2nd Quarter Results- Part 3

Telefonica SA
25 July 2002


PART 3

                                           ANNEX




            Re:     Report submitted by Telefonica, S.A. on the up-to-date
            situation with regard to the qualification included in the audit
            report on the annual accounts of Telefonica S.A. for the financial
            year ended 31 December 2001.


This report has been prepared in order to comply with the provisions of the
Ministerial Order of 30 September 1992 in relation to the obligation to provide
information on the up-to-date situation with regard to the qualification which
was included in the audit report on the annual accounts of Telefonica, S.A. for
the financial year ended 31 December 2001.


The audit report issued by the auditors on 14 March 2002 expressed an opinion
which incorporated the following qualification due to the uncertainty with
regard to the situation in Argentina in the following terms:


    'Due to the changes in the economic situation in Argentina, the Argentine
    government decided to amend the Convertibility Law, which had been in force
    since March 1991, and adopted certain measures the main effects of which
    were the devaluation of the Argentine peso with respect to the U.S. dollar
    and the pesification of certain assets and liabilities in Argentina
    denominated in foreign currency, the introduction of restrictions on the
    withdrawal of funds deposited at financial institutions, restrictions on
    making transfers abroad of financial loan servicing payments and dividends
    and an increase in domestic prices.


    The acquisition cost of the holdings net of the related portfolio provisions
    and the loans granted by Telefonica Internacional, S.A., Telefonica Moviles,
    S.A. and Grupo Admira Media, S.A., Telefonica, S.A. investees, to Argentine
    Group companies (mainly companies operating in the wireline telephony,
    wireless telephony and media businesses, see Exhibit I) amount to €3,582
    million. The financial statements referred to above include an estimate of
    the quantifiable impact of these measures on the statement of operations
    referred to above, amounting to approximately €305 million. This impact
    reflects mainly the loss arising from valuing at a year-end exchange rate of
    ARP 1.5149/€1 the Group's assets and liabilities in Argentina and the
    exchange losses derived from adjusting to the year-end exchange rate of ARP
    1.7/US$ 1 the loans arranged by the Argentine companies in this currency,
    after considering the related hedging transactions (see Note 2).

    However, it is not possible to assess the additional impact that the
    uncertainties described in Note 2 might have on these holdings, relating
    mainly to the normal course of operations and the coverage of the companies'
    financial needs, through either borrowings or capital increases, since this
    will depend on the success of the economic measures adopted in Argentina,
    and particularly on the renegotiation of the wireline telephony ratemaking
    system.'

Having analysed the situation which gave rise to the qualification formulated by
the auditors, we confirm that at the date on which this report is prepared the
uncertainties which existed at the time when the annual accounts for the last
financial year were prepared have not been removed and it is not therefore
possible to quantify their impact on the financial statements of Telefonica,
S.A. as at 30 June 2002.


For the purposes of requesting the Company's auditors to issue the required
report in accordance with the provisions of the Order of 18 January 1991 and the
Order of 30 September 1992, which will be appended to the consolidated financial
statements for the first half year of 2002 which have to be sent to the CNMV,
this report is issued and will be made available to the auditors and sent to the
CNMV, forming an integral part of the public information for the first half year
of 2002.


                                                                    24 July 2002


                              Antonio Alonso Ureba

                      Secretary of the Board of Directors



TRANSLATION OF A REPORT ISSUED IN SPANISH. IN THE EVENT OF A DISCREPANCY, THE
SPANISH-LANGUAGE VERSION PREVAILS

Special Report required by the Order of the Ministry of Economy and Finance
dated 30 September 1992 which amends its Order of 18 January 1991 on periodic
public information required from listed companies.

To the Directors of Telefonica, S.A., for onward transmission to the

Comision Nacional del Mercado de Valores (Spanish National Stock Market
Commission):

After auditing the annual accounts of Telefonica, S.A. for the financial year
ended 31 December 2001, we issued our audit report on 14 March 2002 which
expressed our opinion that a qualification was included due to the uncertainty
in relation to the situation in Argentina in the following terms:


    'Due to the changes in the economic situation in Argentina, the Argentine
    government decided to amend the Convertibility Law, which had been in force
    since March 1991, and adopted certain measures the main effects of which
    were the devaluation of the Argentine peso with respect to the U.S. dollar
    and the pesification of certain assets and liabilities in Argentina
    denominated in foreign currency, the introduction of restrictions on the
    withdrawal of funds deposited at financial institutions, restrictions on
    making transfers abroad of financial loan servicing payments and dividends
    and an increase in domestic prices.


    The acquisition cost of the holdings net of the related portfolio provisions
    and the loans granted by Telefonica Internacional, S.A., Telefonica Moviles,
    S.A. and Grupo Admira Media, S.A., Telefonica, S.A. investees, to Argentine
    Group companies (mainly companies operating in the wireline telephony,
    wireless telephony and media businesses, see Exhibit I) amount to €3,582
    million. The financial statements referred to above include an estimate of
    the quantifiable impact of these measures on the statement of operations
    referred to above, amounting to approximately €305 million. This impact
    reflects mainly the loss arising from valuing at a year-end exchange rate of
    ARP 1.5149/€1 the Group's assets and liabilities in Argentina and the
    exchange losses derived from adjusting to the year-end exchange rate of ARP
    1.7/US$ 1 the loans arranged by the Argentine companies in this currency,
    after considering the related hedging transactions (see Note 2).

