3rd Qrt & 9 Mths Results-Pt1

Telefonica SA
15 November 2001

PART 1


Quarterly Results January-September 2001

Notes:

-  The financial statements included in this report have been compiled from the 
   conversion into euros of items posted in pesetas. Sub-totals are already     
   stated in euros.  This could result in small rounding differences.


 
               TELEFONICA GROUP SELECTED FINANCIAL DATA

Unaudited Data
Euros in Millions) 

                                         January-September
                                      2001        2000       % Change
                                    
Gross Operating Revenues            23,083.4    20,754.6       11.2 
EBITDA                               9,641.2     8,886.8        8.5
Operating Profits                    4,157.4     3,838.5        8.3
Before-tax Results                   1,979.8     2,570.3      (23.0)
Net Profits                          1,591.0     1,483.7        7.2
Net Profits per Share                   0.35        0.40      (13.1)
Average no. Of shares, millions(1)   4,586.7     3,716.9       23.4

 
(1) Average number of shares in the period. Includes capital increases to fund 
the acquisition of additional holdings in Telefonica de Argentina, Telefonica 
del Peru, Telesp, Telesudeste, Endemol, ATCO and the cellular companies acquired
from Motorola, as well as the issuance of new shares with respect to convertible
bonds, weighted for the number of days listed, excluding bonus capital increases
charged to reserves, which do not involve any change in the ownership structure.

The number of shares at the end of the period is 4,671,915,885.


Results - Telefonica Group

The management comments included in this report refer to the financial evolution
of the Telefonica Group according to the new organisational 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.

In this sense, to facilitate comparisons between the results obtained by the 
Telefonica Group in each business line and those for the same period of the 
prior year, pro-forma income accounts were prepared for each business line, for 
the four quarters of fiscal year 2000.

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.

During the first nine months of the fiscal year, the Telefonica Group obtained a
net consolidated profit of 1,591.0 million euros, up 7.2% over the same period 
of the previous fiscal year.

The most important highlights are:

- Positive results with steady growth in an environment of high economic        
  uncertainty.

- Revenues and EBITDA growth are slightly lower than till June 2001 as a result 
  of the negative evolution in Latin American exchange rates, combined with a   
  sustained EBITDA margin as a result of the containment of operating expenses.

- Decrease in the consolidated net debt balance, primarily as result of the     
  quarterly appreciation of the euro with respect to the dollar, the cash       
  generating capacity of the Group and the cost control policy.

- 2.7% drop in investment compared to the same period of the previous year,     
  marking the beginning of the downward trend expected by the end of the year.

During the first nine months of 2001, the Group's fixed and mobile telephone and
pay television managed customer base amounted to 71.2 million out of a total of 
75.9 million customers, 10.5 million more than in the comparable period in 
fiscal year 2000, which represents a year-on-year increase of 17.2%. 
Significantly, only during the third quarter of the fiscal year, the number of 
customers increased by more than 2.1 million, thereby keeping the Group on track
in its goal of surpassing 100 million customers by fiscal year 2004.

Cellular telephone service was the largest contributor to the Group's customer 
base, with more than 6.5 million new customers during the last twelve months, 
despite a slowdown with respect to the prior year resulting from a mature 
Spanish cellular market and the profit-driven growth model adopted for Latin 
American countries. These two factors notwithstanding, the number of new managed
cellular customers serviced by the Group during the last quarter rose to more 
than 1.3 million, which clearly demonstrates the growth potential still existing
in this business.

The geographic diversification in the growth of the customer base is noteworthy,
as it allows the Group great stability in building up its main asset: its 
customers. Although Latin America continued to be the region with the highest 
rate of growth during the third quarter, with more than 1.1 million new 
customers for the Group (0.6 million from Telesp), Spain and the Mediterranean 
basin contributed nearly the same numbers.

During this quarter, there were two events of major importance for the future 
growth of the Group: the authorization granted to Telefonica de Espana by the 
Spanish regulatory agency to market the ADSL product on a retail basis, and 
Telesp's filing of the target achievement documents to the Brazilian regulatory 
agency (ANATEL) as required, for certification.

The approval for Telefonica de Espana to market the ADSL product on a retail 
basis will enable the Telefonica Group to reinforce its commitment to broadband,
the key technology for the development of the so called 'Information Society'. 
Because of its marketing profile, this product will undoubtedly improve to 
Telefonica de Espana Group's revenue base.

Filing of the target achievement documents to the Brazilian regulatory agency 
means that, once certified, all the companies of the Telefonica Group in Brazil 
will be able to apply for licenses to offer new telecommunications services in 
the rest of the country. This will create new opportunities for future growth in
a market that constitutes the Telefonica Group's biggest platform in Latin 
America, that broadly speaking, is similar in size in terms of revenues to the 
Spanish telecommunications market, excluding the State of Sao Paulo. It is 
noteworthy that the accomplishment of the targets happened two years ahead of 
time thus granting to the Group an important competitive advantage in relation 
to other operators competing in the country.

From a financial standpoint, the Telefonica Group's accumulated earnings as of 
the third quarter have been largely affected by two factors: on one hand by the 
negative evolution of the Latin American currencies exchange rates as a result 
of the difficult economic situation in Argentina and the fear that this might 
spread to the other economies in the region, especially impacting the Brazilian 
real (which as of September had suffered an accumulated depreciation of 17.1% 
versus the euro), and on the other by the change in the Group's consolidation 
perimeter.

There was a slowdown in the growth of the Group's consolidated revenues (11.2% 
as of September 30, 2001 compared to 15.2% accumulated till June 2001), 
primarily due to the negative effect of Latin American exchange rates, and also 
to the lower growth rate of sales in the fixed and mobile telephone businesses 
in Spain.

In absolute terms, the businesses lines that contributed the most to the 
consolidated revenues of the Group were, once again, Telefonica de Espana and 
Telefonica Latinoamerica, totaling 7,670.6 and 7,605.7 million euros, 
respectively, and representing growth rates of 0.9% and 1.0%. It must be pointed
out that Telefonica Latinoamerica's revenues were significantly affected by the 
evolution of exchange rates in the region. Indeed, excluding these effects, 
Telefonica Latinoamerica would be the largest contributor in absolute terms to 
the Group's revenues, with a growth rate of 9.8% compared to the same period 
last year.

