2nd Quarter Results - Part 3

Telefonica SA
3 September 2001


PART 3

ADDENDUM


COMPANIES INCLUDED IN EACH FINANCIAL STATEMENT 

* 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 Telefonica Media, S.A. and Telefonica Data, 
S.A., respectively.
 
* Furthermore, Telefonica, S.A, has participated directly in CEI Citicorp
Holdings until May 2001, when it was contributed to Telefonica Latinoamerica.
For the purposes of this report, the 50% stake held by this company in
Cointel was consolidated within Telefonica Latinoamerica (Telefonica
Internacional, S.A), which, in turn, holds 52.88% of the capital of
Telefonica de Argentina (TASA). Also, CEI 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
Telefonica Media.
 
* With respect to the acquisitions made by Telefonica, S.A. in fiscal 2000 in
the share capital of Telefonica de Argentina, Telecomunicacoes de Sao Paulo,
S.A. (Telesp) and Telefonica del Peru, S.A., the contribution of these stakes
to Telefonica Latinoamerica, Telefonica Moviles, S.A. y Telefonica Data, S.A.
was assumed as of the beginning of the year, in the proportion in which each
of these, after the spin-off carried out, consolidate the business which the
Latin American companies carry out in fixed telephony, mobile telephony and
data transmission, respectively.
 
* In the case of Company de Telecomunicaciones de Chile, S.A. (CTC), in which
Telefonica Latinoamerica has a stake, although its process of separation has
not yet started, its data transmission activity has already been assigned to
Telefonica Data. On the other hand, Telefonica Latinoamerica does not include
the mobile telephony business, carried out by Telefonica Movil (Startel),
with pro-forma presentation of results exclusively for the fixed telephony
activity in Latin America.
 
* In relation to the businesses kept by TASA and Telefonica del Peru after
the aforementioned spin-off, consolidated within Telefonica Latinoamerica, it
is should be noted that that these companies still include the directories
activity, which has been added for the presentation of these pro-forma income
statements to the TPI Group, in light of the directories business of the
Telefonica Group.
 
In order to facilitate the follow-up of Telefonica Group, the proforma
financial statements of each activity line of Telefonica Group for each one
quarter of fiscal 2000 are presented in addendum. There are a series of
differences between the proforma results enclosed and those published in the
first quarter of the fiscal year, arising from the final definition on the
composition of the activity lines.
 
KEY HOLDINGS OF THE TELEFONICA GROUP AND ITS SUBSIDIARIES 

GRUPO TELEFONICA, S.A. HOLDINGS 

TELEFONICA, S.A. GROUP SHAREHOLDINGS
 
SIGNIFICANT EVENTS: 

* On August 9, Telefonica de Espana launched the U.S.A. 15 plan, allowing
customers to make telephone calls to the U.S. for 15 minutes daily for 15.0
Euros. 

* On August 3, Terra Lycos announced the acquisition of 49% of the capital of
Uno-e (the remaining 51% remains held by BBVA). 

* On July 26, Terra Lycos and IBM signed an agreement by which the latter
will become the preferred supplier of servers, corporate software and
services for the worldwide e-business infrastructure of Terra Lycos.
 
* That same day, the Board of Directors of Terra approved the appointment of
Angel Vila Boix and Luis Ramon Arrieta Durana, as directors of the company,
representing Telefonica and BBVA., replacing Fernando Abril-Martorell and Juan
de Asua, respectively.
 
* On July 17, 3G Group reached an interconnection agreement in UMTS networks
with the German operator Deutsche Telekom. Similarly, Ipse 2000 reached an
interconnection agreement with the fixed network of Telecom Italia. 

* On July 24, Telefonica Moviles and Nokia reached an agreement to develop
applications designed to provide value added services to the customers of
Telefonica Moviles. In the first stage, the services will use the
technologies currently available in the network of Telefonica Moviles, and in
the second stage, advanced services based on UMTS will be created.
 
