3rd Quarter Results

Telefonica SA
14 November 2002

Quarterly Results

January - September 2002

Note: The financial statements for the January- September 2001 period do not
reflect the change in the fiscal year for Telefonica de Argentina, Telefonica
Data Argentina, Telefonica Comunicaciones Personales (TCP) and Cointel to adapt
them to the Group's fiscal year. As a result of this, the consolidated period
for these assets is October 2000- June 2001

TELEFONICA GROUP

Financial Highlights

The most noteworthy aspects of Telefonica Group results during the first nine
months of the year are the following:


  • Net income as of September (-5,036.1 million euros) was negatively
    impacted by extraordinary results and the effect of the devaluation in
    Argentina. If both were excluded, net of their corresponding tax effects,
    the net income would have been 1,509.3 million euros.

  • Strong growth in free cash flow generation (EBITDA-Capex), up 44.3% to
    6,425.2 million euros, as a consequence of operating efficiencies and strict
    controls on capex (-51.7% from year over year).

  • A decrease in the level of debt during the last twelve months of some
    5,155.5 million euros, reaching an absolute level of 24,575. 0 million
    euros.

  • EBITDA margin reached the highest level of the period (41.6%). Revenues,
    EBITDA, and operating profit growth rates (excluding the exchange rate
    evolution and the change in the consolidation perimeter) are all significant
    (4.4%, 4.1%, and 6.1%, respectively).

  • The positive recovery in Telefonica de Espana's results from the first
    half of the year, in line with announced forecasts. EBITDA growth for the
    third quarter (+4.0%) changes the downward trend registered during the first
    two quarters of the year (-10.3% and -2.2%, respectively).

  • The cellular telephone business continues to be the largest contributor to
    the Group's growth, showing significant progress at the operating level
    (customer base +20.1%) and strong financial performance (revenues +10.3%,
    EBITDA +12.2%). EBITDA margin increased to 41.2%.

  • Regarding the balance sheet, the devaluation in Argentina had a financial
    impact net of taxes of 1,700.4 million euros for the first nine months of
    the year (398.2 million euros directly through the P&L). This effect is
    additional to the one recorded in 2001 (1,793.1 million euros, 369.0 million
    euros directly through the P&L). The country's exposure as of September 30,
    2002, was reduced to 942.9 million euros.

Telefonica Group Results

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

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



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

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

During the first nine months of current fiscal year, Telefonica Group obtained
net losses of 5,036.1 million euros compared to net income of 1,591.0 million
euros in the same period last year. This result is explained by the following
factors:


  • Accounting for net extraordinary provisions amounting to 4,837.5 million
    euros in the second quarter. These provisions were associated with the
    write-down of assets and the provision for restructuring costs of UMTS
    businesses in Germany, Austria, Italy and Switzerland. Furthermore,
    Mediaways' goodwill was written down in the amount of 530.0 million euros.

  • Additional negative extraordinary results totaling 988.8 million euros
    during the January-September 2002 period compared to positive 92.9 million
    euros for the same period last year. The following are the most noteworthy
    items: 1) Provision made to adapt the treasury stock to market values
    totaling 375.1 million euros, 86.9 million euros of which correspond to the
    third quarter of the year. As of September 30, the Group held 1.91% treasury
    stock. According to Spanish accounting standards, a provision must be made
    in the fiscal year results for the difference between the average stock
    purchase price (12.11 euros) and the reference price, which is either the
    closing price at the end of the period (7.54) or the average stock price
    during the last quarter (8.93 euros), whichever is lower. Nevertheless, it
    is important to note that this provision would decrease by 122.3 million
    euros if the October reference price were used (8.84 euros); 2) Capital
    losses from the sale of the equity investments totaling 94.0 million euros
    versus capital gains of 261.4 million euros as of September 2001,
    fundamentally explained by the sale of Azul TV and ETI Austria; 3) Headcount
    restructuring charge at Telefonica Latinoamerica (59.2 million euros), 20.8
    million of which corresponds to Telefonica CTC Chile and 4) Lower positive
    extraordinary results in the amount of 420.5 million euros related to the
    provision for its fixed assets made in prior fiscal years by Telefonica de
    Espana.

  • The impact of the devaluation of the Argentine peso during the first nine
    months of the year, totaling 398.2 million euros on the Group's results, and
    lower reserves of translation differences in consolidation by 1,302.2
    million euros resulting from the depreciation of the peso from 1 US$ to 1.7
    pesos (1 euro to 1.51 pesos) to 1 US$ to 3.74 pesos (1 euro to 3.68 pesos).


    As indicated on the results for the first half of the year, as of June 2002
    an impact had been accounted for in the Group's results of 445.7 million
    euros, using an exchange rate of 1 US$ to 3.80 pesos (1 euro to 3.41 pesos).
    Part of the difference between the cumulative effect as of September and
    June corresponds to the appreciation of the exchange rate.

    As of September 30, Telefonica Group's exposure in the various Argentine
    companies decreased to 942.9 million euros, including in this figure the
    equity value, the goodwill, and internal financing attributable to these
    investments (once incorporated the losses before any fiscal effect which
    totaled 610.9 million euros).


  • Positive net income tax for the consolidated companies was 206.3 million
    euros. In this result, it should be highlighted, apart from the impact of
    some of the writte-downs undertaken, the fiscal impact of credits derived
    from tax deductions and payments pending fiscal application. Following
    prudent accounting criteria, no doubts exit as to their application in the
    future. Mainly, these deductions were recorded in the first quarter of the
    fiscal year, amounting of 296.0 million euros as of September 30, 2002, and
    they were accounted for pursuant to the stipulations of the March 15, 2002,
    Resolution issued by the Spanish Accounting Regulator (ICAC), as well as in
    accordance with prior international accounting standards.

Excluding all of the extraordinary results, net of their fiscal effects, and the
effect of Argentina, the net income during the first nine months would have been
1,509.3 million euros. During the third quarter of the year, net income totaled
538.1 million euros, recording a 21.6% growth compared to the third quarter
2001.

Apart from the above circumstances, and from an operating point of view,
Telefonica Group managed customer base totaled 77.2 million at the end of
September, nearly 6.0 million more than the same period of 2001 and 1.8 million
more than in June 2002. If the total clients were considered, they would reach
82.4 million, 8.2% above September 2001 figure and 2.3% over last quarter.

This growth is primarily based on the growth of the cellular business.
Telefonica increased the mobile managed customers in the last twelve months by
5.6 million (1.9 million in the last quarter), a significant pace when one takes
the macroeconomic conditions in Latin America and the level of penetration in
Spain into account. It should be mentioned that in the last quarter Pegaso's
customers are included for the first time.

The Group's ADSL connections showed significant growth, totaling 1,151,084 in
September 2002 (747,019 in Spain and 404,065 in Latin America), 192.2% more than
last year, with Spain contributing the most (+234.7% vs. 136.5% for Latin
America).

Broken down by region, Spain continues to represent approximately 51% and Latin
America 46% of the total managed customer base, similar levels with those of
last year.

During the nine months of this fiscal year, Telefonica Group's consolidated
results showed better operations performance than last year, with growth in
revenues, EBITDA and operating profit, excluding the exchange rate impact
(strong depreciation of Latin American currencies, especially the Argentine peso
throughout the period and the Brazilian real during the last quarter) and the
change in the accounting consolidation perimeter.

Strict control of operating efficiency and capex translated into growth in cash
flow generation. Thus, the generation of cash flow, calculated as EBITDA-CAPEX,
for the January-September 2002 period has reached 6,425.2 million euros, up
44.3% from the same period last year. By business lines and in this same period,
it should be highlighted the levels reached by both cellular business (2,243.7
million euros, +63.5%) and Telefonica Latinoamerica (2,195.7 million euros,
+17.7%; +60.9% in constant euros), while Telefonica de Espana's cash flow
generation remained practically unchanged from last year, totaling 2,223.6
million euros. Capex dropped from year to year by 51.7% to 2,503.7 million
euros. In addition, the level of net debt also decreased, totaling 24,575.0
million euros as of September 30, 1,213.8 million euros below the end of the
first half.





Operating revenues for January-September 2002 reached 21,467.0 million euros, 7%
less than the same period 2001 mainly due to the drop of Telefonica
Latinoamerica (-28.6%) because of the greater impact of the exchange rate (in
constant euros it would have only fallen 0.7%). The exchange rate effect was not
offset by the growth in the cellular business (+10.3%) and the improvement in
the year-over-year growth of Telefonica de Espana (+0.2% vs. -0.6% in the first
half of the year). It is worth to note the growth in the revenues of Telefonica
Moviles Espana (+19.2%) and Telesp in local currency (+10.6%) as of September.

The effect of the exchange rate decreases by 12.5 percentage points revenues
growth, 2.5 percentage points more compared to June this year; therefore, if we
were to exclude this effect and the change in the accounting consolidation
perimeter, consolidated revenues would have increased by 4.4% compared to 4.1%
the first half.

Broken down by business lines and in absolute terms, Telefonica de Espana is the
company that contributed most to the Group's revenues (35.8%), followed by
cellular business (32.8%) and T. Latam (25.3%). As of September 2001, Telefonica
de Espana remained as the greatest contributor to the revenues (33.2%), followed
by Telefonica Latinoamerica (33.0%) and the cellular business (27.7%).

By geographical areas, its worth mentioning: the increase of Spain's
contribution to the total (57.8% versus 49.9% in September last year) and the
decrease of Argentina weight in revenues, which went from 12.8% in September
2001 to just 3.8% in September 2002.

As for operating expenses, during the first nine months of the year they have
totaled 12,588.4 million euros, down 5.5% from the same period of 2001. This
performance is attributable to the policy for cost control and to the
efficiencies attained in all business lines (for example, Admira Media -29.9%,
T. Latam -26.3%, Terra Lycos -21.4%). Telefonica de Espana and the cellular
telephone business continue to be the only business lines presenting annual
growth in operating expenses. In the first case, this is explained by the
rollout of retail ADSL, and in the second case it is because of the centralized
handset purchase model, greater expenses at the European operators, and the
change in the accounting consolidation perimeter.

Control over bad debt continues to show positive progress. In this way, the
ratio of bad debt to revenues totaled 2.3% in September 2002, representing an
improvement of 0.8 percentage points over last year, basically due to Telefonica
de Espana (1.5% vs. 2.4%), which faced bad debt from PUT-Public Use Telephony-
traffic resellers in 2001, and a slight improvement over June 2002 (0.1
percentage points). It should be noted that Telefonica de Argentina reached a
7.7% ratio compared to the more than 9% it had registered during the first and
second quarters of the year.

As a result of the performance described above in revenues and operating
expenses, the cumulative EBITDA for the nine months of the year totaled 8,928.9
million euros, 7.4% below the level reached in the same period of 2001. If this
percentage were adjusted for the exchange rate and the change in perimeter,
EBITDA would have grown 4.0%. The EBITDA margin registered a 0.1 percentage
point improvement over June, placing it at 41.6%, the highest level of the
fiscal year.

Broken down by geographic area, as for revenues described above, Spain is
significantly increasing its contribution to the consolidated EBITDA (67.6% vs.
58.3% last year), and Argentina falls to 3.4% (11.4% in September 2001). Brazil,
in spite of the depreciation of its currency, holds steady its contribution
around 21%.

Telefonica de Espana is the business line that contributes most to the Group's
EBITDA in absolute terms, representing 37.7%. This reverts the previous trend,
according to which as of September 2001 Telefonica Latinoamerica was the
strongest contributor (40.0% versus 29.5% as at the end of the third quarter
2002). Telefonica de Espana's cumulative EBITDA as of September totaled 3,370.1
million euros, representing a year-over-year drop of 3.3%, 3 percentage points
less than during the first half of the year. This improvement follows the
recovery expected over the year, in line with the forecast announced for an
EBITDA at year's end similar to last year's (in revenues, Telefonica de Espana
expects an absolute figure similar to 2001). In quarterly terms, Telefonica de
Espana's EBITDA changed the downward year-over-year trend of the first quarters
of the year (-10.3% and -2.2%, respectively), by growing 4.0%.

The cellular business has experienced the greatest growth in its contribution to
the Group's consolidated EBITDA. It represented 26.9% in September 2001 and
32.5% on the same date of 2002. Thus, in absolute value, the EBITDA of cellular
business has reached 2,905.5 million euros, 12.2% more than for the same period
last year, with a 41.2% margin (40.9% in June), driven once again by the margins
attained by Telefonica Moviles Espana (51.9%).