Nonetheless, the reported figures illustrate the Telefonica Group's capacity to 
generate positive earnings with a noteworthy diversification that adds to both 
quality and growth, even during the most adverse economic circumstances. The 
EBITDA accumulated over the first nine months of the fiscal year totaled 9,641.2
million euros, which is 8.5% higher than in the comparable period last year, an 
increase that would have been 13.2% had the effect of the exchange rate not been
taken into account. On the other hand, the changes in the Group's consolidation 
perimeter, as a result of the various acquisitions that took place during the 
year 2000 had a positive effect on the Group's consolidated EBITDA of 
approximately 1.4 p.p.

Excluding both of the aforementioned effects, the Group's EBITDA would have 
risen to 9,944.3 million Euros for an increase of 11.9% compared to September 
2000. It should be noted that this analysis of the impact of exchange rate 
performance and changes in the consolidation perimeter, if applied to the 8.7% 
growth in EBITDA reported for the first nine months of the year 2000, would have
meant a growth of only 4.6%, thus demonstrating, even more forcefully, the 
positive results achieved by the Group in 2001 in an unfavorable macroeconomic 
environment.

In terms of EBITDA margin, there was a slowdown in the drop experienced as of 
June compared to the same period in the previous year (-1.1p.p. as of September 
versus -2.3p.p. as of June), totaling 41.8% as a result of the cost containment 
efforts being implemented in all the Group's business lines. In this respect, 
there was an overall improvement in the year-on-year change in the EBITDA margin
for all the business lines, with the exception of Telefonica Latinoamerica, 
Telefonica Data and TPI.

The main contributors to the Group's consolidated EBITDA growth were, in this 
order, Telefonica Moviles, Admira Media (formerly known as Telefonica Media) and
Telefonica de Espana, respectively accounting for 7.5p.p., 1.2p.p. and 1.1p.p. 
of the aggregate 8.5% growth figure. Telefonica Moviles recorded a 35.5% 
increase in its consolidated EBITDA totaling 2,529.3 million euros, which is 
higher than Telefonica Moviles' consolidated EBITDA for the entire fiscal year 
2000. This increase is the result of reactivated growth in the customer base in 
most markets, combined with a lower churn rate and cost structure optimization. 
The profit-driven growth model adopted by Telefonica Moviles has made it 
possible to limit the negative impact of the Latin American macroeconomic 
environment. This, along with the healthy business results obtained in Spain, 
has led to an EBITDA margin of 41.0% compared to 34.1% for the first nine months
of the year 2000.

Telefonica de Espana reported 3,483.3 million euros in EBITDA for a year-on-year
growth of 3.0%, due primarily to the positive trend in operating expenses, which
were 4.8% lower than for the comparable period last year, whereas as of June 
2001 they had only decreased by 3.0%. This positive trend in operating expenses 
served to offset the slowdown in revenues resulting from an increasingly 
competitive environment, which continues to translate into a gradual decline in 
the market share, and from price reductions implemented by the Company to 
satisfy requirements under the current price cap regulations. Despite these two 
factors, which will continue to have an impact over the course of the fiscal 
year, Telefonica de Espana forecasts an overall positive trend in the business 
for the year as compared to the fiscal year 2000.

Admira Media posted 82.2 million euros in EBITDA, compared to a loss of 23.8 
million euros as of September 2000. This turnaround is in large part due to the 
positive evolution of Endemol's business and the fact that Endemol was only 
consolidated two months during the comparable period in 2000.

The EBITDA result for Telefonica Latinoamerica is noteworthy, having dropped 
2.3% with respect to the prior fiscal year for a total contribution to the 
Group's EBITDA of 3,856.4 million euros. This is largely due to the performance 
of exchange rates in the region, since the earnings in local currency obtained 
by the Telefonica Latinoamerica Group affiliates may be considered satisfactory 
(in particular, those registered by Telesp, with an increase in revenues and an 
EBITDA of 26% and 20%, respectively). Thus, excluding exchange rate effects, the
EBITDA of the Telefonica Latinoamerica Group would have increased by 6.3%.

Goodwill amortization continued to influence the Group's net income, with a 
year-on-year increase of 122.5% for a total of 645.7 million euros, as a result 
of the acquisitions made during the prior fiscal year and mainly affecting the 
Admira Media, Telefonica Data, and Terra-Lycos Groups. However, it should be 
pointed out that the amortization period of Terra-Lycos' goodwill was extended 
during the last quarter; it will now be amortized over 10 years instead of the 5
year period over which it was previously being amortized. This extended period 
will result in a better matching between the economic condition of the acquired 
business and the actual rate of maturity of the Internet business.

The minority interests have continued to positively affect the Group's earnings,
although to a lesser extent than as of June 2001, as a result of the slowdown in
Terra-Lycos's losses and the higher net income of TPI-Paginas Amarillas.

Finally, it is noteworthy the higher quality of the net income reported as a 
result of lower extraordinaries, arising from lower capital gains from the sale 
of securities portfolio in the amount of 334.0 million euros, net of all 
applicable taxes.

Considering the Group's consolidated net debt level, a noteworthy reduction took
place during the quarter as accumulated debt fell from 31,244 million euros as 
of June 2001 to 29,731 million as of September 2001. This reduction was mainly 
due to the dollar depreciation versus the euro and the cash generation of the 
Group, without accounting for any divestiture during the period. Furthermore, it
should be noted that the Telefonica Group became the first European 
telecommunications company to tap the capital markets following the terrorist 
attacks of September 11. This took the form of a three-and five-year Eurobond 
issue for a total amount of two billion euros, to be used primarily to avoid 
refinancing risks during fiscal year 2002. With this successful placement, that 
registered a significant book-building surplus the Telefonica Group has become 
the first European operator to meet all of its refinancing needs for the next 
fiscal year.

