services
to the bank, based on the management of its corporate telecommunications 
network, which, as of the beginning of 2002, consists of 3,000 agencies and 
customer service points, and 12,000 electronic ATMs. More than 2 million 
customers daily use one of the remote channels of the bank. 

Furthermore, in the second quarter of the year, progress was made in the
provision of Hosting, Housing and other services to ASPs (Application Services 
Providers). In addition to the Telefonica Internet Centers (TICs) already 
existing in Miami, Lima, Sao Paulo, Buenos Aires and Madrid, new additions are 
the TIC of Santiago de Chile and, in Europe, new facilities in Germany, Italy 
and Austria, which allow offering value added services directly in 9 countries. 
At the end of June 2001 there were 9 centers with 25,594 square meters 
available. 

From an operational viewpoint, the total number of connections of the Group
reached, at the end of June 2001, 525,936 ports, with continued migration from 
traditional technologies to IP technologies, which today represent 71% of the 
connections. Of these ports, 76% are deployed in Europe (including Spain), and 
the remaining 24% in America. The number of POPs reached 1,239, of which 64% are
in Europe and 36% in America.

From an economic-financial viewpoint, Telefonica Data Group's revenues reached 
922.6 million Euros in the first semester of 2001, with an increase of 75.6% 
over the first half of 2000. 

Revenue growth was significantly boosted by Telefonica Data Spain, which reached
358.6 million Euros at the end of June, up 19.3% from the first semester of 
2000, accounting for 38% Telefonica Data Group's income.

As for the Americas, segregated affiliates revenues (Argentina, Brazil and Peru)
totaled 171.4 million Euros, reflecting an increase of 46.5% versus the same 
period of the prior year. The total contribution of these affiliates to the 
Americas reached 82%, Argentina having the highest contribution (41%) and Brazil
having the highest growth versus the first half of 2000 (95%). Revenue for the 
start-ups in America (Mexico, the USA and Uruguay) grew at a solid rate, 
leveraged on the global customer base of the Group. 

The income of the first semester of 2001 in Europe (excluding Telefonica Data
Espana) reached 357.6 million Euros. These numbers are the best evidence of the 
strategic importance of the Telefonica Data Group's presence in Europe. Of all 
the companies, the highest revenue contribution comes from mediaWays (65% of the
total revenues for Europe), which had the highest revenue growth versus the same
period of the previous year (103%). MediaWays is established in the market as 
Germany's number two IP network, with a market share of 30% in Internet 
services. On the other hand, the operations of Atlanet in Italy have generated 
16% of revenues coming from Europe, totaling 56.4 million Euros. 

With respect to EBITDA, the consolidated results of the first semester of 2001 
reached 22.2 million Euros, equivalent to 2.4% of the Total revenues of the 
Telefonica Data Group, as opposed to 53.9 million Euros in the first half of 
2000. Said variation was mainly the consequence of the following factors: 

* The incorporation of certain companies in Europe, which are still in their
  first stages of activity, as is the case of Atlanet in Italy which, along
  with ETI in Austria, generated this semester a negative EBITDA of 25.5
  million Euros; and, in the Americas, due to expenses from the launch of the
  Uruguayan affiliates, Mexico, and the USA (Miami), which generated altogether
  a negative EBITDA of 14.2 million Euros in 1H00. 

* The results of Telefonica Datacorp reflect the restructuring of its Service
  Business and International Services units (TDSI), The latter, created in the
  beginning of 2001, has made a concerted effort for the establishment of the
  International Network and the leasing of the necessary circuits. In this
  context, TDSI has generated a negative EBITDA of 15.5 million Euros. Given
  this circumstance, TDSI is in the process of rationalizing its assets and
  commitments with third parties that will allow the optimization of the
  international network, assuring a critical mass of customers and achieving
  economies of scale to improve this operating indicator. 

* It should be noted that Telefonica Data Spain reached EBITDA of 66.5 million 
  Euros, with a 19% EBITDA margin. 

Nevertheless, these results cannot be extrapolated to the rest of the fiscal
year, since a continuous improvement in revenue growth is expected. Concerning 
costs, it must be noted that the Group has started a general cost and investment
rationalization plan, which will bring substantial improvements in operating 
income in the coming quarters.