The EBITDA of Telefonica Latinoamerica fell 31.7% to 2,635.1 million euros from
the first nine months of 2001, due to the depreciation in local exchange rates
against the euro. If this impact were excluded, the drop in the EBITDA would be
reduced to 4.1%, since the good performance of Telesp in local currency (+9.4%)
was unable to offset the drops of the rest of the operators also in local
currency (TASA -18.7% -from the period consolidated the previous year-, CTC
-9.4%, and TdP -7.3%).

The operating profit (EBIT) up to September fell 8.5% to 3,805.5 million euros,
as a consequence of a 6.6% year-over-year reduction in depreciations (-1.6% in
the first half of the year) due to the greater effect of the exchange rate.
Growth adjusted for the exchange rate and the change in the perimeter would have
been 6.1%.

Financial expenses rose 2,010.9 million euros during the first nine months of
the year, 49.3% over the same period last year. This growth, however, is driven
by the depreciation of the Argentine peso over the period, which placed it at
608.3 million euros. If these effects were excluded, the amount of financial
expenses during the nine months of the year would have been 1,402.6 million
euros, a level similar to the same period last year.

Net debt at the end of the third quarter 2002 was 24,575.0 million euros, down
4,366.6 million euros from the debt at the end of 2001 (28,941.6 million euros).
Two factors contributed to the net debt reduction: the Group's generating
operating cash flow of 3,162 million euros over the period, and by the 2,585
million euro drop in the value of debt not denominated in euros, resulting from
the euro's appreciation against the dollar and Latin American currencies. The
debt reduction, caused by these two factors was slightly offset by financial
investments over the period (1,174 million euros), and the debt increase due to
movements in financial accounts (206 million euros), including the changes in
the consolidation perimeter.

In the first nine months of the year, the Group's tangible and intangible
investments rose to 2,503.7 million euros, 51.7% down from the same period of
2001, and an 11.7% of consolidated revenues. This decrease occurred in all of
the Group's business lines, although Telefonica Latinoamerica continues to stand
out, falling 77.9% year over year, due to strict control policies and the
rationalization of capex after the attainment of Anatel targets at Telesp, the
crisis in Argentina and the impact of the exchange rate. Nevertheless, the
cyclical component of capex should be taken into account. This behavior should
therefore not be extrapolated to the end of the year.

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

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

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

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

Analysis of results by business line

FIXED LINE BUSINESS

Telefonica de Espana Group

Telefonica de Espana Group cumulative results as of September 2002 reflect the
performance expected in the fixed telephony business for this year. Operating
revenues and EBITDA grew in the third quarter 2002 by 1.7% and 4.0%,
respectively, compared to the same quarter last year. In cumulative terms, this
indicates that, as previously announed, the downward trend from last year
continues to trail off and that the forecast for the end of the year of
attaining levels in both revenues and EBITDA similar to those of 2001 continue
to hold. This forecast includes the tariff reductions made on October 31, 2002
(provincial traffic -9.69%, domestic long distance -10.41%, international -
19.00%, fixed-to-mobile -13.00% and connection fees -37.37% ) which together
with the price increase for the information services calls (+18.59%) enable the
company to comply with the CPI-8% price cap set by the Regulator for year 2002.

It is important to note the very low growth experienced by Spain's fixed
telecommunications market, where the government also subjects the dominant
operator to a very demanding regulatory framework. The estimated loss of market
share for the access business rose to 6.1% as of September (maintaining the
trend of previous quarters), where cable operators showed growth at their
competitors' expense and now represent 78% of the total lines won over by the
competition. This loss of market share has translated into a decrease of 350,460
analog lines and ISDN basic access lines from the beginning of the year. On the
other hand, the estimated number of preselected lines totaled 1,654,594. Of
these, 1,287,758 (77.8%) are globally preselected lines. The reduced growth of
preselected lines during the third quarter is influenced by lower activity
during summer vacations.

The total estimated volume of minutes processed by Telefonica de Espana reached
108,040 million, which indicates a 5.7% increase as of September. Outgoing
traffic, which totaled 72,886 million, was down 1.4% mainly due to the 7.4%
decrease in local traffic; this effect has not been entirely offset by Internet
traffic, whose growth, which continues to slow as compared to previous quarters,
is 1.6%. This slowdown of Internet traffic, which totaled 26,491 million
minutes, is mainly due to the effect of replacing switched Internet traffic with
ADSL service. In other outgoing traffic, it is worth highlighting the 4.7%
decrease in domestic long distance minutes. International traffic also fell
24.0%, because of the loss in market share, which took place after
rationalization of the traffic reseller business. On a positive note, it is
important to mention that provincial traffic grew 20.4% and fixed-to-mobile grew
4.5% as of September.

Voice traffic (outgoing-Internet) was down 3.1% in the first nine months of the
year mainly due to the aforementioned decrease in local traffic.

Incoming traffic continues to maintain sustained growth of 24.3% and totals
35,155 million minutes.

The total number of franchised plans reached 4,026,297 as of September,
presenting a net loss of 73,394 plans for the quarter. Local traffic bond
subscribers dropped to 2,694,614 from 2,748,671 in June 2002. These decreases
were due both to less activity during the summer vacations and the inability of
Telefonica de Espana to launch new discount plans after the Economic Ministry
rejected the plans originally submitted by Telefonica for approval. Worth noting
is the plan launched at the beginning of 2002, the Plan de Ahorro Larga
Distancia (a free plan that means up to 12% discount depending on monthly
consumption), which as of September has a total of 238,453 subscribers.

The minutes per line per day, as measure of total usage, totaled 22.05, up 6.2%
from last year. Traffic from the Internet business (+2.1%) and the Wholesale
business (+24.9%) are the main growth enablers.

Value-Added Services continue their upward trend, and the number of active voice
mailboxes as of September was 10,854,509. The number of Caller ID Subscribers
was 4,940,916, up 61.8% from September 2001. Of special note is the recent
launch of a new Value-Added Service, Text Messaging Services, which allow text
messages to be sent from a fixed telephone.

In this context, Telefonica de Espana Group's accumulated operating revenues as
of September rose 0.2% over the same period last year, increasing to 7,684.9
million euros. Operating revenues for Telefonica de Espana parent company
counted 7,354.0 million euros, down 0.6%, a clear improvement over the 2.8%
decrease at the end of the first quarter and the accumulated decrease of 1.1% at
the end of the second quarter.

Revenues from the traditional business, which totaled 5,838.1 million euros and
represented 79.4% of the total revenues, fell 1.9% as of September. This
decrease reflected the impact of Price Cap price cuts made in 2001 and 2002,
partially offset by the increase in the monthly fee for basic telephone service.
Effective revenues from usage (voice) were down by 13.8% compared to last year,
mainly due to the 11.5% fall in the average effective revenue per minute, which
represents a slight recovery over the accumulated figures as of June 2002.

Revenues from the wholesale business, 1,038.2 million euros, continue with the
slight downward trend expected, -3.8%, after the application in August 2001 of
the interconnection price decrease pursuant to the Reference Interconnection
Offer (OIR 2001), together with the application of a Interconnection by Capacity
model also defined in OIR 2001. These two factors, which had negative effects on
the revenues of the wholesale business, have been partially offset by the
revenue growth in the ADSL Wholesale business.

Revenues from the Internet and Broadband business totaled 477.7 million euros
and grew 30.8% over the figure for 2001, as of September.

Revenues from narrowband Internet traffic decreased by 20.6% due to the
migration of Internet switch traffic to ADSL and the growth of traffic during
off peak time due to internet flat rates.

Revenues from the retail ADSL business, commercially launched in September 2001,
reached 170.7 million euros, and users of this service, which as of September
rose to 461,973, represent 52.7% of the total Broadband accesses of the market
in Spain. Total ADSL end users reached 747,019, presenting net additions for the
quarter of 86,158 and an average daily installation rate in the third quarter of
2,205. Both figures are below those of the second quarter 2002 due to less
activity during summer vacations. Demand recovered noticeably in the month of
October, when a 78,000 ADSL lines net addition was achieved and the entire ADSL
plant in service totaled more than 825,000 users (data as of October 30). This
will allow the company to reaffirm the objective of having of 900,000 ADSL lines
at the end of fiscal 2002. Revenues generated in the period for the entire
Broadband business (including the wholesale business) rose to 235.9 million
euros, growing 190.9%.

The growth of the ADSL business, along with the increase of the monthly
subscription fee, contributed to a stronger composition of revenues, resulting,
at the end of September, in fixed revenues as 52.0% of total revenues, 7.2
percentage points above last year.

Telefonica de Espana Group's operating expenses reached 4,375.1 million euros,
4.6% more versus September 2001.

Telefonica de Espana Group's personnel expenses, which reached 1,612.3 million
euros, grew by 3.0% from the year before. The average workforce at Telefonica de
Espana parent company was -0.5%, placing the number of employees at 40,851 at
the close of the third quarter. In terms of lines per employee, average
productivity is 517.0, 1.4% greater than in September 2001.

Telefonica de Espana Group's supply expenses, totaling 1,988.4 million euros,
rose 7.2%, mainly due to an increase in supply spending at Telefonica de Espana
parent company, associated with higher fixed-to-fixed interconnection expenses,
and, to a lesser extent, the impact of the ADSL business and Telyco that
contributed to supply costs with its higher mobile terminal sales.
Fixed-to-Mobile Interconnection expenses for the parent company, representing
66.4% of Telefonica de Espana Parent Company's supply expenses, are holding
virtually steady with last year, while Fixed-to-Fixed interconnection costs rose
+34.5% because of growing competition.

Other operating expenses of Telefonica de Espana Group's totaled 649.9 million
euros, up 2.7% at the end of the period, against 8.6% during January-June. This
year-over-year change was driven by lower expenses during July-September 2002
period in Telefonica de Espana Parent Company. This comes as a result of the
effort in containing expenses as well as of the growing trend in 2001 derived
from the retail ADSL roll out.

Among other operating costs, provisions for bad debts as of September fell 39.2%
at Telefonica de Espana for the January-September period as a result of the
control initiatives that were carried out and the extraordinary charges in the
traffic resale business during the third quarter 2001, a non-recurring expense
in 2002.

Telefonica de Espana Group's EBITDA as of September 2002 rose to 3,370.1 million
euros, representing a year-over-year decrease of 3.3% compared to a cumulative
decrease of 10.3% in March, and 6.3% in June. The Group's EBITDA margin now
stands at 43.9%, 1.6 percentage points below September 2001, while the parent
company's EBITDA was at 45.7%, 1.2 percentage points below last year.

As stated above, Telefonica de Espana Group's third quarter results reveal a
trend of recovery from the same quarter last year. Thus, operating revenues for
the third quarter rose from the same quarter last year by 1.7%. (The change for
1Q02/1Q01 was -2.7%; for 2Q02/2Q01 was +1.6%). The EBITDA fell 10.3% and 2.2% in
1Q and 2Q, respectively, rising 4% in the July-September period from the same
period last year.

As a result of the company's operating performance and Telefonica de Espana's
decreasing amortization levels, which fell 3.7% because of fewer investments
made in the period and the increase in the fully amortized plant in service,
Telefonica de Espana Group's operating results totaled 1,333.4 million euros,
2.6% below the results obtained in September 2001 (-22.6% in March and -12.0% in
June). Operating results for the third quarter this year rose by 29.5% over the
same quarter last year.

Tangible and Intangible Investments of the parent company as of September 2002
totaled 1,133.9 million euros, down 9.1% from the same period last year.

Of the total tangible and intangible investments, 54.1% are for recurring
investments making up our Traditional Business (PSTN, ISDN, Circuits...), while
the other 45.9% was allocated for business-transforming investments,
fundamentally the rollout of ADSL and new services run on broadband.

Telefonica de Espana operating company Free Cash Flow, defined as the EBITDA
minus capex, minus net financial expenses and less corporate taxes, rose to
1,765.8 million euros, up 14.5% from September 2001.

Telefonica Latinoamerica Group

Beginning 2002, the fiscal year of Telefonica de Argentina and Cointel runs from
January to December, coinciding with the rest of the Group's companies. However,
Telefonica Latinoamerica's 2001 financial statements include the accounts of
TASA and Cointel, with a one-quarter delay (October 2000 - June 2001).

The nine months of the year were affected by the instability of Latin American
markets, reflected in the negative behaviour of the currencies, which, up to
September, continue to depreciate against the dollar. In year-over-year terms,
all currencies show significant fluctuations versus the dollar (Brazilian real,
-14.4%; Argentine peso, -67.0%; Chilean peso, -7.2%; and Peruvian sol, -4.4%).
This downward trend in the exchange rates, coupled with a 3.2% depreciation of
the dollar against the euro, has had a significant impact on Telefonica
Latinoamerica's results, raising the 4.1% decrease in EBITDA in constant
currency to 31.7% in current euros. Despite this evolution, and thanks to the
effort to rationalize capex, a noticeable increase in aggregate FCF of operators
has been recorded, reaching 1,557.8 million euros, 45.4% more than last fiscal
year.