Lastly, the Group's investment totaled 5,443.1 million euros, down 2.7% from the
same period of the previous year thus implying a change in the trend recorded 
till June 2001. This drop reflects a number of factors: on one hand, reduced 
investment in Telesp as ANATEL targets were met (whereas in the same quarter of 
the previous fiscal year investment increased significantly), and the 
depreciation of the real, and on the other hand a lower level of investment by 
Emergia (169 million euros accumulated as of September 2001 compared to 652 
million euros accumulated till September 2000). The Group is thus enabled to 
accomplish its predicted 7% reduction in its annual investment for the year 
2001.


                              Telefonica Group
MARKET SIZE

Thousands           January-September     %Chg.      Weighted(*)         % Chg. 
                      2001      2000       01/00   Sept 2001  Sept 2000   01/00

Lines in Service      44,936.7  41,056.5     9.5     39,009.4  35,562.2    9.7
In Spain              20,662.6  20,052.7     3.0     20,662.6  20,052.7    3.0
In other countries(1) 24,274.1  21,003.8    15.6     18,346.8  15,509.8   18.3

Cellular Customers    29,959.2  22,948.7    30.5     22,285.9  18,510.9   19.5
In Spain              15,620.6  12,801.5    22.0     14,522.1  12,801.5   13.7
In other countries(2) 14,338.6  10,147.2    41.3      7,733.7   5,709.4   35.5

Pay TV Customers       1,098.2     917.2    19.7        687.7     599.6   14.7
In Spain                 752.7     572.2    31.6        365.8     278.1   31.6
In other countries(3)    345.5     345.0     0.2        321.8     321.5    0.1

TOTAL                 75,994.1  64,922.3    17.1     61,982.9  54,672.7   13.4

(*) Weighted by the equity interest in each of the companies.

(1) Lines in service: Includes all lines in service as of September 2001 and 
2000, for Telefonica de Espana, Telefonica CTC Chile, Telefonica de Argentina, 
Telefonica del Peru, Telesp and CanTV.

(2) Cellular customers: Includes all cellular customers, as of September 2001, 
of Telefonica Servicios Moviles Espana, Medi Telecom, Telefonica Movil Chile, 
TCP Argentina, Telefonica Moviles Peru, CRT Celular, TeleSudeste Celular, NewCom
Wireless Puerto Rico, Telefonica Moviles Guatemala, Telefonica Moviles El 
Salvador, Telefonica Moviles Mexicol and CanTV Celular. In September of 2000 the
customers of Telefonica Moviles Mexico are not included.

(3) Pay TV customers: Includes all pay TV customers, as of September 2001 and 
2000, of Via Digital and Cable Magico.


             Telefonica Group - Selected Results by Companies

Unaudited Data                  Revenues                        EBITDA
Euros in Millions          January-September               January-September
                         2001     2000     % Chg.     2001    2000       % Chg.

Telefonica de Espana 
 Group                 7,670.6   7,601.1     0.9      3,483.3  3,382.0     3.0  
Telefonica Moviles 
 Group                 6,168.5   5,475.3    12.7      2.529.3  1,867.1    35.5  
Telefonica 
 Latinoamerica G.      7,605.7   7,531.0     1.0      3,856.4  3,947.4    (2.3) 
Telefonica Data Group  1,365.4     821.7    66.2         32.8     74.4   (55.9) 
Terra-Lycos Group        526.5     139.0   278.9       (190.3)  (259.6)   26.7  
TPI Group                375.3     264.1    42.1         92.6     79.5    16.6  
Admira Media Group     1,005.8     332.9   202.1         82.2    (23.8)    c.s. 
Atento Group             471.5     361.5    30.5         36.9     26.9    37.3  
Other Affiliates         940.3   1,155.7   (18.6)      (146.6)  (170.3)  (13.9) 
Eliminations          (3,046.5) (2,927.7)   (4.1)      (135.4)   (36.8)    n.s. 
GROUP                 23,083.4  20,754.6    11.2      9,641.2  8,886.8     8.5  
 

Unaudited Data                            Operating Results                    
Euros in Millions                         January-September              
                                     2001       2000       % Chg.     

Telefonica de Espana Group           1,368.6    1,205.3     13.6
Telefonica Moviles Group             1,583.7    1,124.7     40.8
Telefonica Latinoamerica G.          1,913.2    2,050.1     (6.7)
Telefonica Data Group                 (102.1)       3.2      c.s.
Terra-Lycos Group                     (321.3)    (310.4)     3.5
TPI Group                               76.4       72.1      6.0
Admira Media Group                      24.1      (55.5)     c.s.
Atento Group                           (22.7)      (4.6)     n.s.
Other Affiliates                      (265.1)    (173.0)    53.2
Eliminations                           (97.7)     (73.2)    33.4
GROUP                                4,157.4    3,838.5      8.3
  

ANALYSIS OF RESULTS BY BUSINESS LINE

FIXED LINE BUSINESS

TELEFONICA DE ESPANA GROUP

The accumulated earnings of the Telefonica de Espana Group as of September 2001 
reflect the steady growth of the fixed line business in Spain, already noted in 
the first half of the year.

Last August, the monthly fee rose to 10.47 euros, an increase of 1.8 euros since
July 2000. This increase, which was offset by reductions in the long-distance 
traffic, has resulted in a general tariff reduction of 3.5% as of September for 
the basket of products defined within the price-cap model. This reduction 
together with the monthly fee increase leads to a breakdown of fixed revenues to
variable revenues of 44.9% versus 55.1%, respectively (In year 2000 this 
breakdown was 39.9% versus 60.1%, respectively).

In order to achieve a 7% overall average reduction in 2001, rate cuts of 15.7%, 
14.1% and 9.3% in Provincial, Domestic Long Distance and International traffic, 
were implemented by the end of October.

The Operating Revenues of the Telefonica de Espana Group in the first nine 
months of the year totaled 7,670.6 million euros, a year-on-year increase of 
0.9%. The parent company revenues represented 96.5% of the total and grew by 
3.7% as of September with respect to the comparable previous year. This growth 
was mainly the result of the good performance of ISDN revenues, the positive 
evolution in the interconnection and leased circuits, and the increase in the 
monthly fee. Usage revenues remained at the same level as in the previous year, 
due to a solid increase in minutes which offset the price/rate reductions and 
the market share loss.