MEDIA BUSINESS 

TELEFONICA MEDIA GROUP 

Telefonica Media Group reached an EBITDA of 69.2 million Euros in the first half
of the year, compared to the negative EBITDA of 9.7 million Euros in the same 
period of the previous fiscal year (the second quarter of the fiscal year is the
third consecutive quarter in which Telefonica Media obtained positive EBITDA, 
reaching 58.7 million Euros, as compared to a similarly positive balance of 10.5
million Euros in the first quarter of this year). This trend is especially 
remarkable considering the complicated economic situation in Latin America and 
the crisis in the Spanish advertising market. These results enable the Company 
to advance in its goal of anticipating its EBITDA break-even level and achieving
self-financing of the Group's operations. 

It is also necessary to emphasize that, for the first time since the formation 
of Telefonica Media as a Group, operating income is positive at the end of the 
semester, with a profit of 29.6 million Euros, as opposed to losses of 27.8 
million Euros in the first semester of 2000. 

Analysis of the first semester results of the Telefonica Media Group reflects
strong growth during fiscal 2000, due to a significant change in its sphere
of consolidation. An important factor of this change was the addition of ATCO, 
in which stake was increased throughout the fiscal year from 26.8% to 100%, 
consolidated by the global integration method since May 2000, (i.e. the last two
months of operations were incorporated in the numbers of the last fiscal year), 
as well as the addition of Endemol, which has been consolidated by the global 
integration method since August 2000, and which therefore, did not appear in the
financial statements published in the first semester of the previous fiscal 
year.
 
The addition of these two companies has caused very important changes in the
Telefonica Media Group, in terms of both in revenues and EBITDA. 


FREE-TO-AIR TELEVISION AND RADIO BUSINESS 

ANTENA 3 

The television advertising market has continued the negative trend started 
during the first quarter of the fiscal year, when it showed a decrease of 6.3% 
with respect to the same quarter of the previous fiscal year; an increase in 
advertising time and an aggressive price strategy to increase market share, 
adopted by RTVE, should be noted. In this context, advertising revenues for the 
channel reached 287.3 million Euros, down 8.5% versus the end of the first 
semester 2000. Nevertheless, the channel continues maintaining the best ratio 
between advertising market share and audience rate, reaching at the end of the 
first semester a ratio of 1.34 as opposed to 1.28 in the same period of the
previous fiscal year. 

Finally, EBITDA in the first semester rose to 78.5 million Euros, 28.7% less
than in the same period of the previous fiscal year, reflecting the unfavorable 
conditions of the advertising market explained above.


ATCO 

The current macroeconomic uncertainty in Argentina has caused a deterioration in
the Argentine advertising market during the second quarter of the fiscal year, 
due to the change in consumer expectations and a reduction in corporate 
confidence. 

In spite of this situation, Telefe continues being the leading channel in the
Argentine market and the second largest channel in Latin America in terms of
audience share, with an average share of 39.4%, up 1.5 percent to its audience 
in the same period of the previous fiscal year.

Nevertheless, in spite of the positive market share performance of the channel, 
the prolongation of the macroeconomic uncertainties in the region has caused a 
drop in revenue, in comparison to the same period of the previous fiscal year 
(18.6%). This has been more than compensated by the reduction in operating 
expenses (20.8%). This reduction in expenses, which has occurred since the 
company was managed by Telefonica Media and new management control systems were 
implemented, contributed to slightly positive EBITDA in the semester (205,151 
Euros), compared to negative 3.2 million Euros recorded in the same period of 
fiscal 2000. 


ONDA CERO RADIO 

Similar to Antena 3, Onda Cero has been affected by the slowdown in the
advertising market arising from the symptoms of economic deceleration, as well 
as by the change in the commercial policy of RTVE, which is much more aggressive
in prices and has more dedicated advertising time. This has caused many 
advertisers to switch media (from radio to TV). 

However, Onda Ceio is presently the number two national radio station in the
broadcast market, according to the second results of the General Media Survey. 
This report shows an increase of 50% in the number of listeners, compared to the
same period of the previous fiscal year, reaching 2,512,000 listeners. 

In line with this audience share improvement, Onda Cero revenues at the end of 
the first semester grew 34% with respect to June of 2000. Although not 
translated into an improvement in EBITDA in the first semester of the fiscal
year, (negative 3.8 million Euros, compared to negative 3.7 million Euros in the
same period of the previous fiscal year) it does signal the strong probability 
of achieving positive EBITDA numbers at the end of the year. 