Operating revenues totaled 5,434.2 million euros, down 0.7% in constant euros
(-28.6% in current euros), because the growth in Telesp's revenues has not
offset lower revenues in TASA and CTC:


  • Telesp: revenues rose 10.6% in local currency thanks to an increase of the
    average lines in service and the tarrif increase at the end of june, which
    has offset the fall in local traffic per line.

  • TASA: the 14.7% drop in revenues (-14.0% from the same period last year)
    is the result of the economic crisis that is having an impact on the
    decrease in lines in service and in use per line, especially for long
    distance.

  • At CTC, revenues fell by 5.7% in local currency affected by the
    cannibalization of the mobile telephony sector and the deterioration of the
    market for long distance, and also by the change in the contract with
    Publiguias, and the consolidation of Sonda by the equity method since
    September 2002.

  • TdP's revenues, which grew slightly (+0.4%) in local currency, were
    affected by increased long distance competition, which has led to price
    pressure, which has had a negative impact on market share.

Telefonica Latinoamerica's total operating expenses rose to 2,886.0 million
euros, with slight year-over-year growth of 0.7% in constant euros (-26.5% in
current euros), a -3.8% drop if interconnection costs are excluded. The effort
to contain costs is reflected in virtually all operators, particularly:


  • Telesp; although its costs were up by 9.3%, year-over-year growth was
    achieved due to greater business activity at the company level, with lower
    personnel expenses stemming from the restructuring of the workforce.

  • TASA reduced its expenses by 21.1% in local currency (-7.5% from the same
    period last year) as a result of the cost-control policy implemented
    throughout the organization. The successful costcutting came despite a
    greater provision for bad debts and the effect of the dollarization of some
    expenses.

  • As for CTC, the 3.6% drop in local currency also reflects the lower
    personnel expenses associated with the layoff plans implemented in June
    2001.

  • TdP's expenses grew 4.0%, which remained practically unchanged if
    interconnection costs are excluded.

As a result of this development of revenues and expenses, the EBITDA for the
first nine months totaled 2,635.1 million euros, with a decrease of 31.7%. The
exchange rate depreciation explains nearly 28 percentage points of this drop,
and if this effect is eliminated the EBITDA evolution would be -4.1%, reflecting
decreases at the various operators (TASA -18.7% considering the period
consolidated in 2001, CTC -9.4%, TdP -7.3%). The positive behavior of Telesp
(+9.4% in local currency) cannot offset these results.

In non-operating results, the nonrecurring items deserves mention. This reached
-109.5 million euros versus +13.9 million euros up to September 2001, a period
in which a capital gain was registered from the sale of the interest in
Cablevision (256 million euros). Extraordinary income primarily include expenses
associated with the workforce restructuring plans implemented at the various
operators (CTC in October, Telesp in May, and Telefonica del Peru in June) and
the adjustments in the market value of holdings in publicly traded companies.

Net financial results total -1,101.6 million euros, including the effect of the
adjusted debt in Argentina (TASA, THA and Cointel) to the exchange rate at the
end of the period (3.74 pesos per US$1), which totals -521.5 million euros (in
the first semester, 589.2 million euros were registered). This effect is in
addition to the one recorded at the close of 2001 on Telefonica Latinoamerica's
financial statements, which showed an exchange rate of 1.7 pesos per US$1 (460.0
million euros). If the effect of the Argentine peso devaluation were isolated,
the net financial result for the January-September period would be -580.1
million euros, down 2.8% from the same period last year as a result of lower
interest rates and lower average debt at the various operators. The exception is
Telesp, where the average debt, although down from the month of January, is 44%
above last year (in local currency) because of the investment effort carried out
in 2001.

Up to September, Telefonica Latinoamerica accumulated a positive tax provision
of 52.6 million euros versus a negative tax of 319.6 million euros in 2001,
mainly from deductions in Exporter Activity and Deferment for Reinvestment in
TISA totaling 67.5 million euros, in addition to losses for exchange differences
due to the devaluation of the Argentine peso. These two effects are able to
offset the tax provisions of the rest of the operators and holdings.

Due to all of this, the net result totals -195.6 million euros versus a profit
of 851.3 million euros registered in September 2001.

Total CAPEX, on aggregate, totaled 439.4 million euros, down from year over year
by 77.9%, as a result of the effort in rationalizing investments and the
exchange rate effect, which places the CAPEX to revenues ratio at 8.1% as
opposed to 26.0% in September 2001.

As of the end of September, Telefonica Latinoamerica is managing 21.5 million
lines, a volume somewhat less than last year (-0.6%), mainly due to fewer lines
in service at TASA and Telesp, and to a lesser extent at CTC. Last quarter,
Telesp presented positive net adds in lines in service, which partially offset
the negative net adds in the first half of the year, thanks to the disconnection
containment actions which began to be implemented in recent months. In the last
two months a stabilization in the number of TASA disconnections has been
observed, thanks in part to the line recovery measures ('zero line', 'line
control' and the recently launched 'recovery line').

ADSL and Cablemodem users (404,065 at the end of September) were up 136.5%,
basically because of the strong increase seen at Telesp (+115.5%). Furthermore,
commercial efforts made by CTC and TDP reflected in costumers net gain in 3Q02
of 11,000 and 9,000 respectively.

The fixed workforce of the combined operators at the end of September totaled
25,388 employees (27,388 including TdP affiliates). Since September, Sonda's
workforce has not been included because 25% of the holdings in this company have
been sold. Since December 2001, a cut of 1,600 employees was registered in the
fixed line operators, pursuant to the various restructuring plans the operators
are carrying out.

Brazil

Last July 26, Telesp began operating national long distance service from Sao
Paulo, complementing Telesp's international long distance service from Sao Paulo
launched by the company last May 7. In both services, Telesp is now the operator
with the second highest market share behind Embratel, having an estimated market
share of 26.0% in International Long Distance and 24.8% in National Interstate
Long Distance. On the other hand, Telesp continues to be Sao Paulo's leader in
Intrastate Long Distance, where it attained an average estimated market share of
80% for the period.

As of September, the lines in service totaled 12.6 million, holding steady at
the same levels of September 2001. However, there was a new trend in the
evolution of the lines in service during the first quarter of 2002 mainly due to
the customer disconnections control plan and recovery of bad debts (a more
flexible model for financing outstanding debt, scoring of applicants and
'restricted line') that have been applied in recent months. Thus, in this
quarter, a positive net adds of lines was registered, with 49,333 customers
versus -104,491 in the first half of the year. This postive trend has been
maintained in october, when the company registered a net adds of 44,219 lines.

ADSL lines in service as of September 2002 totaled 306,539, with year-over-year
growth of 115.5%, following the strong increase in the rate of installation of
new lines starting in the second quarter, which was the result of the various
promotions that were launched.

In the first nine months of 2002, revenues registered by the company increased
10.6% in local currency (-8.4% in euros) thanks to the increase in average lines
in service (+8.0% from year over year), the tariff increase for local services
(10.4% in June 2001 and 8.3% in June 2002), and the launch of new long distance
services. However, there was a slight slowdown of inter-annual growth in
revenues over previous quarters (+11.5% in the first half of the year), due to
the stabilization of operations this year as compared to the strong growth shown
in the previous year. On the other hand, the company's operating expenses rose
9.3% in local currency due to greater business activity and the launch of long
distance services, as well as the increase in spending for the provision for bad
debts, (Telesp has applied a more conservative provision policy since May 2001,
with the rate of bad debts over revenues reaching 3.7% cumulative as of
September). At the same time, there was a 10.7% drop in personnel expenses due
to the workforce restructuring carried out at the end of 2001 and middle of
2002, which led to a year-to-year workforce reduction of 19.8%, elevating the
ratio of lines per employee by 24.3% to 1,254. The improved evolution in
revenues versus expenses has allowed for a 9.4% increase in the EBITDA in local
currency.

In this fiscal year, after reaching regulatory targets for 2001, investments
were strongly down (-78.9% from year to year in euros). Investment levels
positioned the CAPEX to revenues ratio at 15.7% in local currency versus 52.2%
for the same period last year.

All of these factors have led to a generation of Free Cash-Flow of 858.5 million
euros versus a negative FCF of -89.6 million euros accumulated as of September
2001. A significant improvement was observed in the last quarter, with a 66.1%
increase in euros compared to the first half 2002.

Argentina

The deterioration of the Argentine economy and the uncertainty of the country's
political panorama affected the evolution of TASA's results up to September. The
following macroeconomic variables deserve mentioning:


  • The depreciation of the peso to 3.74 pesos per US$1 produced negative
    exchange differences of 5,135 million pesos. According to Argentine
    accounting regulation, companies there established could not account for the
    effects of the devaluation of the peso on their 2001 financial statements
    once the devaluation occurred in 2002. Because of this, the results for
    TASA's presented herein include the total effect of the devaluation.

  • Despite the fact that price increases have been moderate in recent months,
    accumulated inflation up to September is 39.7% (30.5% accumulated as of
    June). The effect this price increase has had on TASA's expenses is not
    being offset via the tariff increase because of the restrictions imposed by
    the Public Emergency Law.

  • Argentina's shrinking economy up to September (13.4% reduction of the GDP)
    has had a strong impact on consumption, damaging the confidence indexes of
    consumers and businesses.

In this environment, TASA's revenues have decreased 14.0% (-72.5% in euros)
because of a lower customer base as well as lower consumption, mainly in the
long distance business. As far as operating expenses, the company has
implemented a strict cost cutting measures in spite of which the accumulated
EBITDA as of September (312.6 million euros) is 21.0% less in local currency,
than that reported in the same period of 2001 and 74.8% lower in euros, and the
EBITDA margin dropped 4.5 percentage points to 50.1%.

To soften the negative effects of the crisis on the company's results, TASA
implemented a series of measures:


  • Focus on Cost Reduction: despite inflation and the fact that a portion of
    the expenses is dollarized (especially those associated with infrastructure
    rental), cost-control policies and, to a lesser extent, lower on business
    activity have enabled the company to reduce operating expenses from 2001 by
    7.5% in local currency. Excluding the costs of the provision for bad debts
    and taxes, the year-over-year reduction is 13.0%.

  • Control of Bad Debts: TASA has intensified actions to recover debt, making
    their payment methods more flexible (bonds, financing plans) and by
    converting regular lines with late payment problems into pre-paid lines or
    with consumption control. Thanks to these actions, the percentage of bad
    debts over revenues, (7.7% versus 6.4% in 2001) has steadily improved in
    recent months (9.0% provision of bad debts over revenues in the first half
    of the year) due to the reduction of debt balances.

  • Lines in Service and Traffic: limited drop in lines in service compared to
    2001 (-2.2%) thanks to the plan to retain customers and the conversion of
    regular lines into lower-service lines, which continue to generate traffic
    and allow bad debts to be controlled. These measures have permitted a
    slowdown in the decrease of local line traffic in recent months against the
    powerful year-over-year reduction in the first semester of the year (-9.7%
    in the last quarter versus -11.2% accumulated as of June), as well as a
    noticeable slowdown in the rate of lines disconnected. In the third quarter
    of the fiscal year, negative net additions of 24,000 lines were registered
    compared to 109,000 in the first half of the fiscal year.

  • CAPEX Control: TASA reduced investments by -74.2% in local currency versus
    last year (-93.6% in euros). This decrease is the result of strong capex
    restrictions and the renegotiation of foreign currency contracts, which has
    offset the negative impact of the devaluation.

  • Free Cash Flow of 27.3% over Revenues: Control on operating expenses and
    the rationalization of capex has enabled TASA to continue to generate a Free
    Cash-Flow level of 170.3 million euros as of September.

Chile

In September, the sale of 25% of SONDA, an information service company, took
place, having a net impact on nonrecurring results of -2.9 million euros. 35% of
this company is being held and it is consolidated by the equity method instead
of global integration method carried till the month of August.

At the operating level, Telefonica CTC presented a 1.1% decrease in lines in
service because of the disconnection of 47,000 lines, that were suspended for
problems of bad debt in the last quarter. In the long distance business, despite
the market's poor performance, CTC continued to increase its estimated market
share in DLD to 39.1% and International Long Distance to 32.2% (0.9 and 4.4
percentage points over June, respectively), thanks to a more stronger commercial
effort.