Traffic in terms of minutes per line per day was 20.78, up 30.8% over the 
previous year, primarily due to the growth of the Internet and the 
interconnection services of fixed line operating companies.

The total number of minutes were 102,308 million, which represents a 33.5% 
increase as of September. Traffic generated by the Group's customers grew 16.6% 
for a total of 73,933 million minutes, mainly driven by the growth of Internet 
traffic (57.5%) and Provincial and Domestic Long Distance traffic (23.9% and 
26%, respectively). Local traffic continued the downward trend started at the 
beginning of the year, with a 4.3% drop by the end of the third quarter as a 
result of the evolution of the market as a whole and the market share loss. 
Fixed to Mobile traffic increased 11.1%, consistent with the slowdown in the 
growth of the cellular market in Spain in comparison to the growth registered in
the previous year. Incoming traffic continued its strong upward trend (114.2% 
accumulated till September), particularly reflecting the rapid growth of Fixed 
to Fixed interconnections.

Usage revenues rose 0.8% as a result of the increased number of lines in service
and the higher volume of minutes per line per day. The success of packaged 
minutes is boosting telephone usage. Accordingly, subscribers of Bonos Ciudad 
and Bonos Ciudad Plus (packages of local minutes) totaled 764,189 and 1,436,657,
respectively, while the Flat Rate product exceeded initial expectations, with 
398,121 suscribers (including the Terra-Lycos flat rate product). The USA 15 
Plan, targeted towards International traffic with the United States, and the 
Bono Eleccion, offering multi-range packaged minutes, were launched last August.
At the end of September, there were 2,351 USA 15 suscribers and 558 Bono 
Eleccion suscribers.

On the other hand, there were 9,728,155 active voice mailboxes as of the month 
of September, while the Caller I.D. Service had 3,052,413 subscribers, which is 
132.9% more than in the previous year.

Aiming to lead the broadband market through ADSL, the Company's efforts were 
reflected in the increased number of customers at the end of the third quarter, 
with a total of 223,158 customers, or 89.3% of the goal initially set for the 
end of the year. The average installation rate as of the last week in September 
was 1,609 lines per day. It should be noted that, in the month of October, there
was a daily peak of 2,903 installations. The ADSL coverage reached 16.1 million 
lines (equivalent to 87.6% of the total plant).

It is worth noting that, since August 13, Telefonica de Espana was licensed to 
market ADSL on a retail basis. In September the Company launched its first 
campaign targeted at end users, resulting in 14,624 new customers on that month.
In the first four weeks of October, there were 22,573 new subscribers.

Operating expenses of the Telefonica de Espana Group totaled 4,183.1 million 
euros, a decrease of 4.8%, due in large part to a 7.6% reduction in personnel 
expenses, a decrease in total supplies (6.5%) and control of discretionary 
expenses. Operating expenses before interconnection during the first nine months
of the year totaled 2,632.0 million euros, a year-on-year decrease of 1.4%.

Telefonica de Espana's interconnection expenses rose by 2.9% and continued 
showing a slowed rate of growth (+13.7% in the first quarter and +9.1% in the 
first half of the year), due to price cuts implemented over the current fiscal 
year in both fixed to fixed and fixed to mobile interconnections.

At September 2001, supplies and external services expenses of the parent company
rose by 10.1%, due to the reduced level of quarterly expenses in the prior year 
and to the expenses associated with the deployment of broadband and outsourcing 
costs arising from staff reductions and increased customer service.

The reduction in Telefonica de Espana's personnel expenses is due, in part, to 
the 11.2% cut in average headcount as well as to the impact of the deviation in 
the 2000 CPI and anticipated wage revision in the previous year. In September, 
Telefonica de Espana had a staff of 40,948, enabling it to achieve a 
productivity ratio of 504.6 lines per employee.

The entry 'Other operating costs' showed a 69.9% increase, as a result of the 
increase in bad debt provisions made during the year, intended to restructure 
and write-down the Public Phones resellers business.

The EBITDA of the Telefonica de Espana Group totaled 3,483.3 million euros, 
which represents a slower growth rate in relation to that posted for the first 
six months, which is in line with the Company's initial expectations. 
Accordingly, the EBITDA margin was 45.4% for the period, up 1p.p. compared to 
the previous year.

Operating Results, totaling 1,368.6 million euros, increased 13.6% with respect 
to the comparable previous year, due to the positive EBITDA performance and a 
2.9% decrease in the depreciation of fixed assets as part of the write-down of 
circuits in service implemented over the recent years, particularly in December 
2000.

TELEFONICA LATINOAMERICA GROUP

Following the completion of the segregation process by business lines of 
activity of the Telefonica Group's, Telefonica Latinoamerica consolidates as the
company that manages the fixed-telephone business in Latin America (Brazil, 
Argentina, Chile, Peru, Puerto Rico and Venezuela), as well as the societies 
Advance (ISP for Argentina), Cable Magico (Cable TV of Peru), and Sonda 
(information technology services in Chile) businesses. The acquisition of the 
carrier CTI in November 2000 to manage on an integrated basis the international 
traffic of the Telefonica Group's Latin American operators to and from the U.S 
is also included.

From the financial point of view, the company's accumulated earnings at the 
third quarter were affected by the depreciation of the Brazilian real (17.1% 
since the beginning of the year) and the Chilean peso against the euro, 
particularly in the third quarter of the fiscal year, as the economic troubles 
in Argentina spilled over into neighboring countries. Nonetheless, it should be 
noted that the companies' earnings in local currencies continued their 
satisfactory performance. Furthermore, the positive performance of the Brazilian
real since the end of October, along with the most recently published 
macroeconomic indicators of the Brazilian economy, seems to indicate that 
Brazil's economic cycle is not linked to the Argentine situation.

Consolidated revenues in the first nine months totaled 7,605.7 million euros, 
for a year-on-year growth of 1.0%. Excluding exchange rate effects, this figure 
would increase to 9.8%, which is consistent with the 9.5% growth in constant 
currency recorded in the first half of the year. Noteworthy is the positive 
trend in the revenues of Telesp expressed in local currency (26.1%) and 
Telefonica CTC Chile (6.9%). Moreover, Telefonica del Peru has maintained steady
sales (0.1%) in spite of the increasing competition, thus offsetting the drop in
sales of TASA (-5%), due to the competition, particularly in the long distance 
business, and the country's economic situation.