    However, it is not possible to assess the additional impact that the
    uncertainties described in Note 2 might have on these holdings, relating
    mainly to the normal course of operations and the coverage of the companies'
    financial needs, through either borrowings or capital increases, since this
    will depend on the success of the economic measures adopted in Argentina,
    and particularly on the renegotiation of the wireline telephony ratemaking
    system.

In accordance with your request we have analysed the information in relation to
the up-to-date position in connection with the aforementioned qualification and
its effect on the attached half-yearly information which has been prepared by
the Directors of Telefonica, S.A., in accordance with the requirements of the
Ministerial Order of 30 September 1992 and Circular 3/1994 dated 8 June 1994 of
the CNMV which amends the model forms of periodic public information required
from listed companies.

We attach as Schedule I hereto the Letter of Representation from the Directors
which reports on the up-to-date situation at the end of the half year in
relation to the qualification included in the audit report on the consolidated
annual accounts for the preceding financial year.

Our analysis has been carried out in accordance with the Technical Standard
established in this regard and approved by the ICAC (Institute of Accounting and
Auditing) in its Resolution of 28 July 1994 which due to its scope, which is
significantly less that of an account audit, does not allow an opinion to be
expressed on the correctness of the rest of the half-yearly information nor an
assurance to be given that if additional audit procedures had been applied we
would not have been able to identify other material matters for consideration.
For the same reason we cannot express an opinion on the six-monthly financial
information as at 30 June 2002 either.

As a result of our analysis we can confirm to you that in the attached
half-yearly information as at 30 June 2002, the qualification due to the
uncertainty referred to above in respect of the consolidated annual accounts for
the last financial year has not been removed.

Consequently it is not possible to quantify the effects of any adjustment which
might be necessary once we know the final outcome of the qualification due to
uncertainty referred to above on the equity of 17,962 million euros which is
shown in the attached half-yearly information.

This Special Report has been prepared exclusively to comply with the provisions
of the Ministerial Order of 30 September 1992 for the exclusive use of the
Comision Nacional del Mercado de Valores and must not be used for any other
purpose.


                                        ARTHUR ANDERSEN, S.L.

                                        Eduardo Sanz Hernandez

                                                                    24 July 2002


            Re:     Report submitted by Telefonica, S.A. on the up-to-date
            situation with regard to the qualification included in the audit
            report on the consolidated annual accounts of the Telefonica Group
            for the financial year ended 31 December 2001.




This report has been prepared in order to comply with the provisions of the
Ministerial Order of 30 September 1992 in relation to the obligation to provide
information on the up-to-date situation with regard to the qualification which
was included in the audit report on the consolidated annual accounts of
Telefonica, S.A. and the companies making up the Telefonica Group for the
financial year ended 31 December 2001.


The audit report issued by the auditors on 14 March 2002 expressed an opinion
which incorporated the following qualification due to the uncertainty with
regard to the situation in Argentina in the following terms:







    'Due to the changes in the economic situation in Argentina, the Argentine
    government decided to amend the Convertibility Law, which had been in force
    since March 1991, and adopted certain measures the main effects of which
    were the devaluation of the Argentine peso with respect to the U.S. dollar
    and the pesification of certain assets and liabilities in Argentina
    denominated in foreign currency, the introduction of restrictions on the
    withdrawal of funds deposited at financial institutions, restrictions on
    making transfers abroad of financial loan servicing payments and dividends
    and an increase in domestic prices.

    The Telefonica Group's net investment in the various businesses in which it
    has a presence in Argentina (mainly in companies operating in the wireline
    telephony, wireless telephony and media businesses, see Exhibit I) amounts
    to €3,582 million (see Note 2-d). The consolidated financial statements
    referred to above include an estimate of the quantifiable impact of these
    measures on the accompanying consolidated stockholders' equity (translation
    differences in consolidation) and on the consolidated statement of income
    referred to above, amounting to €1,424 million and €369 million,
    respectively. This impact reflects mainly the loss arising from valuing at a
    year-end exchange rate of ARP 1.5149/€1 the Group's assets and liabilities
    in Argentina and the exchange losses derived from adjusting to the year-end
    exchange rate of ARP 1.7/US$ 1 the loans arranged by the Argentine companies
    in this currency, after considering the related hedging transactions (see
    Note 2-d).

    However, it is not possible to assess the additional impact that the
    uncertainties described in Note 2-d might have on these holdings, relating
    mainly to the normal course of operations and the coverage of the companies'
    financial needs, through either borrowings or capital increases, since this
    will depend on the success of the economic measures adopted in Argentina,
    and particularly on the renegotiation of the wireline telephony ratemaking
    system.'