Telefonica CTC Chile's revenues as of september totaled 837.1 million euros,
5.7% less in local currency than the figure for the same period of 2001 (-15.3%
in euros). It should be mentioned that this evolution was affected by the
changes, in 2001, in the contract conditions with Publiguias, that imply less
revenues since September 2001, as well as the consolidation of one month less
from Sonda in 2002. If these effects are eliminated, CTC's revenues would only
fall -2.8% in local currency, with negative impacts on the changes in revenues
from local telephony (-2.6%) because of fewer billable lines and a drop in
traffic due to the economic situation and the Fixed to Mobile cannibalization.
The long distance business maintains revenues in line with last year (+1.4% in
local currency; -9.0% in euros), despite the contraction shown in the market,
thanks to the increases in average prices. Positive developments continue in
ADSL with more sales and revenues in recent months.

Control over operating expenses is being maintained, 3.6% less than last fiscal
year (-13.4% in euros), a result of lower personnel costs due to the job cuts of
June 2001 and of cost-control measures.

Accumulated EBITDA as of September is 346.0 million euros, down 9.4% in local
currency from September 2001 (-18.6% in euros).

To adapt to the new market environment, at the end of October, CTC announced a
restructuring plan that will affect some 840 employees of the fixed telephony
operator, with an estimated initial cost of 18 million euros, already drafted in
September results.

In line with other Group operators, CTC has registered a capex level 27.9% lower
in local currency than for the same period 2001, which situates the capex to
revenues ratio at 8.9%. This has led to a free cash flow generation of 204.5
million euros.

Peru

Telefonica del Peru closed the third quarter of 2002 with a 3.5% increase in
lines in service (+3.0% in the first half of the year). This expansion is
primarily based on Public Telephony (+17.5%) and on the commercialization of
pre-paid products and consumption control (+20.8%). The latter contributes to
maximizing the profitability of the existing installed plant and minimizing the
risk of bad debts, currently representing 34.2% of the plant in service.

In the first nine months of the year, an operating revenues level slightly above
the same period last year in local currency (+0.4%) was registered, mainly from
the good performance of Public Telephony (+10.5%), in line with the positive
performance this business showed in the first semester. Nevertheless, this
evolution in revenues have been marked by compliance with a demanding regulatory
framework: decrease of the interconnection fee in June 2001 and introduction of
a price cap system beginning September 2001 (yearly IPC -6%), coupled with the
entrance of the Multicarrier Dialing system last April 15. In this sense, long
distance revenues fell 30.4%, primarily motivated by the Multicarrier Dialing
system, which implies tariff decreases and losses in market share, and the
downward slide in accounting rates, in line with international trends.

For operating expenses, there was a 4.0% increase in local currency, mainly
explained by the 14.3% growth of interconnection costs. Excluding this effect,
expenses would decrease by 0.2% in local currency, since the higher costs of
public telephony, due to greater business activity, are absorbed by the 6.0%
reduction in personnel expenses.

EBITDA stands at 437.6 million euros, down 7.3% in local currency from year over
year (-14.2% in euros), leading to an improvement of 2.8 percentage points,
compared to the decrease shown during the first half of the year, thanks to the
improved evolution of revenues (+0.4% as of September, compared to -0.7% as of
June).

Telefonica del Peru leads the Broadband market through ADSL and Cablenet, and
its efforts are reflected in a growth in customers, totaling 24,734 as of the
end of September.

The company has made significant cuts in capex in the period (-55.3% in local
currency), which has favored a relevant increase in free cash flow of 323.6
million euros (+16,8% in euros).


CELLULAR BUSINESS

Telefonica's Cellular Business

Telefonica Moviles obtained net income in 3Q02 of 410.2 millions euros. This
good performance implied that January-September 2002 losses were lower than
those recorded in the first half of the year. In January-September 2002,
Telefonica Moviles recorded a net loss of 3,923.0 million euros, mainly due to
the recognition in the second quarter of the year of net extraordinary
provisions amounting to 4,902.4 million euros associated with the write-down of
assets and the provision for associated restructuring costs in Austria, Germany,
Italy and Switzerland.

Excluding the impact of these net extraordinary provisions in the European
operators outside Spain, consolidated net income for January-September 2002
would have amounted to 979.4 million euros, which would have led to a
year-over-year growth of 46.1%.

The economic situation in some of the main Latin American countries, combined
with exchange rate fluctuations, are one of the main reasons for the slowdown in
growth in Group results compared to previous quarters.

The key aspects of the results are as follows:


  • Year-over-year growth of 10.7% in operating revenues in January-September
    2002, with quarter-over-quarter growth of 3.5% (3Q02 vs. 3Q01).


    Organic growth1 of consolidated operating revenues in January-September 2002
    at constant exchange rates would have reached 13.2% over January-September
    2001.

    The main factors driving the increase in revenues are: i) the expansion of
    the customer bases of fully-consolidated operators (+15.0% and +14.9%
    excluding Tele Leste Celular); ii) the higher traffic carried by these
    operators (+13% in number of air minutes and +45% in SMSs); iii) and the
    lower ARPUs recorded (-9.6% on average, in local currency).

    Third quarter of 2002 recorded the higher volume of commercial activity,
    with total net adds of 978,932 customers -excluding Pegaso PCS's customers-
    vs. 733,598 customers in the previous quarter, and although this is usual
    during the summer, it is significant given the current economic environment.

    The Group ended 3Q02 with a total customer base, including the operators in
    which Telefonica Moviles has stakes, of 31.5 million customers. Including
    the Chilean and Puerto Rican operators, the company's customer base under
    management amounted to 33.5 million at the end of September.

    By geographical areas, TME accounted for 73.6% of consolidated revenues, vs.
    68.4% a year ago. TME's operating revenues recorded a year-over-year
    increase of 19.2% vs. January-September 2001.

    Latin American subsidiaries fully consolidated accounted for 27% of Group
    revenues, a smaller contribution than in September 2001 due to the negative
    impact of the Argentinean peso devaluation and of the depreciation of other
    Latin American currencies. In absolute terms, the revenues of these
    subsidiaries, in euros, declined by 6.7% vs. January-September 2001. It
    should be highlighted that the organic growth of operations, assuming
    constant exchange rates, shows an increase of 1.5%.

    Revenues from other European operators, which correspond entirely to Group
    3G, remained practically unchanged on 1H02 (52 million euros to September)
    after this subsidiary ceased its commercial operations.


  • Improved margins at the EBITDA level. The consolidated EBITDA margin
    reached 41.6% in January-September 2002 vs. 41.0% in the same period of
    2001. Stripping out the impact of European operations outside Spain -both in
    terms of revenues and expenses- , the consolidated EBITDA margin in
    January-September 2002 was 45.2% vs. 41.9% a year ago.


    It must be underlined that in 3Q02 these operations, currently being
    restructured, barely generated revenues but still incurred significant
    losses at the EBITDA level. The negative contribution from these operations
    mainly explains the smaller EBITDA margin obtained in 3Q02 (42.1%) versus
    the same period of 2001 (43.8%).

    Consolidated EBITDA (in absolute terms) in January-September 2002 was
    2,838.9 million euros, 12.2% higher than in the same period of 2001. Organic
    growth of consolidated EBITDA at constant exchange rates reached 15.7%.

    TME is the main driver of growth in Group EBITDA. TME's EBITDA contributed
    more than 90% of consolidated EBITDA in January-September 2002. EBITDA
    recorded a 24.2% a year-over-year increase.

    Latin American operators fully consolidated, as a whole, contributed 534.4
    million euros to Group EBITDA in January-September 2002. In year-over-year
    terms, these operators' EBITDA, in euros, showed moderate growth to
    September 2002 (+1.7%). This trend should be underscored, as EBITDA is
    higher than last year's figures despite lower revenues, reflecting the
    cost-control measures implemented by these companies. Consequently, the
    EBITDA margin of the Latin American operations advanced by 2.4 p.p. on
    September 2001 to 29.3%. Assuming constant exchange rates, year-over year
    organic growth2 in EBITDA from Latin America would have been 17.3%.

    Operations in the rest of Europe -Germany, Austria and Switzerland- recorded
    a combined EBITDA of -225.8 million euros in January-September 2002.

Group capex continued to be curtailed in the first nine months of 2002, with a
year-over-year decline of 40%, representing 8.9% of consolidated revenues vs.
16.5% in January-September 2001. This trend was common to all areas of
operations. Capex in Spain (62% of the total) fell 22% in year-over-year terms
while Latin American capex (24% of the total) was 50% smaller than in
January-September 2001.

As regards capitalized expenses, no amount has been capitalized with respect to
European operations since July. It should be reminded that since the beginning
of 2002 only expenses associated with Group 3G have been capitalized. The only
amount additional to the accumulated figure to June recorded in 3Q02 is the
provision for the spectrum fee assigned to Telefonica Moviles Espana for the
future operation of UMTS technology (5.3 million euros in 3Q02 and 15.8 million
euros in January-September 2002).

Revenues derived from the wireless business segment, including Telefonica
Moviles and Telefonica Movil Chile, were 7,048.1 million euros during the first
nine months of 2002, a 10.3% increase compared to 9M01. EBITDA totalled 2,905.5
million euros, a 12.2% growth year over year.

SPAIN

In September 2002, the Spanish cellular telephone market reached over 32.4
million customers, with a penetration rate of 77.4%, 10 p.p. higher than in
September 2001. This means that Spain is now slightly above the European average
in terms of cellular penetration. Nevertheless, taking into account the degree
of maturity that has been reached, it is logical to expect a significant
slowdown in the rate of growth over the next months.

TME ended September 2002 with over 18.1 million customers, an advance of 16% on
the same period last year, with net adds of over 500,000 customers in 3Q02, over
60% higher than in 2Q02. The Company continues to consolidate its leadership in
the sector, keeping its market share stable over the last twelve months.

The Company's reduced churn rate remains one of the key factors behind TME's
commercial performance. The annual churn rate at September 2002 remained at 12%,
6 p.p. lower than September 2001.

As for TME's customer mix, the contract segment has a weighting of 33.8%, a 1.2
p.p. advance on September 2001. Here we would highlight the fact that 65% of
TME's net adds in 3Q02 were contract customers. This clearly shows the success
of the policies aimed at encouraging prepaid to contract migration, which TME
has been developing throughout the year, and which have led to a 60% increase in
total migrations to contract in January-September 2002 vs. the same period last
year. These migrations provide an important incentive to the Company's average
usage ratios, as customers who migrate significantly increase both their MOU and
their ARPU.

TME's MOU in 3Q02 was 109 minutes, which not only demonstrates growth on 2Q02 of
4%, but also, for the first time in the Company's recent history, an increase in
quarterly MOU with respect to the same period last year (+1%), with the positive
performance of contract MOU being of particular note (+5% vs. 3Q01). The
positive evolution of usage ratios directly impacts Company ARPU evolution,
which reached 30.1 euros in 3Q02, up 4.5% on 2Q02, and having recorded one of
the lowest year-over-year declines in the last years (-5.3%), which confirms the
trend towards a stabilization of ARPU which we are seeing this year. The
importance of this trend can be seen if we take into account that in the
year-over-year comparison with 2001, the figures for 2002 include the lower
revenues derived from the removal of the monthly fee (stripping out this effect,
the fall in ARPU would only have been 2%), the reduction in outgoing call prices
and the application of lower termination rates with certain operators since
August 1, 2002.

Turning to the data and content business, 2,360 million short messages (SMS)
were carried through TME's networks in 3Q02, 12% more than in 2Q02, and 34% more
than in 3Q01. The ratio of SMS per customer per month was 35 messages in 3Q02.
Premium SMSs deserve special mention, as were responsible for 14% of quarterly
data services customer revenues. Data services contributed 14.4% of total
Company customer revenues, both in 3Q02 and January-September 2002, an increase
of 1 p.p. on 3Q01, and 2 p.p. on January-September 2001.

In addition, in 3Q02 TME also commercially launched its multimedia messaging
service (MMS), for both contract and prepaid customers at a price of 0.6 euros/
message. This service is also available to customers when they travel to other
parts of Europe.

TME continues to apply a strict policy of cost control and efficient use of
resources. As a result, the Company continues to optimise the weighting of SACs
and SRCs over adjusted revenues. In 3Q02 this was around 10%, in line with the
figure recorded in 3Q01, while in the whole of January-September 2002 it stood
below 9%, almost 5 p.p. below the figure for the same period last year, in spite
of having doubled the volume of loyalty points exchanged for handsets and
traffic as in 2001. The weighting of both network and advertisement costs as a
percentage of operating revenues fell significantly in 3Q02.

As a result, the Company presents some solid results:


  • Operating revenues for 3Q02 were 1,810 million euros (+17% vs. 3Q01 and
    +10% vs. 2Q02), which gives a January-September 2002 figure of over 5,000
    million euros (+19% vs. accumulated January-September 2001).