* On July 10, Telefonica de Espana, TPI Paginas Amarillas, BBVA E-commerce,
Repsol YPF and Iberia announced the formation of Adquira, the largest Spanish
B2B platform through the Internet, which offers B2B solutions for the supply,
purchase and negotiation of goods and indirect services, particularly
computers, communications, office supplies, furniture, travel, financial and
insurance products, maintenance and repair, and cleaning services. The final
holding of each partner is as follows: 40% Telefonica Group (20% Telefonica
de Espana, 20% TPI Paginas Amarillas), 40% BBVA B-commerce, 10% Repsol YPF
and 10% Iberia. For the beginning of the activities, the partners have
decided to integrate Iniciativas de Mercado (IMI), a B2B platform targeted at
small and medium-size companies, developed by TPI and BBVA, with Adquira,
targeted at medium and large companies, created by Telefonica B2B, BBVA,
Repsol YPF and Iberia.

* On July 9, Telefonica Moviles and Sun Microsystems signed a global
collaboration agreement with the objective of launching services based on
Java technology on the GPRS network of Telefonica Moviles Espana. 

* On July 6, the acquisition of Bajacel, Movitel, Norcel and Cedetel, the
four operators in the north of Mexico managed by Telefonica Moviles since
March, was completed. The acquisition was made through a capital increase of
approximately 203 million shares. 

* On May 18, the General Shareholders Meeting of Celular CRT Participacoes
S.A. approved the delisting of the shares of the Company. Later, on June 1,
the General Shareholders Meeting of Telefonica Moviles S.A. approved the
capital increases necessary to complete the tender offer announced by
Telefonica Moviles on the outstanding shares of Celular CRT Participacoes.
Both resolutions allow advancing the process of execution of this
transaction. Finally, a modification was made in one of the conditions of the
tender offer, that conditioned the validity of the offer, changing the
reference date of the variation of the stock-exchange index of the Sao Paulo
stock exchange. The index, expressed in dollars, could not drop by a
percentage of 25% or more at the closing price of the trading session of last
February 26. Now the reference date is July 24. Finally, on August 17 and
August 21, Telefonica Moviles filed with the SEC and the CVM, respectively,
the new documentation for the transaction, which complements the information
sent last June. 

* On May 10, Telefonica Moviles appointed Kurt Luscher and Lars Reichelt
presidents of its affiliates in Austria and Switzerland. Previously, Luscher
was CEO of UTA Telekom, a fixed alternative and Internet Austrian operator,
while Reichelt was Director of Yahoo Moviles. 

* On April 30, Telefonica de Espana applied a rate reduction for
fixed-to-mobile calls, by moving back the reduced rate schedule from 10 p.m.
to 8 p.m., Monday through Friday and all weekend, which assumes a reduction
of more than 40%. 

CHANGES TO THE SPHERE AND ACCOUNTING CRITERIA OF CONSOLIDATION 

TELEFONICA 

As part of the reorganization plan of the Telefonica Group by business lines,
Telefonica Moviles, S.A., Telefonica Datacorp, S.A. and Telefonica 
Internacional, S.A. implemented several capital increases during the first half 
of the fiscal year. In exchange for such increases, Telefonica, S.A. made a
non-monetary contribution of its shares of the capital of Telefonica de
Argentina, S.A., Telefonica del Peru, S.A.A. and Telecomunicacoes de Sao
Paulo, S.A. (TELESP).

* Telefonica Moviles received shares of Telefonica de Argentina and
Telefonica del Peru, representing 97.93% of the Argentine company Telefonica
Comunicaciones Personales, S.A. and 97.06% of the Peruvian company Telefonica
Moviles Peru Holding, S.A.A., which companies arose from the spin-off of the
mobile businesses in Argentina and Peru. 

* Telefonica DataCorp received shares of Telefonica de Argentina and
Telefonica del Peru, representing 100% of the Argentine company Advance, S.A.
and 100% of the Peruvian company Telefonica Data Peru, S.A.A., as well as the
assets and liabilities of the data business owned by Telefonica de Argentina
and Telefonica del Peru.
 
* Telefonica Internacional, S.A. received shares of Telefonica de Argentina and
Telefonica del Peru, calculated on the basis of the value of the assets and
liabilities of fixed telephony and complementaries, owned by Telefonica de
Argentina and Telefonica del Peru. 

* Telefonica Internacional, S.A received 306,211,253,813 shares representing
61.96% of the capital of the Brazilian company Telesp. 

These contributions have not modified the consolidation sphere as compared to
the previous semester. 