CONTENT BUSINESS 

ENDEMOL 
 
During this first semester of the fiscal year, Endemol's global leadership in
entertainment content creation has allowed it to reach 450.3 million Euros in
revenue, up 73.4% with respect to the same period of the previous fiscal year. 
This behavior can be considered very positive, if we take into account the 
reduction of the advertising market in Europe and the remaining countries where 
the production companies of Grupo Endemol operate. 

As a result of the positive revenue evolution, accumulated EBITDA for the first 
semester reached 91.0 million Euros, up 108.0% with respect to the same period 
of the previous fiscal year, surpassing the company's expectations at the 
beginning of the fiscal year. 

These results reflect the success of the integration of Endemol with Telefonica 
Media, as well as the optimization of the enormous creative and entrepreneurial 
potential of this company. 

Finally during this quarter, Endemol's M&A activity continued with the
acquisitions of the British company Brighter Pictures Ltd. and the Fuchsia
company. These companies, along with the purchase of the remaining 50% of ASP
Endemol in France (which will change its name to Endemol Entertainment France) 
during the first quarter of the fiscal year, are incorporated into the financial
statements of the Group by the global integration method. 

Lately, Endemol has reached an agreement with TV Globo, the undisputable leader 
of Brazilian broadcasting market, to create a joint-venture to commercialize all
Endemol formats in Brazil and to develop new initiatives in this market. 


PAY TELEVISION AND DISTRIBUTION BUSINESSES 

VIA DIGITAL 

The pay television market continues being characterized by an aggressive 
competitive environment of promotions to increase subscriptions, a situation
further aggravated by card piracy, the aggressiveness of new entrants, increased
activity from cable companies, and competitors' promotional strategies. 

In this highly competitive environment, Via Digital has practically covered its 
new subscription targets for the first semester of the fiscal year, reaching 
710,229 subscribers (159,699 subscribers more than in the first semester of 
2000), a growth of 29% year-on-year.

In financing terms, operating revenues grew 37% versus the first semester of the
previous year, reaching 132.1 million Euros. On the other hand, costs have 
increased at a lower rate (7.6%), which led to 10% higher EBITDA than in the 
same period of 2000 (-145.7 million Euros, as opposed to -161,9 million Euros). 


INTERNET BUSINESS 

TERRA-LYCOS GROUP 

Total revenues for Terra-Lycos during the quarter reached 179.4 million Euros, 
6% higher than the upper revenues range expected for the period. On the other 
hand, EBITDA margin was -36%, in line with the best case scenarios projected for
the period.

From an operating viewpoint, positive trends with respect to subscribers and
audience share continue. Thus, the total number of subscribers for Spain and
Latin America reached 4.3 million. 

During the quarter, following Terra-Lycos' strategy to focus on the pay access 
business, the company terminated the free access service in Brazil after 
completing the migration of customers to the paid product. Altogether, Terra-
Lycos customers have decreased by 470,000 due to the cancellation of the free 
service, which explains the reduction of the total number of subscribers with 
respect to the previous quarter. 

Nevertheless, following the strategy of focusing on pay products through the
supply of differentiated, quality service, Terra-Lycos has obtained during this 
quarter a historical record in new pay customers. Thus, during the quarter, 
190,000 new pay subscribers have been obtained, which brings to 30% the total 
portfolio of subscribers in this category. 

Particularly remarkable is the increase experienced in broadband customers
through ADSL, a highly strategic development for the Telefonica Group, As of
June, Terra-Lycos had 133,000 subscribers, an increase of 123% in only one
quarter. 

As far as the audience of the Group's portals is concerned, daily page views
during the month of June reached 460 million, an increase of 6.7% versus March.
 
The number of unique users reached 103 million in June, 4% more than in the
previous quarter and 37.3% in annual terms. 

Concerning the pro-forma financial results of the second quarter, Terra-Lycos
achieved total revenue of 179.4 million Euros, 34% more than in the same quarter
of the previous year. If we compare the six first months of this year to the 
same period of the previous year, the growth is 46%. Thus, the geographic and 
business diversification of Terra-Lycos's revenue source serves to mitigate the 
effects of macroeconomic circumstances, such as the slowdown of the economy in 
the U.S. which impacts online advertising. 