  • TME posted 3Q02 EBITDA of 950 million euros, up 11.2% on 3Q01, and +8,7%
    vs. 2Q02, leading to the highest quarterly figure in the Company's history,
    which gives a margin of 52.5%. January-September 2002 EBITDA was 2,607
    million euros, with year-over-year growth of 24.2%, higher than the
    revenues' growth rate. As a result, EBITDA margin in January-September 2002
    was 51.9%.

  • The capex to revenues ratio in 3Q02 was barely 6% (5 p.p. lower than in
    3Q01) and 7% in January-September 2002, although, taking into account
    commitments taken on by the Company in 4Q02, it is estimated that over the
    year as a whole, the weighting of capex to revenues will be around 9% (vs.
    13.6% in 2001).

EUROPE

In the wake of Telefonica Moviles' decision to redefine its short and
medium-term objectives in Germany, Austria, Italy and Switzerland, announced at
the end of July, operations in these countries began to be reorganized in 3Q02.

In Germany, Group 3G's commercial activities were halted in August, and it is
planned to suspend services in mid November. At the end of September the
operator had 223,000 customers, to whom it has been communicated the agreement
reached with T-Mobile to transfer them to its network in favourable economic
conditions.

At the same time, the headcount reduction program begun, and over half the
employees have already signed redundancy agreements. The cancellation of
distribution, rental, supply agreements, etc., are also being negotiated.

In the other countries too, the staff reduction programs are also advancing, as
are the cancellation and renegotiation of contracts.

It should be borne in mind that, although the freezing of operations was
announced at the end of July, during 3Q02, important losses are still being
recorded at EBITDA level, due to personnel and other expenses associated with
contracts awaiting termination. However, these losses (-65 million euros in
3Q02) are lower than those recorded in 2Q02 (-85 million euros). The company
estimates that in 4Q02 EBITDA losses derived from these operations will be
significantly lower, mainly because the restructuring process will be almost
finalized -the cancellation of most of the contracts and the effective staff
reduction will be materialized-.

MOROCCO

Medi Telecom ended September 2002 with 1,511,264 customers (+69% vs. 3Q01), with
net adds above 190,000 customers in 3Q02, more than twice the figure obtained in
the previous quarter. At the end of 3Q02, Medi Telecom, had an estimated market
share of 41.6%, an increase of over 7 p.p. vs. 3Q01.

Due to the seasonality of traffic in the summer months, Medi Telecom's 3Q02
revenues were the highest in the year while EBITDA doubled that of 2Q02. EBITDA
margin reached 25.4% in 3Q02 (+13.7 p.p. vs. 2Q02), and 14% in January-September
2002, compared to the negative figures in the same period of 2001.

LATIN AMERICA

Brazil

At the end of September 2002, Telefonica Moviles managed 6.2 million customers
in Brazil (+17% vs. 3Q01), with cumulative net adds since the beginning of the
year of 575,000 customers. In 3Q02, the three Brazilian operators had net adds
of 174,000, 10% lower than in 2Q02 due to the overall slowdown in the country's
cellular market and the start-up of a new competitor.

In this environment of stiffer competition, we would highlight the good
performance in the companies' estimated average share of net adds, which in 3Q02
was 45%. Analysis of this figure should take into account that disconnections do
not, so far, affect customer numbers for new entrants. These results underscore
the initiatives carried out to increase customers' and distributors' retention
and loyalty. The estimated average market share of the three operators in their
areas of operations at the end of 3Q02 was around 63%, a decline of 1.5 p.p.
from the same period of 2001.

As for the customer mix, 69 % of the total corresponds to the prepaid segment,
vs. 64% in September 2001. The contract segment has shown a moderate increase in
the last 12 months (+2%). Here we would point out the increasing trend of
migrations, from the best prepaid customers to contract, reflecting the positive
results of the loyalty initiatives.

Turning to financial results, total operating revenues of the three operators in
local currency had year-over-year growth of 22.3% from January-September 2001.
Excluding Tele Leste Celular's revenues in 2002 the increase in operating
revenues would have been 8.3% (Tele Sudeste: +8.0%, CRT Celular: +8.7%). The
bulk of the increase in sales was due to the aforementioned growth in the
customer base, partly offset by the reduction in average ARPU (-9.4% in local
currency).

Total EBITDA after management fees of the three operators in local currency had
a 20.5% increase from January-September 2001, slightly lower than the growth of
revenues. However, the efficiency gains obtained in 3Q02 caused the gap between
revenues and EBITDA growth to narrow by nearly 5 p.p. from the first half of the
year (1.8 p.p. in September vs. 6.7 p.p. in June). Excluding Tele Leste Celular,
EBITDA from the Brazilian operators had a year-over-year increase of 8.5% in
local currency (Tele Sudeste: +7.3% and CRT Celular: +10.9%).

The combined EBITDA margin after management fees in January-September 2002 was
38.8% of operating revenues (39.6% excluding Tele Leste Celular), 0.7p.p. lower
than in the same period of 2001. However, margins improved in 3Q02 vs. 3Q01
(+2.9 p.p. despite the inclusion of Tele Leste, which has lower margins) thanks
to the operators' efforts to increase efficiency and productivity.

After the close of 3Q02, Telefonica Moviles and Portugal Telecom announced the
creation of a joint venture that will hold 100% of the shareholdings of both
groups in mobile phone companies in Brazil. The JV will be owned at 50% by each
of the partners, and will be run by a joint management team. The company will
begin operating with close to 13 million customers -of which 3.5 million are
contract customers-, will have a solid capital structure and will record
positive net earnings and a growing on cash generation growth from the
beginning. The joint venture will obtain significant synergies, which are
expected to far outweigh the costs of migrating from the current concessions
(SMC) to authorizations (SMP). The joint venture will operate in areas which
provide more than 70% of Brazil's total GDP, and where it commands more than a
60% market share.

Mexico

Telefonica Moviles' subsidiaries in Northern Mexico had 1.4 million customers at
the end of September 2002, an increase of 23% year-over-year, with net adds in
the last 12 months of 259,000 customers. The contract segment performed
particularly well, accounting for 25% of net adds in the last year and 20% of
the total customer base in the North of Mexico.

Net adds in 3Q02 (82,000 customers) accelerated with respect to previous
quarters (+163% vs. 2Q02 and +89% vs. 3Q01), demonstrating the positive results
of the commercial repositioning of the company's offering started in 2Q02 aimed
at attracting high-value customers. This has led to an increase in the estimated
share of net adds of approximately 12 p.p. from the previous quarter.

As regards the Northern Mexico operators' financial results, comparison with
January-September 2001 is distorted by the fact that these were consolidated for
the first time by the full integration method in July 2001, and consequently
both periods are not homogenous. Like-for-like operating revenues in local
currency in 3Q02 were 18.6% higher than in the previous quarter, fuelled by the
growth in the customer base (+6% vs. 2Q02) and increased handset sales. Compared
with 3Q01, revenues in 3Q02 in pesos rose 31.3%, also boosted by the growth in
the customer base.

The EBITDA performance reflects the impact of the higher commercial activity
with respect to 2Q02 and 3Q01 and the change in the distribution policy, which
has led to a drop in EBITDA in absolute terms in pesos (-10.5% vs. 2Q02 and
-14.7% vs. 3Q01) and a decline in the EBITDA margin (-2.5 p.p.). This impact,
coupled with higher taxes accounted for in 2002, has offset the improvements in
productivity (whose ratio has doubled in the last 12 months). Excluding the
impact of the IEPS (Special Tax on Products and Services), the EBITDA margin was
9.5% for 3Q02 and 11.7% in January-September 2002.

Meanwhile, following the completion of the acquisition of 65% of Pegaso PCS in
mid-September, Telefonica Moviles becomes Mexico's number two mobile telephony
operator, with more than 2.2 million managed customers.

The integration of Pegaso PCS enables Telefonica Moviles to extend its presence
to the whole of Mexico, which has a market of over 100 million inhabitants, and
to gain immediate access to Mexico City, the country's most attractive market
with a population of around 20 million and an estimated wireless active
penetration of 17% in 3Q02.

Argentina

The Argentinean cellular market continued to contract in the third quarter of
2002, albeit at a much slower pace than in previous quarters, with an estimated
penetration rate for mobile telephony at September 30 of 17.4%.

In line with the overall performance of the market, TCP's customer base at the
end of September was 1.6 million, a decline of more than 19,000 customers from
2Q02, although the number of disconnections continued to fall compared with
previous quarters (-35,000 net adds in 2Q02). Against this backdrop, TCP is
still Argentina's second largest cellular operator, with an estimated market
share of 25%.

Through the third quarter, TCP continued to raise its tariffs in local currency,
taking the cumulative average increase to September to 40.5%, in line with
Argentina's cumulative CPI.

The strong performance of revenues in local currency in 3Q02 helped to partially
offset the cumulative decline in the year (-11% to September 2002 vs. -19% to
June). This rebound -driven by higher prices and sustained traffic with respect
to previous quarters- coupled with continued efforts to rein in costs led to a
26% year-over-year improvement in EBITDA in pesos in January-September 2002.

Among the main initiatives to lower costs, we would highlight the decline in
SACs and cut-backs in advertising and personnel expenses, which more than offset
the increases in prices caused by inflation and the peso's devaluation.

The EBITDA margin reached 24.2% in January-September 2002, 7 p.p. higher than in
the same period of 2001. Quarter-over-quarter, the EBITDA margin was 31% in
3Q02, 6 p.p. higher than in 3Q01, reversing the trend seen in 2Q02 (-1 p.p. vs.
2Q01).

Peru

The Peruvian cellular market continues to register healthy year-over-year
growth, with the penetration rate reaching an estimated 8.1% at the end of
September 2002 vs. 6.2% a year earlier. In such a context, Telefonica Moviles
Peru ended September 2002 with a customer base of 1.2 million customers,
recording a year-over-year increase of 19% and cumulative net adds in
January-September 2002 of 141,000 customers. Against this backdrop of growth,
Telefonica Moviles Peru remained the market leader, with an estimated market
share of 57%.

The growth in the customer base was primarily fuelled by the contract segment,
which registered a year-over-year increase in January-September 2002 of 26%,
representing 22% of the total customer base. 1.2 p.p. higher than the year
before. This performance was the result of both the increase in gross adds and
the sharp reduction in disconnections, thanks to the success of the company's
retention initiatives carried out since 2001.

Turning to financial results, operating revenues in dollars rose 1.5%
year-over-year in January-September 2002. This increase was due to both growth
in the customer base and the higher traffic carried by the operator.

Despite the greater commercial efforts derived from stiffer competition,
cumulative EBITDA in absolute terms in January-September 2002 in dollars was
6.6% higher than the in the same period last year. The cumulative EBITDA margin
for the period was 33.3% (+1.6 p.p. versus January-September 2001), despite the
increase in net adds (+8.4% vs. January-September 2001). In 3Q02 the EBITDA
margin was 33.7%, unchanged from the previous quarter.

Chile

Telefonica Movil ended September 2002 with 1.8 million customers, with
year-over-year growth of 19%. Prepaid customers weighting over the total
customer base remained stable compared to 2Q02 at 76%.

As regards financial results, the adjusted EBITDA margin continued to grow
reaching 31.3% in January-September 2002 (+2 p.p. versus the same period of
2001).

Guatemala and El Salvador

At the end of September 2002, the total customer base managed by Telefonica
Moviles' operators in Guatemala and El Salvador was 331,000 customers. These
operators continue to focus on improving the quality of their customer bases,
which, while resulting in a smaller customer base, has a positive impact on
results.

In this sense, operating revenues in January-September 2002, in euros, remained
in line with those generated during January-September 2001, despite the smaller
customer base. More significantly is the strong increase in combined EBITDA
(+78% in euros) thanks to tight cost control, with a combined EBITDA margin of
19.5% (+8.5 p.p. year-over-year increase).


DATA BUSINESS



Telefonica Data Group

During the third quarter of 2002, the results of Telefonica Data Group have
continued to demonstrate better operating efficiency and strict control on
operating expenses and capex.

Continuing with the trend in previous quarters, in the current economic context,
Telefonica Data's target customers continues to postpone targeted investment and
spending decisions in Information Technologies in each of its markets. In
addition, in Latin America the economic crisis has had continued impact with the
negative evolution of the exchange rate of their local currencies.

In line with the announced objective to revise Telefonica Data Group's presence
in those countries where the critical mass was not sufficient to make future
investments profitable; ETI (an affiliate in Austria) was sold during the second
quarter 2002. In the framework of Telefonica Data's new strategy in expanding
markets, both the results for Telefonica Data Uruguay as well as those for
Atlanet (an affiliate in Italy) have been consolidated by the equity method as
of April and July 2002, respectively.