During this semester, Telefonica, S.A. acquired 4,406,606 shares of Terra
Networks, S.A. in an amount of 8,679.6 million pesetas (52.16 million Euros).
With these purchases, the holding percentage of Grupo Telefonica in said
company reaches 37.98%. The company continues being included in the financial
statements of Telefonica Group by the global integration method.
 
In the month of January, Telefonica. S.A. acquired 100% of Mediaways GmbH for
an amount of 1,472.9 million Euros. The company was included in the sphere of
consolidation of the Telefonica Group by the global integration method. 

During the first six months of the fiscal year, Telefonica, S.A. acquired a
total of 7,862,728 shares of Telefonica Moviles, S.A. for an amount of 65.84
million Euros. The stake of the Telefonica Group in said company reached
92.81%. The company continues being included in the financial statements of
the Telefonica Group by global integration.
 
In the month of February, Telefonica, S.A, formed the 100%-owned affiliate
Telefonica Gestion de Servicios Compartidos, S.A., disbursing in full an
initial capital of 60,102 Euros. The company was included in the sphere of
consolidation in the consolidated financial statements of the Telefonica
Group by the global integration method.
 
In the month of June, Telefonica, S.A. increased its capital by 122,560,575
shares with a face value of 1 euro and with an issue premium of 4.5 Euros per
share. In exchange for this capital increase, Telefonica received, as a
non-monetary contribution of Motorola, certain investments in mobile business
in Mexico: 100% of the capital of the company Corporacion Integral de
Comunicacion, S.A. de C.V,; 100% of the capital of the company Grupo
Corporative del Norte, S.A.; 79% of the capital of the company Telefonia
Celular del Norte, S.A. de C.V. (the remaining 21% is contributed indirectly
through the acquisition of 100% of Corporacion Integral de Comunicacion, S.A.
de C.V.); 73.81% of the capital of Celular de Telefonia, S.A. de C.V. (the
remaining 26.19% is indirectly contributed through the acquisition of 100% of
Grupo Corporative del Norte, S.A. de C.V,); 100% of Baja Celular Mejicana,
S.A, de C.V.; 0.00001% of the capital of Baja Celular Servicios Compartidos,
S.A. (the remaining 99.99999% is contributed indirectly through the
acquisition of 100% of Baja Celular Mexicana, S.A, de C.V.); 0.00001% of the
capital of Tamcel, S.A. de C.V. (the remaining 99.99999% is contributed
indirectly through the acquisition of 100% of Baja Celular Mexicana, S.A. de
C.V,); 22% of the capital of Movitel del Noroeste, S.A. de C.V. (the remaining
68% is contributed indirectly through the acquisition of 100% of Tamcel, S.A.
de C.V.); 22% of the capital of the Moviservicios, S.A. de C.V. (the
remaining 68% is contributed indirectly through the acquisitions of 100% of
the Tamcel, S.A. de C.V.) and 22% of the capital of the Movicelular, S.A. de
C.V, (the remaining 68% is contributed indirectly through the acquisition of
100% of Tamcel, S.A. de C.V.). In addition, as a complement to this operation,
Telefonica contributed in cash 12.33 million Euros. These stakes were
contributed after June 30 to Telefonica Moviles, S.A.
 
TELEFONICA PUBLICIDAD E INFORMACION 

The company Goodman Business Press, S.A., acquired in fiscal 2000, was
included in the sphere of consolidation of the Telefonica Group in the
present fiscal year by the global integration method.
 
As a consequence of the event indicated in the previous paragraph, Goodman's
100%-held affiliate Cernet was also included in the sphere of consolidation
for this fiscal year by the global integration method in 2001; it is a
company dedicated to Web page design. The company Buildnet, S.A., 46.35%-held
by Telefonica Publicidad e Informacion, S.A. and 51.24%-held by Goodman, was
consolidated by the global integration method in 2001 (in 2000 it was
integrated by the equity method).

TERRA-LYCOS GROUP 

During the first semester of the fiscal year, Terra Networks, S.A.
participated in the formation of the Spanish company Azeler Automocion. S.A.
with an initial capital of 8.41 million Euros, subscribed and paid up 50% by
Terra Networks, S.A., The company was included at acquisition cost in the
consolidated financial statements of Telefonica Group.
 