The consolidated EBITDA of Telefonica Latinoamerica showed a year-on-year 
decline of 2.3% as a result of the aforementioned exchange rate problems, as 
well as the drop in the EBITDA of TASA caused by the competitive and difficult 
economic environment. In terms of constant currency, however, consolidated 
EBITDA showed a 6.3% growth. Likewise, the EBITDA was also impacted by the 
increase in the interconnection expenses of Telesp (due to an increase in 
tariffs and traffic), as well as a new provision for bad debt policy implemented
(in line with the guidelines followed by the Group). Finally, the higher bad 
debt linked expenses in Telefonica de Argentina (caused by the difficult 
macroeconomic environment in the country) also affected.

Telefonica Latinoamerica's net income for the first nine months of the year 
totaled 851.3 million euros, representing a year on year increase of 181.1%. 
This positive performance was due to a reduction in financial expenses (-23.2%) 
caused by from less debt and lower financing costs, and by the positive change 
in extraordinaries (+13.9 million euros, compared to a loss of 101 million euros
in the same period of the previous year). This occurred despite Telefonica CTC 
Chile's restructuring plan and the non-recurring losses registered for 
Telefonica del Peru, which were offset by the non-recurring revenue from the 
sale of Cablevision (256 million euros). In addition, the year-on-year reduction
of minority interests in the amount of 387.3 million euros represented a further
positive contribution.

With respect to operating results, at the end of September, Telefonica 
Latinoamerica managed 21.6 million lines. This represents a year on year 
increase of 17.2%, driven by the growth of Telesp, which, at an average rate of 
over 340,000 new subscribers/month, surpassed 12.6 million lines. In addition, 
although not officially certified yet, at the end of September the company 
succeeded in meeting the Brazilian regulatory agency requirement of being able 
to install a telephone line in less than 15 days. Thus, the company remains on 
track in its goal of achieving in 2001 the targets set by Anatel for December 
2003. TASA also recorded significant growth in terms of lines in service 
(+6.2%), thanks to the marketing of prepaid and usage control products aimed at 
maximizing the profitability of the existing network and minimizing the risk of 
bad debt. Likewise, Telefonica CTC Chile recorded a year-on-year increase of 
3.4% in lines in service.

The growth in the number of lines serviced by the company, as well as the 
ongoing efforts to streamline and control costs, have resulted in a significant 
rise in productivity for Telefonica Latinoamerica, i.e., 867 lines per employee,
a 32.4% year-on-year increase (18.4% compared to last June). Staff restructuring
plan implemented last June at Telefonica CTC Chile (1,584 fixed-line business 
employees) adapt the company to an increasingly competitive environment. These 
efforts are reflected in the significantly better margins of the Chilean 
operator.

In line with the Telefonica de Espana Group's strategy to lead the broadband 
market, Telefonica Latinoamerica had 170,968 ADSL customers at the end of 
September, up 52% with respect to the customer base recorded in the first half 
of the year, with 83% of ADSL customers concentrated in Brazil (Sao Paulo).


Brazil

In accordance with its goal of achieving by September 2001 the targets set by 
Anatel for December 2003, Telesp eliminated its waiting list, which means that 
it should meet any new installation request within a maximum period of two 
weeks.

Once Anatel certifies that Telesp has met the targets, all of the companies of 
the Telefonica Group in Brazil may apply for new licenses, thereby extending 
their coverage and offer services to the rest of the country. It must be 
pinpointed that such targets were met two year ahead of time thus giving to the 
Group an important competitive advantage in relation to the other operating 
companies in the country.

As of September, ADSL customers numbered more than 140,000, representing an
increase of 248% compared with the end of the previous fiscal year.

The steady gains in productivity is remarkable, reaching about 1,028 lines per 
employee (a year on year increase of 44.5%), making this one of the companies 
with the highest productivity rates in the world. In this aspect, the Company 
continues in its efforts, as illustrated by the announcement in early October of
a Headcount Adjustment Plan that aims to be accepted by 10% of the workforce.

The 20% increase in the company's local currency EBITDA as of September (-0.3% 
in euros) is mainly derived from the expansion in the number of lines in service
(year on year increase of 28.7%) as well as the 10.4% average increase in 
tariffs in local currency from June 2001. These two factors have enabled the 
company to post revenues of 3,273.1 million euros, a year on year increase of 
26% in local currency (4.5% in euros), offsetting higher interconnection 
expenses (due to higher tariffs and traffic), bad debt (stemming from a more 
conservative provisioning policy), and taxes (new taxes applicable since January
2001 and accounting for 1.5% of net revenues).

The growth in net profits amounted to just 4% in local currency (-14% in euros),
despite the 23% increase in operating profit. This is due to an increase in 
financial expenses as investment efforts were made in order to meet the ANATEL 
targets, and to the extraordinary expenses recorded in the third quarter related
to contingencies for unmatching measurement of traffic with other operators in 
previous years.

Argentina

TASA's earnings performance was impacted by the difficult economic situation of 
the country. Thus, EBITDA before management fees in local currency was 17.0% 
lower than for the comparable prior-year period (-11.1% in euros). This decrease
mainly stems from lower long distance revenues as rates fell caused by increased
competition, and from higher operating expenses. The most significant changes in
operating expenses are in reserves for bad debt (with the economic recession 
leading to a longer average collection period) and in higher sales-related 
expenses (as the implementation of multi-carrier dialing was delayed, with more 
resources used for pre-subscription of lines). In addition, supply costs rose 
with the increase in the sale of equipment and a new tax that was introduced 
effective January 2001 (Universal Service charge), accounting for 1% of 
revenues.

TASA posted net earnings of 254 million euros, representing a year-on-year 
decline of 25% (19.7% in euros). This is a result of the smaller in EBITDA and 
of higher financial results brought on by higher interest rates and higher non-
recurring expenses due to layoffs.