Revenues for Telefonica Data Group in the first nine months reached 1,300.4
million euros, 4.8% below the same period last year. The change in exchange
rates in Latin America Incumbent and the changes in the consolidation perimeter
mainly affected the evolution of revenues in this period. Without these two
effects, revenues would have grown approximately 9%. Revenues growth assuming
constant exchange rate would have been 5.4%.

As for the distribution of Telefonica Data Group's revenues, it continues to be
supported by the Data and Internet line (81%), which constitutes the basic
potfolio of services from which Telefonica Data's Value Added proposal is
configured. After completing the deployment of the international infrastructure,
this type of service constitutes 5% of the total, with cumulative growth as of
September 2002 of 28%.

Accumulated EBITDA in the first nine months of 2002 reached 110.8 million euros,
leading to a 237.7% increase over the same period last year. This significant
improvement is reflected in the 8.5% EBITDA margin, which is more than three
times the amount for the same period in 2001. By holding constant for the
consolidation perimeter and eliminating the effects of the exchange rate
variation in Latin America Incumbent, the improvement would have been 148% and 5
percentage points at the margin. The EBITDA for the third quarter has risen
compared to the same period in previous years, due to the change in the
consolidation perimeter, and the cost-cutting initiatives to improve
profitability, which have had their greatest impact this quarter. These new
cost-cutting measures cannot be extrapolated to the rest of the fiscal year.

On the other hand, it is important to note that in the third quarter there was a
tax revenue of 314 million resulting from the fiscal impact of the former
write-downs made in Mediaways' goodwill, when Telefonica sold its interest in
this company to Highwayone.

As for accumulated capex, during the first nine months of 2002 they reached 134
million euros, with a 51% reduction compared to those made during the same
period 2001. The largest part of capex in this period was geographically
concentrated in Spain and Brazil (outside the state of Sao Paulo).

BUSINESS PERFORMANCE BY AREA

In the first nine months of 2002, Spain has contributed 45% of the revenues,
followed by the Telefonica Deutschland (the former mediaWays group) with 23%,
America Incumbent with 20%, and 12% for the rest of the businesses (America
Expansion, International Networks and Telefonica Solutions).

Incumbent Markets

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

In Spain during the first nine months of fiscal year 2002, operating revenues
reached 572.6 million euros, 4% greater than the same period last year. Without
including the non-recurring results of the ISP business in the previous year,
which was transferred to Telefonica de Espana during the last quarter 2001,
growth would have been approximately 10%.

As for the distribution of revenues, the growth in International Services (24%)
and Hosting (58%) must be noted. Thus, as of September 2002, 65% of the revenues
pertained to Virtual Private Networks (VPN's), 23% to Internet Services, 5% to
International Services revenues, 5% to Hosting services and 2% to other
services.

The EBITDA reached 136.8 million euros in the first nine months of 2002, with an
EBITDA margin of 24% compared to 118.6 million euros for the same period last
year. The important cost-control effort that has been implemented has resulted
in an improvement of 15% in EBITDA with respect to last year and 2 percentage
points in the EBITDA margin compared to the first semester of 2002.

In Latin America, significant progress has been made in local currency revenues
as well as in containing expenses and investments, amid economic recession and
unfavorable performance of the exchange rates.

As of September 2002, revenues in Argentina, Brazil, Chile and Peru, totaled
259.3 million euros, representing a 16% decrease from September 2001, mainly due
to the drop in revenues in Argentina and the effect of the negative performance
of the exchange rates. These revenues would have grown by 18% if we were to
exclude just the effect of the exchange rate in Argentina and by 29% if we were
to exclude the effect of the exchange rate in the other four Latin American
countries.

The EBITDA in Latin America rose from 16.8 million euros as of September 2001 to
39.4 million euros as of September 2002, a 135% increase, and improved the
EBITDA margin from 5.5% to 15.2%. Without the effect of the exchange rate, the
EBITDA improvement in Latin America would have been increased in 215 percentage
points more.

The business performance in Brazil was basically impacted by the variation of
the exchange rate. Total revenues reached 118.6 million euros, 34% more than the
first nine months of 2001. In local currency, the increase was 59%, reaching
revenues of 292.7 million reals in September 2002, with an EBITDA that has gone
from a negative 1 million reals to nearly 40 million reals, positive. It is
important to note the continued improvement in EBITDA margins, from 9% in the
first half of the year to 14% cumulative in the first nine months of the current
fiscal year.

Expanding Markets

In Germany and the United Kingdom (Telefonica Deutschland) revenues reached 297
million euros, down 12% from the same period last year, mainly due to the
migration of customers to broadband, less traffic on narrowband and lower
service prices imposed by the regulator. Non-recurring revenues in 2001 were
offset, in part, by 43.8 million euros of revenues from the affiliate in the
United Kingdom.

Telefonica Deutschland's EBITDA in 2002 reached 18.5 million euros, meaning a
6.2% margin on sales, 4 percentage points less than the amount obtained in the
first nine months of last year. This decrease is the result of a change in the
company's business model towards offering more XDSL-based services. In spite of
the above, it is noteworthy that the operating cash flow (EBITDA-Capex)
continues to be positive, taking into account the accumulated capex in the
period was 14.2 million euros.

As for American countries, where Telefonica Data is doing business as a
newcomer, that is, in Colombia and Mexico, in addition to its presence in Miami
(USA) with the Data Center, accumulated revenues as of September 2002 reached
31.5 million euros, up 20% as compared to 26.2 million euros obtained as of
September 2001. The slowdown in the growth of these revenues is explained by the
decrease in expenses expected from current and potential customers.

EBITDA in the first nine months of 2002 was negative 27 million euros. In the
same period in 2001, with very low operating activity in the first months, in
the USA and in Mexico, the EBITDA would have been a negative 20 million euros.
This was rooted in how some companies are still in the development phase with
fixed costs that require minimum revenues, which they have not yet been able to
attain in the current economic environment.

Solutions

In the second quarter of 2002, a Solutions business line was created. It is an
independent unit that focuses on customer systems and consulting activities. The
new line initially includes Telefonica Sistemas in Spain and will soon include
among others Telefonica Group affiliates, Katalyx and Art Media.

Revenues as of September 2002 totaled of 58.3 million euros, with a negative
EBITDA of 2.3 million euros, compared to 71.7 million euros of revenues and a
positive EBITDA of 0.1 million during the first nine months of 2001.

International Network

As of September 2002, revenues from the International Network reached 66.4
million euros, up 55% compared to the first nine months of 2001. The 2002 EBITDA
was negative 2.5 million euros, up 89% compared to the negative 23.4 million
euros of the first nine months of 2001.


MEDIA BUSINESS



Admira Media Group

As reported last quarter, on May 30, 2002, the Board of Directors of the Admira
Media Group decided to start the process to split the Group into two new
companies: the first called Corporacion Admira Media and the second, Telefonica
Contenidos. This process has yet to be concluded, so the results for the first
nine months of 2002 are published under the same structure as last quarter.

To analyze the results for the January-September 2002 period, the following
factors should mainly be taken into account:


  • Investment in advertising continues to be affected by the global economic
    recession. This factor has influenced, in the first place, the Broadcast
    Television and Radio business, and subsequently the Production of
    Audiovisual Content. It is a reaction to the present scenario, in which the
    main source of revenues for broadcasting has declined.

  • Admira's business in Argentina continue to be affected by the economic
    crisis, and this has had a significant impact on its consolidated results
    due to a lower volume of business generated and because of the effect of the
    conversion of local currency into euros. As mentioned in the previous
    quarter, on July 4, 2002 Azul TV was sold in Argentina to H.F.S. Media
    Group, S.A.

  • In the month of September, the holdings Admira Media had in the Uniprex
    Group (Onda Cero Radio) and Radio Voz were sold to Antena 3 de Television.
    It is worth noting that as a result of this operation, beginning in January
    2002, Onda Cero Radio ceased being consolidated under the global integration
    method and began to be consolidated under the equity method at the same
    percentage of Admira Media's holdings in Antena 3 Television.

As for its results, the Admira Media Group had consolidated revenues totaling
724.2 million euros, 28.0% lower than the same period last year. This decrease
in revenues were mainly due to the factors explained above: ATCO and Endemol,
which contributed 147 and 74 million euros less than in the same period last
year, respectively, and the change in Onda Cero Radio's consolidation criteria,
which led to 50 million euros less than in the fiscal year before. Assuming the
same consolidation perimeter and excluding the effect the devaluation had on the
Argentine peso, consolidated revenues would have been 850.5 euros, 16% below
last year.

In terms of the EBITDA, Admira Group maintains positive consolidated results of
77.6 million euros, 5.5% below the same period 2001. Figures accumulated as of
September 2002 show a rapid adaptation to the new environment. These adaptive
measures include a strong cost-control policy (the accumulated operating expense
figure for the period dropped by 29.9% compared to the same period last year),
which has enabled the company to largely offset the decreased in sales and
improve its margins by 2.5 p.p. from the same period last year (10.7% EBITDA
margin as of September 2002 versus an 8.2% margin in September 2001).

Admira Group's contribution to Telefonica Group's extraordinary results is a
negative 168 million euros. As reported before, the sale of Azul TV has led to
the recognition of extraordinary losses on the order of 161 million euros.

The investments made during the first nine months of 2002, totaling 42.9 million
euros, led to a drop of 33.2% from the same period 2001.

Telefonica Contenidos

Endemol

Continuing the trend from last quarter, Endemol has registered consolidated
revenues on the order of 575 million euros during the first nine months of 2002,
down 11% from the same period last year. This is due to the negative performance
of some of its traditional markets (Holland and Germany), partially offset by
the good performance of its operations in France and Spain. Specifically in
France, Endemol has become a leading producer, thanks to a production framework
agreement with TF1.

For its part, the good performance of the business in Spain is due to the
success achieved by Gestmusic via the commercialization of the Operacion Triunfo
format through several distribution channels. Production recently began in Spain
on the second edition of this program, whose first edition broke all historical
audience records. Due to this success and in an attempt to fully control the
international exploitation of this format and of other programs now under
preparation at Gestmusic, Endemol increased its Gestmusic holdings from 60% to
100% on September 17, 2002.

Accumulated EBITDA totaled 107 million euros in the month of September, the same
figure reported for the same period last year. The EBITDA margin went from 16.6%
in September 2001 to 18.7% in September 2002. This is mainly due to the
company's quite successful transfer of the revenues slowdown into its operating
costs. As of September 30, 11 million euros has been invested in extraordinary
restructuring costs, especially in Holland and Germany

Via Digital

Continuing the trend from last quarter, Via Digital has continued to develop a
strategy based on increasing the quality of its current customer portfolio and
improving the efficiency of its operations. The current customer base is
811,000, which is up by 8% year over year, and it is holding its market share
against the competition, despite a squeeze in spending on commerce and
marketing.

Revenues rose by 36% to 267 million euros from the same period last year. At the
same time, the company's EBITDA rose 17%, finding losses of 174 million euros,
the result of cost rationalization policies and an improvement in the quality of
the customer base (as a result of the promotion for channel packages that users
can customize for themselves).

Within the current rationalization process in Europe's paid TV and programming
industries, the integration of the Spain's existing digital Satellite TV
platforms (Canal Satelite Digital, belonging to Sogecable, and Via Digital
itself) continue its process. The final decision, however, is subject to
approval by the Spanish Government, whose decision should be made public before
December 14, 2002.

During the third quarter of the year, it is worth noting the exploitation of
rights to the Korea/Japan World Cup Soccer event. Via Digital also possessed the
rights to broadcast the World Cup in Germany in 2006.

Corporacion Admira Media

Antena 3 / Onda Cero

As indicated last quarter, the television advertising market is underperforming
the levels of fiscal 2001 (below 1.4%), and there are no signs of recovery in
the medium term. Antena 3 continues to be the most watched channel after TVE-1,
with an accumulated audience share during the first nine months of the year of
20.5%, same level as period last year, and followed by Tele 5 with an audience
share of 19.7% (whose share during the same period 2001 was 21.4%).

Considering Antena 3's Broadcast Television business separately, revenues
accumulated as of September 2002 by Antena 3 TV totaled 357.8 million euros,
down 4% compared to the same period 2001. The EBITDA shows a loss of 12.7
million euros. The decrease of the EBITDA was mainly due to the economic impact
of buying the rights to broadcast World Cup Soccer and to the seasonal effect
during the months of July and August.

Antena 3's operation to acquire Onda Cero Radio, as commented above, was closed
during the month of September. To finance the acquisition of Onda Cero Radio,
Antena 3 requested a syndicated loan of 230 million euros, having paid off a
bridge loan for 138 million euros on September 30, 2002. This syndicated loan
was closed throughout the month of October.