Also during the first quarter of fiscal 2001, Terra Networks formed the
100%-owned companies Terra Networks Financial Services USA LLC, Terra
Networks Maroc and Terra Networks Caribe, an investment of 12.12 million
Euros, 0.01 million Euros and 0.26 million Euros, respectively. The first of
these companies was included in the financial statements of the Telefonica
Group by the global integration method; the other two were booked at
acquisition cost.
 
TELEFONICA LATINOAMERICA GROUP (TELEFONICA INTERNACIONAL, S.A.)
 
Telefonica Internacional, S.A, has sold this year 35.86% of its capital in the
Argentine company Cablevision, S.A., obtaining capital gains of 255.67 million
Euros. The company was eliminated from the sphere of consolidation of
Telefonica Group.
 
The parent company the Telefonica Internacional increased its stakes in the
affiliates Telefonica del Peru, Telefonica de Argentina, Telesp and CEI
Citicorps Holdings, by contributing the aforementioned stakes of Telefonica,
S.A. 

On January 30, 2001, Telefonica de Argentina approved the reorganization of
certain businesses, including those of its subsidiaries TCP S.A., Advance,
S.A. and TYSSA S.A. On January 1, 2001 there were spin-offs and mergers at
Telinver S.A., Advance S.A. and TCP S.A. On February 1, 2001 commitments
were made between TASA, Advance and TMA, S.A, (Telefonica Moviles Argentina)
for corporate reorganizations. 

TELEFONICA MEDIA GROUP 

In January, Grupo Endemol acquired 50% of Endemol France for an amount of
159.3 million Euros. The company was included in the financial statements of
Telefonica Group by the global integration method. 

TELEFONICA DATACORP GROUP
 
On January 16, Telefonica Data Mexico (formerly Optel) increased its capital
by 16,992,251 shares, which were all acquired by Telefonica Data Holding. On
March 6, it increased its capital by 16,743,904, shares with Telefonica Data
Holding acquiring 5,228,385 shares and T. Datacorp 11,515,519 shares. After
these increases, the capital of Telefonica Data Mexico is 241,738,667.8
Mexican pesos and the holding in the Company is as follows:
 
* T. Data Holding Mexico 52.04% 

* T. Data Holding 20.41 % 

* T. Datacorp 18.37% 

The Spanish company Telefonica Data Caribe, S.A., 90%-owned subsidiary of
Telefonica Datacorp, S.A. had a 50% participation in the formation of
Telefonica Data Cuba, for an investment of 106.59 thousand Euros. The company
was included in the financial statements of Grupo Telefonica at its
acquisition cost.
 
TELEFONICA DE ESPANA GROUP 

In March, all the shares of Telefonica Sistemas de Informacion Geografica,
S.A., a company 100%-owned by Telefonica de Espana, S.A.U., were sold to T.
Sistemas de Informacion Geografica, S.A., for 1.38 million Euros, generating
a profit in the consolidated accounts of the Telefonica Group of 5.02 million
Euros. The company, which was included in the financial statements of
Telefonica Group by the global integration method, was eliminated from the
Group's sphere of consolidation.
 
TELEFONICA MOVILES GROUP 

The Spanish company Movipay International, S.A., 50%-held by Telefonica
Moviles, and included in the financial statements of Telefonica Moviles Group
in fiscal 2000 at its acquisition cost, is consolidated by the equity method
in this fiscal year. 

ATENTO GROUP 

In June, the company Atento Chile. S.A., increased its capital by 3,338,287
shares of 1,000 pesos each; the increase was fully subscribed by Compania de
Telecomunicaciones de Chile, S.A. (CTC), a company indirectly held by the
Telefonica Group at 43.64%, included in the Annual Accounts of Telefonica
Group by the global integration method.
 
After this operation, the Atento Group reduced its stake in Atento Chile from
99.99% to 70% approximately, while CTC now has 29.99% of the capital of that
company. The Telefonica Group obtained in this operation, through the
reduction of the direct and indirect holding in the capital of Atento Chile,
a profit of 0.96 million Euros, reflected in the first half financial
statements under the heading 'profits from sales of holdings in consolidated
companies'. Atento Chile continues being included in the sphere of
consolidation of the Telefonica Group through the global integration method.

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