In terms of operating results, there was a 6% increase in local traffic per line
due to the growth in Internet traffic, and an increase in the number of lines 
(+6%) driven by products designed to minimize the risk of bad debts (130% 
increase in the plant of consumption control capability, usage control and 
prepaid).

Chile

At the end of the third quarter, EBITDA increased 8% in local currency compared 
to the same period in the previous year (-7.8% in euros). There was a notable 
increase in long distance revenues, due to the positive performance in traffic, 
which offset lower revenues from the leasing of international circuits due to 
lower tariffs. Regarding the operating expenses, it is noteworthy that there was
a reduction in personnel expenses as the restructuring plan resulted in a 25% 
decrease in the number of employees in September.

In August, Telefonica CTC Chile signed a new agreement with Publiguias, 
retroactively effective from July 2001 to June 2006 and providing terms more in 
line with the market. This has generated positive non-recurring revenues (18 
million euros) from the early termination of the current agreement.

There was a 3.4% increase in the number of lines in service in relation to the 
same period last year. In addition, there was a significant drop in the 
percentage of unused capacity (-2.0 p.p. compared to 2000). The company has a 
significant leadership position in the domestic long-distance market, with a 
market share of 38.1% (+2.5 p.p. in relation to the year 2000), caused by to the
successful launching of semi-flat rates in September 2000 for domestic long 
distance, and in March 2001 for international long distance.

Peru

In the third quarter, Telefonica del Peru showed a slight decrease (0.5%) in the
local currency EBITDA (+5% in euros), while gross operating revenues in local 
currency remained steady (+6.2% in euros). The most significant increases in 
revenues occurred in the installation charge, public telephones and 
interconnection, which offset the poor performance of long distance revenues as 
increased competition reduced the domestic and international long distance 
market share of the Company.

Since September the company started to implement the new price cap (CPI-6% 
annual), with rates adjusted on a quarterly basis. The productivity factor will 
have repercussions on the generation of revenues for the company over the next 
three years.

As part of the continuous review of the internal procedures and information 
systems, the company decided to conduct this year an in-depth analysis of its 
balance sheet. This in-depth analysis, aimed at applying accounting principles 
more consistent with the current environment, led to adjustments in the 
financial statements of the Company thus recognizing higher extraordinary 
expenses in the amount of 243 million new soles (77 million euros).

It should be noted that despite the aforementioned adjustments, which resulted 
in negative net income of 48 million new soles (15 million euros), the company 
has once again demonstrated this quarter its ability to generate cash flow.
This, along with the low level of investment, allowed for a year-to-date 
reduction of financial debt of over 112 million euros. Telefonica del Peru has 
maintained a very competitive investment to revenue ratio, which hovers around 
11%.

With regard to operations, the ADSL product was launched on August 8, joining 
the cable modem service already in the market. The ADSL product is one of the 
linchpins in the operator's plan for developing the broadband segment, which 
calls for expanding the range of Internet access products, with 5,065 lines in 
service covering ADSL and cable modem.


CELLULAR BUSINESS

TELEFONICA MOVILES GROUP

In the first nine months of 2001, Telefonica Moviles had combined pro-forma net 
earnings of 670.2 million euros, for a year-on-year increase of 37.6%. The 
growth recorded in the third quarter (+30% vs. 2Q01; +71% vs. 3Q00) shows that 
2001 net earnings continue to rise at a faster rate along the first three 
quarters of 2001. In addition, the increase in net earnings was accompanied by a
significant increase in cash flow, which totaled 1,072 million euros at the end 
of September.

The solid results obtained in this period are further noted for their quality, 
reflecting the efforts made to improve the profitability of the businesses 
despite the adverse impact of Latin American exchange rates on the income 
statement. In this respect, it should be noted that although the third quarter 
2001 results included for the first time the Mexican companies acquired in the 
month of July (whose earnings for the July-September 2001 period were 
consolidated using the global integration method), the year-on-year growth rates
of the main income statement items reflect the natural growth of operations, 
since the changes that occurred in the pro-forma consolidation perimeter over 
the last twelve months have not had a significant impact on those figures.

In terms of the operating and financial performance of Telefonica Moviles over 
the first nine months of 2001, it is worth highlighting the following:

- Steady growth of operating revenues, with a year-on-year increase of 12.7% and
a 10.1% quarter-to-quarter (3Q01 versus 3Q00) increase, despite the adverse 
effects of exchange rates. Excluding the effect of exchange rate fluctuations, 
consolidated year-on-year revenues would have grown by 15.3%. Excluding as well 
the effects of accounting for the rewards programs, the Group's year-on-year 
revenues would have grown by approximately 18%.

In terms of geographical areas, Spain accounted for 68% of the Group's revenues,
with an 18% increase in sales compared to September 2000. The revenues of the 
Latin American operating companies, which were consolidated in euros using the 
global integration method, reflected an increase of 4% compared to September 
2000. Excluding exchange rate fluctuations, the year-on-year increase in 
revenues would reach 12%.

Revenue performance stems from the increase in the customer base of the fully 
consolidated operators (+28%; +22% excluding the Mexican companies) and the 
higher traffic handled by such operators (+30.4%). Such growth rates were partly
reduced by lower ARPUs (average -14% in euros), and by the aforementioned 
exchange rate effects.

The upward trend in net additions in both Spain and Latin America in the third 
quarter of 2001 should be noted. This illustrates the positive results of 
customer management policies implemented by the companies and the simultaneous 
decrease in the churn rate in all regions. Thus, at the end of September 2001 
the operators in which Telefonica Moviles held an interest had 26.2 million 
active customers. Including the customers of the operating companies in Chile 
and Puerto Rico, the customer base serviced by Telefonica Moviles at the end of 
September 2001 totaled 27.9 million active customers, an increase of 6.5 million
over the last twelve months.

The results of serious cost control efforts are reflected in the performance of 
the operating expenses, that remained at September 2000 levels (+0.3%) and 
dropped 5.7% in the third quarter of 2001 compared to the same period of the 
previous year. Thus, operating expenses fell by more than 7 p.p. with respect to
September 2000.

This performance is even more remarkable considering that the 2001 expenses 
include the cost of expanding operations in the four European countries, in 
addition to Spain, where Telefonica Moviles has obtained third-generation 
licenses.