Onda Cero Radio, for its part, has increased its revenues versus the same period
2001 by 8.6% to 54.0 million euros, reflecting the differential advertising
characteristics between Radio and Broadcast Television (with a strong local
component that gives it a more stable performance). This good performance in
sales translated into a substantial improvement of the EBITDA, which decreased
its losses by 30% to negative 5.0 million euros.

ATCO

As indicated last quarter, the economic crisis in Argentina continues to have a
strong impact on ATCO's activity. The broadcast television advertising market,
despite the fact that it slightly improved last quarter, fell 45% from the same
period of 2001.

This situation translated into a strong fall in revenues and in a deterioration
of the EBITDA compared to the same period 2001. In local currency terms,
revenues reached 98.4 million pesos in September 2002, representing a 39% drop
compared to the same period in 2001.

On the other hand, the negative EBITDA totaled 44.2 million pesos, having been
negative 2.7 million pesos the same period last year.

In terms of the year's accumulated audience, Telefe continues to lead in
household viewers compared to its main competitor (32.2% versus 28.5%).


INTERNET BUSINESS

The third quarter results came in a midst of an unfavorable macroeconomic
scenario in which the international economic environment continues to be weak
and the uncertainty about the growth ability of American economy and its
negative impact on the advertising business. Furthermore, the instability of
Latin American economies, has been reflected in the volatility of exchange
rates.

Despite the depreciations registered by Latin American currencies this year, the
revenues generated in this region continue to be the highest growing revenues
(+22.8% in year-over-year terms, up to 170.8 million euros) thanks to the
positive performance of the business in local currency.

In this environment, Terra Lycos has attained total revenues of 144.9 million
euros during the third quarter 2002. If the average exchange rates in effect at
the close of June were applied, revenues would have totaled 168 million euros,
in line with the forecast of 165-175 million euros issued by the company for the
third quarter based on those exchange rates. The EBITDA for the third quarter
was -31.5 million euros, down 16.9% from the second quarter of the year.

From an operating standpoint, the Terra Lycos Group continues to focus on the
development of its OBP (Open, Basic, Premium) business model, aimed at making
its audience profitable through increasing products, services, and paying
customers; diversifying sources of revenue and increasing the proportion of
fixed revenues; and limiting the impact of the current crisis in the advertising
market on the results, especially in the online business.

Thus, pay customers totaled 2.5 million at the end of September, more than
800,000 at the end of 2001, making up 47% of the total customer base. The
significant rise in paying customers is based on the positive performance of
communication and portal subscribers, who represent over 85% of total growth and
tripled the figure at the end of 2001, exceeding one million customers. Pay
customers in the access business totaled nearly 1.4 million, equal to a 12%
growth versus September 2001, closing the first nine months with a base of
342,000 ADSL connections.

The company's total customer base, including free access customers, totaled 5.3
million, a figure that has been affected in recent months by the closing of free
access services in Brazil and Mexico.

The average number of pages views daily during the third quarter 2002 totaled
390 million, while the number of unique users rose to 118 million in September
2002, up 8.3% from the same period last year.

The company is continuing with its strategy of launching new products and
services, as well as executing strategic agreements and selective purchases in
order to reinforce its competitive position in the markets where it has a
presence. In products and services, worth mentioning are the launches of 'Lycos
Search 6.0', which incorporates significant improvements on the previous search
engine 'Mi Terra', the new home page personalization tool; 'Lycos Insite
AdBuyer', the platform comprised of advertising inclusion services; and Rumbo
(complete travel and tourism services via Internet) in Peru, Colombia and
Venezuela throughout the quarter. With Rumbo, the company now has a footprint in
the seven main Latin American countries.

As for acquisitions, worth mentioning is the purchase of GetRelevant, Inc., an
online direct marketing service provider, which adds a strong product offering
to Terra Lycos' direct marketing services and allows the company's advertising
customers to reach a qualified audience in order to attain larger conversion
rates.

In addition, the company is constantly evaluating its different business lines,
focusing on making operations profitable, with the result of the sale of Lycos
Korea and Lycos Canada in this fiscal year.

From a financial standpoint, revenues for the January-September period reached
465.4 million euros, down 11.6% from the revenues registered during the same
period last year. The fall of revenues from media (-20.6% from year to year) due
to the negative impact of the advertising crisis on United States revenues
(-31.8% from year to year) explains the drop in consolidated revenues. This
decline was not offset by improved revenues from access (+5.2% from year to
year).

In this sense, media revenues and the revenues generated in the United States
continue to lighten their impact on total revenues, representing 58% and 40% in
the first nine months, respectively (65% and 52% in the same period of 2001).

It is necessary to stress the implementation on October 27, 2002, of the second
phase of the strategic agreement signed in May 16, 2000, by Bertelsmann, Terra
Networks, Lycos, and Telefonica. In this phase, Telefonica has the commitment to
buy products and services from Terra Group by the amount not fulfilled by
Bertelsmann Group, up to 675 million US$, for the next 36 months. To develop the
second phase, the comittees appointed in the agreement will proceed to adapt the
catalog of products and services to new technological developments and to the
specific needs of Bertelsmann and Telefonica.

Terra Lycos is continuing to pressure for lower costs, thanks to cuts in
communication costs and keeping spending for marketing, content, and personnel
low (including a 5.8% decrease in the workforce). The company continues to
broaden its efficient management of resources, as shown by the additional 21%
workforce reduction at Lycos in the month of October. Thus, the company is
successfully offsetting lower activity at the revenues level with declining
costs, thus registering an accumulated EBITDA of -116.3 million euros, 95.6
million euros less in total losses than those accounted for last year.

Lastly, Terra Lycos continues to focus on its management of cash flow position,
which totaled 1,807 million euros at the end of the third quarter.

DIRECTORIES BUSINESS

Telefonica's Directories Business

During the first nine months of 2002, TPI Group experienced a substantial growth
in revenues, EBITDA and net income from the same period last year. Revenues grew
8.9% to 408.9 million euros; the EBITDA reached 117.0 million euros (+26.3%);
and the net income improved by 38.3% to reach a total of 64.3 million euros.
These results were fundamentally due to:


  • The good performance of TPI Espana, whose advertising revenues increased
    by 4.8% to 271.6 million euros despite the weak situation of the advertising
    market in Spain.

  • The incorporation in this period of TPI Peru into the Group's consolidated
    accounts from the beginning of the year, contributing 33.3 million euros of
    revenues and 7.2 million euros in EBITDA during the first nine months of the
    year.

  • The good performance of the operations in Chile and Peru, with revenues
    growth of 11.4% and 5.8%, respectively, in local currency, offset in part by
    the depreciation their currencies experienced. On the other hand, the
    depreciation of the brazilian real reduces the negative impact of their
    losses in the consolidated Group.

  • The publication of the second edition of GuiaMais in the capital of Sao
    Paulo State, Guarulhos, Riberao Preto, and Curitiba.

It is important to recall that the seasonal nature of the revenues, due to the
accounting criteria for recognizing revenues upon the effective publication of
each directory, makes it so that quarterly results are no homogeneous or
comparable to one another, nor may they be extrapolated to the end of the year.

Despite the depreciation in Latin American currencies, the good performance of
the various affiliates, together with the policy of cost control and the
implementation of operating efficiency measures, all enabled the forecasted
EBITDA to be maintained at 13%-16% for the end of the year, when forecasted with
the average rates of exchange for the first nine months of the year.
Nevertheless, the performance of the Latin-American currencies is reducing the
growth of revenues in 4 p.p., setting the forecast for revenues for the end of
the year at 3%-5%.

TPI Espana contributed 72.4% of the Group's revenues, and its contribution to
the consolidated EBITDA totaled 100.3 million euros. Advertising revenues grew
by 4.8% to 271.6 million euros, fundamentally due to the organic growth
experienced, book-to-book, by the Yellow Pages (+3,3%) and White Pages (+7,8%).
On the other hand, the good performance of the Internet product stands out, with
revenues growing 27.0% over the same period last year.

Latin America represents the remaining 27.6% of revenues and contributes to the
Group a positive EBITDA of 16.7 million euros, compared to an EBITDA of 5.3
million euros during the first nine months of 2001.

As for Telefonica Group's directory businesses, the growth in revenues was also
affected by the performance of the Argentine peso, although the EBITDA increased
by 41.1% and the net income by 107.3%.


CALL CENTER BUSINESS

Atento

Atento Group, a company specializing in providing customer service between
companies and their customers using contact centers or multi-channel platforms
(telephone, fax, Internet...), has continued operating during the third quarter
toward cutting costs and improving operating efficiency. This process is part of
the company's focus on consolidating business in the markets where it has a
presence, showing clear leadership in Spanish and Portuguese speaking countries.

From a financial standpoint, in the first nine months of the year, Atento
obtained operating revenues of 435.6 million euros, down 7.6% from the same
period last year, primarily due to exchange rate effects, which subtracted 11
percentage points, but were offset by a larger contribution coming in mostly
from Mexico, Venezuela, and Central America. Broken down by country, Spain and
Brazil continue to be the markets that have more specific weight in revenues,
contributing 40% and 34% respectively of the Group's sales. Compared to
September of last year, however, Brazil reduced its contribution by 8 percentage
points and Spain increased its by 2 percentage points. It should be highlighted
that the contribution of customers outside the Telefonica Group to the company's
total revenues continue to increase and that diversification among sectors has
become ever stronger, with the consumption, energy and Public Administration
sectors increasing their contribution compared to last year, although the
telecommunications and financial sectors still represent a high percentage (85%
of the total revenues).

Operating expenses reached 401.5 million euros during the January-September 2002
period, 7.2% less than the same period 2001, a result of the cost-control
initiatives undertaken during the third quarter of the year (-22.7% versus
3Q01). We should recall that during the first half of the year, the increase in
personnel expenses (an 8% salary increase agreement in Spain and the provision
for a 6% pay increase in Brazil) did not offset the reductions in external
services and supplies. In this sense, during the third quarter 2002 personnel
expenses fell 20.1% versus the same period last year, similar to the decrease of
external services (-23.5%). In cumulative terms as of September, personnel
expenses have fallen by 2.4% year-over-year compared to a -20.1% in supplies and
a -16.4% in external services.

As a result of the performance in revenues and costs, the EBITDA for the nine
months of the year reached 30.5 million euros compared to 36.9 million euros for
the same period last year due to adjustments made to achieve better efficiency
in the business, and the EBITDA margin was at 7.0% (7.8% in September 2001), 1.8
percentage points above those of June 02. This increase in profitability should
be highligthed, an improvement of the EBITDA margin of 4.3 percentage points
(11.7%), when comparing 3Q02 to 3Q01.

The net income of the Group at the end of September totaled a negative 83.0
million euros, a 13.2% increase over the same period of 2001.

At the operating level, as of September 30, Atento had 28,258 positions in
place, which is a decrease of 1,301 from the same period last year, which was
motivated by the company's current focus on making installed capacity profitable
and on increasing usage.

In the accumulated figures for the first nine months of this year, revenue per
occupied position reached 2,337 euros, down 7%, mainly due to the exchange rate.
On the other hand, the occupation ratio shows stability around 77% and Atento
has been able to make substantial progress in the labour productivity (70%),
which increased 7 percentage points over september 2001.

Lastly, it should be mentioned that the accumulated capex up to September 2002
has reached 14.3 million euros, 82% less than the amount invested during the
same period last year, due to the degree of maturity in the operations.


BROADBAND CAPACITY MANAGEMENT BUSINESS



Emergia

Emergia's financial results during the first nine months of the fiscal year
continue to be influenced by a challenging environment. Confronting various
problems, operators and clients have significantly decreased their levels of
capex and spending, although it is worth noting that demand is showing signs of
recovery in Spain and Brazil particularly international IP connectivity. When
buying or renting capacity, customers perceive technical quality, solvency, and
financial backing as the main areas of strength.

Operating revenues in the January-September 2002 period reached 24.5 million
euros, up from 6.7 million euros obtained in the same period last year. EBITDA
totaled negative 29.4 million euros, meaning a year-over-year improvement of
35.9%, resulting from greater revenues (customers outside Telefonica Group
exceed 45%), the renegotiation of several operating and maintenance contracts
and the implementation of a significant cost control policy, especially in the
third quarter of the year. Thus, comparing 3Q02 versus 3Q01, Emergia registered
a 65.3% growth on revenues (8.9 million euros) and a 40.2% decrease in operating
costs (marketing and general expenses). Both factors have improved EBITDA by
72.8% versus the same quarter 2001 (-4.6 million euros).

It is important to remember that comparing the accumulated results up to
September with the same period last year is not fully meaningful, since Emergia
began operations in April 2001.