In terms of revenue by business line, 38%, i.e. 69.0 million Euros, come from
the access business, the highest figure in Terra's history. 

On the other hand, revenues from the media business, which includes both
advertising and electronic commerce, reached 110.7 million Euros, accounting for
62% of total revenue in the second quarter. It is necessary to emphasize that 
this gross sales figure continues showing a maintained growth, both during the 
quarter, 4%, and in the accumulated figures of the year, 21%, over the same 
period in the previous fiscal year. 

In turn, Terra-Lycos continues improving operational profitability, although it 
is still negative, as expected from an emerging business in full growth phase. 
Thus, EBITDA margin in the second quarter of the year was -36%. 

The improving profitability trend for Terra-Lycos began in the third quarter of 
the previous year, with an improvement of 35 percentage points in EBITDA margin,
million Euros).

Terra-Lycos has continued developing products and services, and benefiting from 
its global presence. In this sense, it is important to emphasize the agreements 
reached with Unliver and eBay, achieved due to multicountry presence of the 
Company and distribution capacity to an audience of nearly 100 million internet 
users.
 
At the same time, Terra Lycos continues focusing on vertical content for its
portals, where it is improving its offer. From employment search portals like
Bumeran, which was just launched in Mexico, or Lycos Carreer in the U.S., which 
has increased its audience 200%; to financial portals such as Quote.com in the 
U.S., which started offering Quote.com TV, a service equivalent to a financial 
television channel. This type of vertical integration, such as in the case of 
Lycos Zone, a children's site, has allowed Terra Lycos to get customers like 
Danone for the marketing of its products to children. 

Among newly launched services, we can highlight Lycos 411, which is a pay 
Internet-access service through a telephone operator. In Mexico, E-line has been
launched, a pay service that permits customers to receive incoming telephone 
calls while they are connected to the Internet. 


DIRECTORIES BUSINESS 

TELEFONICA'S DIRECTORIES BUSINESS 

As we indicated in the previous quarter, the results published under the heading
'Directories Business' include not only all the companies consolidated within 
TPI, but also those currently in the process of integration, such as Telinver in
Argentina, and Guitel in Peru. 

From a financial perspective, consolidated revenue for the directories business 
grew 9.0% versus the same period of fiscal 2000. This growth reflects the 
positive revenues from TPI Spain which grew 5% compared to the first semester of
the previous year, in spite of the fact that no revenues from the sale of White 
Pages were obtained. In the first semester of 2000, this income totaled 16.5 
million Euros, and represented 15.3% of the total income obtained by TPI Spain 
in the first half of 2000. Without taking this effect into consideration, TPI 
Spain's revenue would have increased 24%, and EBITDA would have increased 73%. 

With regard to the publishing business, in these first six months of 2001 a
total of 25 Yellow Pages directories have been published, two more than in the 
same period of the previous year. On a book-to-book basis, revenue increased 
7.6% with respect to the previous edition. Concerning the White Pages, a total 
of 17 directories have been published, 7 more than in the same period of the 
previous year with a 7.2% growth in revenues.

The most substantial growth took place in Internet, with revenue growth of 
135.6% and total customers reaching 145,000 in the period. 

In the Latin American directories business, the most notable highlight is the
publication of the first edition of GuiaMais in Sao Paulo, which contributes as 
of June around 21 million Euros in income. This has amply compensated the lower 
contribution of Publiguias to the income of the Group (-14.2%) basically due to 
the depreciation of the Chilean peso with respect to the Euro. In Chile, it is 
also necessary to emphasize that, during the first semester, the negotiation of 
the new contractual framework between Publiguias and Telefonica CTC has been 
concluded; this framework will prevail during the next five years, and its 
immediate effect is a substantial improvement in the operating margin of 
Publiguias, whose EBITDA margin rose from 7% to an expected 25-30% by the end of
2001. 

Nevertheless, the positive trend in consolidated revenue has not been reflected 
in the Group's EBITDA for two main reasons: the failure to obtain net income 
from White Pages advertising sales, which were booked directly in EBITDA since 
there were practically no associated expenses, and; higher expenses derived from
the start-up of commercial activity in Sao Paulo with the launching of GuiaMais.
Isolating these two effects, the EBITDA of the Group would have increased by 
more than 35%. 