* Improvement in all margins, reflects the Company's ongoing efforts to increase
the profitability of its operations. Noteworthy is the performance of EBITDA, 
with a year on year increase of 35.5% (over 22 p.p. higher than the increase in 
operating revenues) and accounting for 41% of sales. This figure represents an 
increase of nearly 7 p.p. with respect to September 2000. In the third quarter 
of 2001, the EBITDA margin grew by more than 9 p.p. with respect to the similar 
prior-year period (43.8% vs. 34.3%), and 3.6 p.p. with respect to the previous 
quarter.

Telefonica Moviles Espana contributed with 755 million euros to the growth of 
the consolidated EBITDA, achieving an EBITDA margin of 49.8%. The combined 
EBITDA of the globally consolidated Latin American companies, in euros, fell 
1.2% compared to September 2000, despite the adverse effect of exchange rates. 
Excluding such effect, the combined EBITDA of these operators would have 
increased 14%, while the Group's EBITDA would have grown 39%. Combined 
operations in the rest of Europe during the launching stage contributed a 
negative EBITDA of 58 million euros.

In addition, there was an improvement in the EBIT margin, which increased (as a 
percentage of operating revenues) by more than 5 p.p., reaching 25.7%, despite 
higher allowances for the depreciation of fixed assets. In absolute terms, the 
EBIT totaled 1,583.7 million euros, which represents a year-on-year increase of 
40.8%.

* Year on year increase in net income of 37.6%, surpassing in the first nine 
months of 2001 the net earnings for the entire year 2000 (590.6 million euros).

With regard to non-operating results, the performance of net financial expenses 
(+7.6% compared to September 2000) can mainly be accounted for by fluctuations 
in Latin American exchange rates, partially offset by adjusting the debt 
structure to an environment of falling interest rates. The fact that most of the
debt is tied to variable exchange rates resulted in a 36.5% decrease in net 
financial expenses in the third quarter of 2001 in relation to the same period 
last year. It should be noted that the balance of the net consolidated financial
debt (10.377 billion euros), fell slightly related to June 2001 despite the 
acquisition of the Mexican operators in the third quarter, which together 
contributed 211 million euros. The proportional net debt at the end of September
totaled 6.9 billion euros, practically unchanged in relation to the second 
quarter.

The goodwill amortization increased by 39.5%, reflecting for the first time the 
goodwill accounting entry resulting from the global consolidation of the four 
Northern Mexican operators.

The higher non-recurring negative results stem primarily from special reserves 
created in the first quarter of the year, and the writedown of assets of certain
Latin American subsidiaries in the third quarter.

Capitalized expenses for the period January-September 2001 are including the 
spectrum fee related to the frequencies allocated to Telefonica Moviles Espana 
for the provision of services under UMTS technology, being 122 Million Euros the
amount due for the first nine months of the year. In addition, a range of 
operating and financial costs linked to the commercial launch of services in 
Germany, Italy, Austria and Switzerland, have also been capitalized. On 
aggregate, these costs amounted to 319 Million Euros, from which the share of 
Telefonica Moviles was 148 Million Euros.


PERFORMANCE OF BUSINESSES BY GEOGRAPHIC AREA

EUROPE AND THE MEDITERRANEAN BASIN 

Spain

Telefonica Moviles Espana ended September with slightly more than 15.6 million 
active customers (17 million registered customers), presenting a year-on-year 
growth rate of 22%. Of these, 10.5 million are prepaid and 5.1 million are 
contract customers. Mobile telephony penetration is at 68.7% in Spain, 
representing 40.5 million residents.

Net adds for the third quarter, 767,238 active customers, represents a 26.4% 
increase over the prior quarter as a result of the seasonal nature of the 
business, associated with the vacation period. Nonetheless, a certain degree of 
renewed market activity has been detected since the last quarter, now that the 
initial impact of subsidy elimination in prepaid has been absorbed. Despite the 
seasonal nature of the summer period, the increase in net gain in Spain compares
favorably to the performance of the major European operators in the same period.
This same seasonal component has a positive effect on traffic and on financial 
performance, since traditionally the summer months see the heaviest use of 
mobile phone services, additionally affected by the increase in the number of 
roamers on our network.

Once again, as in the previous quarter, it is important to emphasize the effect 
that the change in cycle is causing to the business. After the significant 
growth of recent years, the current challenge to all operators lies on 
successfully managing the customer base and continuously increasing customer 
satisfaction. Both aspects act as ways of keeping the level of customer 
confidence in the company and encouraging use without relinquishing the 
significant potential for profitable growth that still exists.

In this context, the quarter-to-quarter results show that Telefonica Moviles 
Espana is appropriately managing such change in the environment. Our customer 
churn levels, on a year-on-year basis, were 12.6% during the third quarter. This
is one of the best records in the industry despite the use of strict criteria to
account for disconnections. It is also important to point out two aspects of 
this indicator: (i) there are no significant differences in the degree of our 
customers' loyalty regardless the method of payment chosen, due to the excellent
performance of our prepaid customer base, even taking into account the 
improvements in postpaid churn in recent months, and (ii) the economic impact of
disconnections (economic churn) is still lower than the usual ratio measured in 
client terms, because the average quality of the disconnected customers is 
notably lower than the average quality of the Telefonica Moviles Espana customer
base.

To achieve these levels, the company has focused on improving satisfaction and 
quality of service by various means, notably the Points or Rewards Programs. The
company does not expect the impact of these Programs, in relative terms, to 
increase significantly in the future, being a variable cost dependent on the 
value of each customer and much more efficient and controllable than the usual 
subscriber acquisition costs prevalent in the industry.

In this respect, Telefonica Moviles Espana has considerably reduced its unitary 
subscriber acquisition costs (SAC) in order to ensure a profitable and 
sustainable model without renouncing to growth in any way. This indicator has 
dropped almost 40% in comparison to the previous year.