Having analysed the situation which gave rise to the qualification formulated by
the auditors, we confirm that at the date on which this report is prepared the
uncertainties which existed at the time when the consolidated annual accounts
for the last financial year were prepared have not been removed and it is not
therefore possible to quantify their impact on the consolidated financial
statements as at 30 June 2002.


For the purposes of requesting the Company's auditors to issue the required
report in accordance with the provisions of the Order of 18 January 1991 and the
Order of 30 September 1992, which will be appended to the consolidated financial
statements for the first half year of 2002 which have to be sent to the CNMV,
this report is issued and will be made available to the auditors and sent to the
CNMV, forming an integral part of the public information for the first half year
of 2002.


                                                                    24 July 2002


                                                            Antonio Alonso Ureba

                                             Secretary of the Board of Directors



TRANSLATION OF A REPORT ISSUED IN SPANISH. IN THE EVENT OF A DISCREPANCY, THE
SPANISH-LANGUAGE VERSION PREVAILS

Special Report required by the Order of the Ministry of Economy and Finance
dated 30 September 1992 which amends its Order of 18 January 1991 on periodic
public information required from listed companies.

To the Directors of Telefonica, S.A., for onward transmission to the

Comision Nacional del Mercado de Valores (Spanish National Stock Market
Commission):

After auditing the consolidated annual accounts of Telefonica, S.A. for the
financial year ended 31 December 2001, we issued our audit report on 14 March
2002 which expressed our opinion that a qualification was included due to the
uncertainty in relation to the situation in Argentina in the following terms:


    'Due to the changes in the economic situation in Argentina, the Argentine
    government decided to amend the Convertibility Law, which had been in force
    since March 1991, and adopted certain measures the main effects of which
    were the devaluation of the Argentine peso with respect to the U.S. dollar
    and the pesification of certain assets and liabilities in Argentina
    denominated in foreign currency, the introduction of restrictions on the
    withdrawal of funds deposited at financial institutions, restrictions on
    making transfers abroad of financial loan servicing payments and dividends
    and an increase in domestic prices.


    The Telefonica Group's net investment in the various businesses in which it
    has a presence in Argentina (mainly in companies operating in the wireline
    telephony, wireless telephony and media businesses, see Exhibit I) amounts
    to €3,582 million (see Note 2-d). The consolidated financial statements
    referred to above include an estimate of the quantifiable impact of these
    measures on the accompanying consolidated stockholders' equity (translation
    differences in consolidation) and on the consolidated statement of income
    referred to above, amounting to €1,424 million and €369 million,
    respectively. This impact reflects mainly the loss arising from valuing at a
    year-end exchange rate of ARP 1.5149/€1 the Group's assets and liabilities
    in Argentina and the exchange losses derived from adjusting to the year-end
    exchange rate of ARP 1.7/US$ 1 the loans arranged by the Argentine companies
    in this currency, after considering the related hedging transactions (see
    Note 2-d).

    However, it is not possible to assess the additional impact that the
    uncertainties described in Note 2-d might have on these holdings, relating
    mainly to the normal course of operations and the coverage of the companies'
    financial needs, through either borrowings or capital increases, since this
    will depend on the success of the economic measures adopted in Argentina,
    and particularly on the renegotiation of the wireline telephony ratemaking
    system.'

In accordance with your request we have analysed the information in relation to
the up-to-date position in connection with the aforementioned qualification and
its effect on the attached half-yearly information which has been prepared by
the Directors of Telefonica, S.A., in accordance with the requirements of the
Ministerial Order of 30 September 1992 and Circular 3/1994 dated 8 June 1994 of
the CNMV which amends the model forms of periodic public information required
from listed companies.

We attach as Schedule I hereto the Letter of Representation from the Directors
which reports on the up-to-date situation at the end of the half year in
relation to the qualification included in the audit report on the consolidated
annual accounts for the preceding financial year.

Our analysis has been carried out in accordance with the Technical Standard
established in this regard and approved by the ICAC (Institute of Accounting and
Auditing) in its Resolution of 28 July 1994 which due to its scope, which is
significantly less that of an account audit, does not allow an opinion to be
expressed on the correctness of the rest of the half-yearly information nor an
assurance to be given that if additional audit procedures had been applied we
would not have been able to identify other material matters for consideration.
For the same reason we cannot express an opinion on the six-monthly financial
information as at 30 June 2002 either.

As a result of our analysis we can confirm to you that in the attached
half-yearly information as at 30 June 2002, the qualification due to the
uncertainty referred to above in respect of the consolidated annual accounts for
the last financial year has not been removed.

Consequently it is not possible to quantify the effects of any adjustment which
might be necessary once we know the final outcome of the qualification due to
uncertainty referred to above on the equity of 18,062 million euros which is
shown in the attached half-yearly information.

This Special Report has been prepared exclusively to comply with the provisions
of the Ministerial Order of 30 September 1992 for the exclusive use of the
Comision Nacional del Mercado de Valores and must not be used for any other
purpose.


                                        ARTHUR ANDERSEN, S.L.

                                        Eduardo Sanz Hernandez

24 July 2002






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