On the other hand, it is necessary to emphasize that the higher level of
financial expenses is affected by debt incurred from the financing of the 
purchase of 51% of Publiguias from Telefonica International, and the beginning 
of the operations in Brazil. 

During the first half of the present fiscal year, Spain represents 56% of the
income of the directories business of Telefonica SA. 


CALL CENTER BUSINESS  

ATENTO

During the second quarter of 2001, commercial activity for the Atento Group has 
continued to focus on developing future relations with foreign markets, and 
improving strategic relations with the companies of the Telefonica Group to 
create and implement cost reductions and productivity, as was the case with the 
automation of certain services at Telesp. 

From a financial viewpoint, Atento Group's revenue reached 317.0 million Euros, 
62.6% more than as of June of 2000, with the local market accounting for 68% of 
total revenue, 2 p.p. less than in the previous quarter. This percentage 
reduction is due to the new agreements with external companies in newly added 
markets such as Argentina, Japan, Mexico and Venezuela, and to global contracts 
signed with customers such as BBVA, Cigna, and Warrantech. 

Furthermore, it is worth highlighting our continued geographic diversification, 
as those countries with greater participation (Spain, Brazil, Chile) have 
reduced their weighting. Peru maintains its participation, and an increased 
weighting was registered for Puerto Rico, Morocco, Central America, Colombia, 
Argentina, Italy, Japan, Mexico and Venezuela. 

As a result of the revenue performance, the Group's EBITDA was 25.6 million
Euros, up 39.5% versus the same period of the previous year, with an
improvement in EBITDA margin in the second quarter versus the first of more than
one percentage point (8.7% versus 7.4%). 

Profitability improvement resulted from the continuous consolidation of the
business, (following an initial 'start-up' stage), as well as a strategy 
centered on greater operating efficiency, generation of value added long term
contracts with strategic customers, and strict control of expenses and
investments. 

For the second half of 2001, it is anticipated that margins will continue
improving, thanks to the higher contributions coming from new markets
(especially Japan, Argentina and Venezuela), strong cost control initiatives,
rationalizing investments and the implementation of new services, currently in 
the process of negotiation. 

With regard to operating performance, as of June 30, Atento had 28,628 
positions, 2,288 more than in March of the current fiscal year, filled by
47,069 persons. This represents a quarterly growth of 10.7%, driven by activity 
in new markets such as Venezuela, Japan, Mexico, as well as the capacity 
increase in Peru and Morocco. 

Finally, Atento continues its international expansion, having inaugurated its
service center in Monterrey, Mexico, a country in which it was already 
operating. The center required an investment of 5.6 million Euros, and currently
has more than 600 customer service positions. Atento Mexico plans to open by the
end of year a new customer service center in Mexico City, as a second phase of 
its expansion in the country. At the moment it is already present in 15 
countries in four continents. 


BROADBAND CAPACITY MANAGEMENT BUSINESS 

EMERGIA 

Emergia has been positioned as the only operator in Latin America with a 100%
operational high capacity closed broadband loop. Besides having its own
infrastructure, Emergia has expanded its network and route availability to the 
United States and Europe through the purchase and sale of capacity in the  
amount of 66.9 million Euros. Thus, Emergia is prepared to offer better service 
to its global customers and optimize the international management of the Group's
broadband capacity. 

It is noteworthy that the agreements reached were made with operators already
present in Latin America, which is why the number of competitors in the region 
did not increase. During the period, 27 STM-1s equivalent have been activated 
(4,185 Mbps), 16 in Emergia's loop and 11 in third-party networks acquired by 
interchange of capacity. 

Finally, it is necessary to clarify that the work related to the Project Brazil 
2002 has begun, in line with the strategic target to obtain greater terrestrial 
capillarity using Emergia's capacity as exchange currency to minimize 
investment. The objective is to interconnect more than 50 cities in one of the 
markets with the greatest potential in the region, enhancing the possibility of 
obtaining synergies among the various companies of the Group involved in the 
project.



FOR ADDITIONAL INFORMATION CONTACT: 

Investor Relations Department 
Gran Via 28, 3rd floor, 28013 Madrid. 
Tel: [phone]. 
Fax; 91-531 99 75. 
Email: [e-mail] 
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