A more stable customer base, combined with the increase in the use of new 
services and applications, is reversing the downward trend in minutes of use 
(MOU). This is becoming noticeable in the comparisons between quarters; From the
levels noted at the end of the previous fiscal year, which were affected by the 
high percentages of relative growth of the customer base, we are seeing 
increases of five minutes per user per month in the MOU as compared to the 
fourth quarter of last year. Overall, the number of air minutes reached 19,455 
million, about 30% more than in the first nine months of the year 2000.

The traditional measurement of use based on traffic must be supplemented with 
the new opportunities for communication arising from the data business, the best
indicator of which is the short message service or SMS, now used regularly by 6 
out of every 10 customers. The number of billable SMS per month for the average 
TME customer is 26.7 messages, and the total number of messages per customer - 
comparable to the figures reported by the other operators (which include non-
billable messages associated with certain services, such as chat services) is 
32.7, representing an increase of 115% over the previous year. During the first 
nine months of the year, total billable SMS were 4,351 million, 192% more than 
in the first nine months of 2000, which means that out of every 100 times our 
customers use their mobile phones for any type of communication, they use short 
messaging some 40 times.

This trend can be extrapolated to the Wireless Internet Service Provider (WISP) 
'e-mocion,' whose registered customers exceeded a million and a half last 
August, up from 225,000 at the start of the year, thanks to the most varied and 
complete offering in the Wireless Application Protocol (WAP) services market 
(180 content providers at the end of September). The service has logged more 
than 165 million page views during the current fiscal year, with the first 
Premium services being offered last June, These involve a payment to content 
providers in addition to the payment for traffic. The applications that provide 
higher added value to customers will be segmented.

Total data services revenues represented slightly more than 13% of total 
customers revenues during the quarter, while twelve months ago this percentage 
was just 8%.

As a consequence of all these factors, and in view of the seasonal nature of the
business, we can say that there are signs of recovery in ARPUS (Average Revenues
per User). For the first time in the recent history of the company, ARPUS have 
grown (approximately 3%) as compared to the prior quarter. Over a longer time 
span, the reduction in ARPU, as compared with the third quarter of 2000, is 8%, 
when just twelve months ago the reductions were approximately 23%.

A general improvement in the main management indicators, along with strict cost 
control, have resulted in a general improvement in earnings, the best indicator 
of which is operating margins, which make Telefonica Moviles Espana one of the 
most efficient and productive European operators;

* Operating revenues in the first nine months of 2001 reached 4,217,3 million   
  euros, equivalent to a 17.6% increase over the same period last year. Third   
  quarter revenues (1,546.3 million euros) exceeded second quarter revenues by  
  approximately 13%. It is important to recall that the amounts accrued by      
  customers as 'points' in the reward programs are posted as lower revenues.    
  Thus, excluding the effects of that accounting procedure, revenues would have 
  grown by 21%.

* Operating expenses, which do not include UMTS fees, came to 2,186.2 million   
  euros, which is lower than the operating expenses for the same period last    
  year (2,279.8 million euros). This highlights the company's strong cost       
  control efforts, along with the decrease in the rate of market growth         
  throughout the fiscal year.

EBITDA was 2,098.9 million euros, some 56.2% higher than in the first nine 
months of 2000, with a growth rate much higher than that of revenues or the 
customer base because of the higher operating efficiency and the significant 
reduction in subscriber acquisition costs. This is reflected in third quarter 
EBITDA growth of 29.1% compared to second quarter, which compares with the 
previously-cited 12.8% for revenues. The EBITDA margin for the fiscal year to 
date is 49.8%, as compared to 55.2% for the third quarter of 2001.

Rest of Europe

In recent months, Telefonica Moviles and Sonera have continued to make progress 
in revising the Group 3G business plan in order to improve the company's 
financial projections. In this context, Group 3G signed an agreement with E-Plus
to share UMTS infrastructures. This provides for the sharing of locations and 
third generation radio network equipment, and for geographic distribution of the
network to areas with lower population density, with significant savings in 
terms of the initially anticipated investment and operating expenses. 
Furthermore, Group 3G is in talks with other German operators. These talks may 
result in their inclusion in the agreements, which would pave the way for an 
additional reduction in investments and operating expenses associated with 
network deployment, and would also reduce the company's financing needs.

In view of these factors, which involve a significant reduction in initially 
estimated investment and operating losses, Telefonica Moviles and Sonera have 
agreed that the loans provided by shareholders to finance the acquisition of the
license are to be deemed equivalent to capital and become permanent Company 
funds, thus reinforcing Group 3G's capital structure.

In early October, Group 3G presented the brand under which it will provide 
services in Germany; Quam.  With respect to the distribution network, the 
company plans to open several stores of its own before the end of the year, and 
has already finalized agreements with various distributors who will provide more
than 1500 points of sale when the services are launched. Once the GSM/GPRS 
services are launched, in the coming weeks, most of the expenses that until now 
were capitalized as start-up expenses will be considered current expenses.

In Italy, IPSE 2000 signed, in August, a preliminary nationwide roaming 
agreement with Omnitel for GSM/GPRS services, supplementing the interconnection 
agreement reached with Telecom Italia in June. Talks are ongoing with other 
operators to study the possibility of sharing UMTS network infrastructures.

In Austria and Switzerland, where interconnection agreements have been signed 
with other operators, Telefonica Moviles will limit its investment until the 
roaming and infrastructure sharing agreements with other operators, currently 
being negotiated in both countries, are concluded.

Telefonica Moviles will continue to manage operations in Austria and Switzerland
to achieve improvements over these companies' initial business plans, 
significantly reducing the commitment of resources and maintaining the 
flexibility needed to face potential changes in the regulatory and competitive 
fronts. The objective is to improve the options in connection with the positions
taken in these countries.

Morocco

At the end of September 2001, Medi Telecom had a client base of 892,146 active 
customers, for a year-on-year increase of more than 170%. With cumulative net 
adds for the fiscal year of more than 377,000 new customers, the Company has 
exceeded, in the first nine months, the customer base anticipated for the entire
year 2001.

With respect to Medi Telecom's economic performance, the trend toward positive 
EBITDA has continued over the last three months, For the first time since it 
began operations, it has achieved a positive quarterly EBITDA, thus making 
progress toward the objective of closing out fiscal year 2001 - its second year 
of operation - having reached the break-even point.





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