As a result of Emergia's route expansion strategy towards the end of 2000, the
Company entered into a capacity exchange agreement (swap) with Global Crossing,
registering the capacity sold as revenues, which are accrued over the useful
life of the cable, and the capacity purchased as a cost, without generating any
profit. In this fiscal year, Emergia eliminated both revenues and costs incurred
by this type of transactions in accordance with the SEC's staff position
regarding IRU Capacity Swaps communicated to the SEC Regulation Committee on
August 2002. Consequently, revenues and costs which amount to 890,000 US$,
recognized in relation to the transaction with Global Crossing in 2002, were
eliminated, and neither the income statement nor the balance sheet reflect
amounts resulting from such exchanges.









ADDENDUM

Companies Included in Each Financial Statement


  • Telefonica, S.A. directly participates in the share capital of Endemol
    Entertainment Holding, N.V., which belongs to Admira Media Group, S.A.
    Furthermore, the investment in Mediaways Gmbh Internet Services S.A., up to
    September 30, 2002 participated by Telefonica S.A., has been sold to
    HighwayOne Germany in that date. The effects derived from the consolidation
    of this position have been included in the fiscal year results of Telefonica
    Data group for the maintenance of proforma results by business lines.

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

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

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

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

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

Significant Events


  • On October 31, Telefonica de Espana cut its tariffs for the third time
    this year, accumulating a reduction of up to 39.41% from 2001 levels. This
    reduction has been applied on this occasion to provincial, DLD,
    international and fixed-to-mobile calls, as well as to the connection fee.


    Furthermore, the individual line connection has been cut, from 95 euros to
    59.5 euros, a 37.37% decline.

    Meanwhile, the company has raised the cost of its '1003' national
    information service by 0.056 euros to 0.3546 euros per call.

    Once this tariff reduction is completed, Telefonica de Espana will fully
    satisfy the global 6% decline included in the 2002 Price Cap and continue
    with tariff cuts applied in the past years.


  • On October 30, the Board of Directors of Telefonica, S.A. approved a new
    Internal Conduct Regulation which modifies and expands the current one
    adopted June 24, 1998, given the Company's interest in implementing better
    Good Corporate Governance Practices.


    The new Internal Conduct Regulation is a Code of Ethics for Telefonica's
    executives and employees that governs all matters relative to the stock
    markets and whose purpose is to reinforce controls on confidential
    operations and conflict of interest scenarios, while adapting the regulation
    to the Group's new structure, which now has new business lines and a larger
    number of traded companies.


  • On October 18, Telefonica Moviles and Portugal Telecom have constituted a
    joint venture that will hold 100% of the shareholdings of both groups in
    mobile phone companies in Brazil. The completion of this process is now
    pending regulatory approval from the Brazilian authorities (ANATEL).


    In line with the general agreements for the creation of the joint venture
    and for the rights issue of Telesp Celular Participacoes, Telefonica Moviles
    takes a 14.68% stake in Telesp Celular Participacoes, under the same
    conditions as were applied in the recent rights issue, for a cost of 200
    million euro. The transaction was financed largely in local currency at an
    exchange rate of 3BRL/USD.


  • On October 1, Telefonica International Wholesale Services, an organization
    within the Telefonica Group providing international wholesale communication
    services, announced today that it has enhanced its IP-backbone presence in
    Vienna, Virginia (USA) so adding connectivity to the region's main NAPs
    (Neutral Access Points).


    Telefonica Wholesale's presence in the region's NAPs provides direct
    connectivity to major content providers and to main US backbones, thus
    improving latency and overall quality, raising efficiency and network
    performance for its customers in the US, Latin America and Europe.


  • On September 20, Telefonica S.A. has been included in the FTSE4Good Global
    Index. The companies that form part of these types of indexes, beyond having
    a high-quality financial profile, are subject to a rigorous evaluation of
    the management of the intangible assets that form the companies' managerial
    reputation, specifically regarding: corporate governance, business ethics,
    relations with the society and other interested parties (customers,
    shareholders, employees and suppliers) and human rights.

  • On September 10, TPI Paginas Amarillas Group adapted the corporate
    structure of its Spanish branch, targeting a more global management of its
    clients, the offer of integrated and customized solutions, and to take
    advantage of the sinergies from its different business lines. This movement
    will enhance the current level of growth and will help to improve the
    profitability of every area in the Company.


    The new structure implies the evolution towards a new model where paper
    products division and electronic and internet products division will be
    integrated.


  • In mid September, once received the regulator authorisation, Telefonica
    Moviles acquired a 65% stake in the Mexican mobile telephony operator,
    Pegaso PCS. The combination of Telefonica Moviles Mexico and Pegaso PCS
    gives rise to a new joint entity, in which Telefonica Moviles controls 92%
    of the capital stock and Pegaso Group the remaining 8%.


    Later, and in line with previous agreements, both companies have made a
    capital increase in Pegaso PCS in order to amortize short term debt and to
    strength the financial position of the company. This capital increase is
    worth 319 million dollars, 65% subscribed by Telefonica Moviles and 35 %
    subscribed by Pegaso Group.

Changes to the Perimeter and Accounting Criteria of Consolidation

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

Telefonica


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

  • In January, Telefonica, S.A. created the fully-owned subsidiary Telefonica
    Capital, S.A., contributing 6 million euros, all of the initial capital of
    the company in question. The company was incorporated into the consolidated
    financial statements of Telefonica Group at its purchase price.

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

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

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


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

    After this transaction, the percentage that Telefonica Group holds, directly
    and indirectly, in those Brazilian companies are the following: 40.91% of
    capital in TBS Celular Participacoes, S.A., 83.56% of capital in Sudestecel
    Participacoes, S.A, 27.71% of capital in Tele Leste Celular Participacoes,
    S.A., and 100% of capital in Iberoleste Participacoes, S.A. All these
    companies have been included in the consolidated financial statements of
    Telefonica Group using the global integration method (in fiscal year 2001,
    Tele Leste Celular Participacoes, S.A. was included in the consolidated
    financial statements of Telefonica Group using the equity method).


  • On May 31, 2002, the Dutch company Atento N.V. was established through a
    non-cash contribution of 100% of the American company Atento Holding Inc.The
    new company, fully held by Telefonica, S.A., has been included as part of
    Telefonica Group's consolidation using the global integration method.

  • During this fiscal year, Telefonica, S.A. acquired 717,465 shares in
    affiliate Terra Networks, S.A. for 5.53 million euros. With these purchases,
    Telefonica Group's direct and indirect interest in the capital of the
    aforementioned company reached 38.58%. The company continues to be
    consolidated using the global integration method.

  • Also during this year, the following affiliates were incorporated into
    Telefonica Group's consolidation perimeter using the global integration
    method:


  • Telefonica Gestion de Servicios Compartidos, S.A. de C.V. (Mexico)

  • Telefonica Gestion de Servicios Compartidos, S.A.C. (Peru)

  • Telefonica Gestao de Servicos Compartilhados do Brasil, Ltda. (Brazil)

  • Telefonica Gestion de Servicios Compartidos, S.A. (Argentina)

Telefonica Datacorp Group


  • In January, Telefonica Datacorp, S.A. acquired 100% of the HighwayOne
    Germany corporation, paying 1.38 million euros in the transaction. On
    September 30, Telefonica suscribed the capital increase made in HighwayOne
    Germany, acquiring 99% of its equity issuance. At the same time, HighwayOne
    Germany acquired 100% of the interest Telefonica, S.A. had in MediaWays,
    G.m.b.H. Both companies continue to be incorporated into Telefonica Group's
    consolidation perimeter using the global integration method.

  • On July 16, it sold its interest in the Austrian company European Telecom
    International, GmbH, a fully owned subsidiary of Telefonica Data Holding,
    S.L., which in turn is a fully owned subsidiary of Telefonica Datacorp, S.A.
    The transaction led to negative sales results for Telefonica Group of 28.95
    million euros. Said company, which was incorporated in fiscal 2001 using the
    global integration method, is no longer in the consolidation perimeter of
    the Telefonica Group.

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

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

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

  • In addition, in the month of September, Telefonica Datacorp, S.A. acquired
    from minority shareholders all shares they held in the company Telefonica
    Data Holding Mexico, S.A. de C.V., paying out 5.16 million euros in the
    operation. Following this operation, Telefonica Datacorp now holds 100% of
    the participation in Telefonica Data Holding Mexico, S.A. de C.V. The
    company continues to be included in Telefonica Group's consolidation
    perimeter using the global integration method.

  • The Italian company Atlanet, S.A., 34% of which is held by Telefonica
    Datacorp, S.A., which had been incorporated until June 30 using the global
    integration method, is now being consolidated, using the equity method.

Telefonica de Espana Group


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


  • 5% capital in Telefonica Cable Extremadura, S.A.

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

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

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

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

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

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

  • 49% capital in Telefonica Cable Castilla y Leon, S.A.


    With these acquisitions, Telefonica Cable, S.A., the parent company in all
    of these companies, holds 100% of the capital in these companies, except for
    Telefonica Cable Extremadura, S.A., where it holds a 66% stake, for Sociedad
    General de Cablevision Canarias, S.A., where it holds a 97% stake and for
    Telefonica Cable Galicia, S.A., where the new percentage is a 85%. The
    payout made was 5.77 million euros. The companies continue to be
    incorporated into the consolidation perimeter of Telefonica Group by the
    global integration method.


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

Telefonica Moviles Group


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

  • On January 10, 2002, by virtue of the agreements between Telefonica
    Moviles, S.A., and the company Mesotel de Costa Rica, S.A., Telefonica
    Moviles acquired the direct and indirect interest of Mesotel in the
    companies they held jointly in Central America. Telefonica Moviles submitted
    as consideration 7,333,180 of Telefonica Moviles' own shares, acquired at a
    per-share price of 7.83 euros, receiving in exchange one-third of the
    Mesotel's interest in TES Holding, S.A. de C.V., Telca Gestion, S.A. de
    C.V., TCG Holdings, S.A., Telca Gestion Guatemala, S.A., Paging de
    Centroamerica, S.A., Telefonica Centroamerica Guatemala, S.A., Tele-Escucha,
    S.A. and Telefonica de Centroamerica, S.L. Following this acquisition,
    Telefonica Moviles has now increased its direct holdings in TES Holding,
    S.A. de C.V., Telca Gestion, S.A. de C.V., TCG Holdings, S.A., Telca Gestion
    Guatemala, S.A., Paging de Centroamerica, S.A. and Telefonica de
    Centroamerica, S.L., up to 67.3% and has acquired a stake of less than 1% in
    the equity of Tele-Escucha, S.A. and Telefonica Centroamerica Guatemala,
    S.A.. In addition, it increased its indirect interest in El Salvador
    operators Telefonica Moviles El Salvador, S.A. de C.V. to 60.7% and in
    Guatemala's Telefonica Centroamerica Guatemala, S.A. to 67.3%.


    In July, Telefonica Moviles, S.A. carried out a capital increase. The
    capital increase was predicated on exclusion of the preferent subscription
    right and made by virtue of the agreement mentioned in the paragraph above
    whereby Telefonica Moviles and Mesotel agreed to transfer the remaining
    two-thirds of the shares pledged to Central American companies. As the means
    of transfer, Telefonica Moviles issued 14,557,046 shares, each with a face
    value of 0.50 euros, receiving in consideration the following shares in the
    following companies:


  • 3,667,893 shares in the Salvadoran company TES Holding, S.A. de C.V.


  • 654 shares in the Salvadoran company Telca Gestion, S.A. de C.V.


  • 261,653,372 shares in the Guatemalan company TCG Holdings, S.A.


  • 1,634 shares in the Guatemalan company Telca Gestion Guatemala, S.A.

  • 163,334 participations in the Spanish company Telefonica de Centroamerica,
    S.L.


    Following this operation, Telefonica Moviles, S.A.'s stake in these
    companies rose to 100%. Indirectly, it now controls both 100% of the
    Guatemalan operator Telefonica Centroamerica Guatemala, S.A., and 90.3% of
    the Salvadoran operator, Telefonica Moviles El Salvador, S.A. de C.V. All of
    these companies are included in Telefonica Group's consolidation perimeter
    using the global integration method, except for the companies Telefonica de
    Centroamerica, S.L. and Paging de Centroamerica, S.A., which carried at
    their acquisition cost.


  • In September, Telefonica Moviles, S.A. and Pegaso Group finalized the
    integration process of Telefonica Moviles' companies in Northern Mexico and
    Mexican company Pegaso Telecomunicaciones, S.A. de C.V. By this process,
    Telefonica Moviles acquired 65% of the equity of the company Pegaso
    Telecomunicaciones, S.A. de C.V. Subsequently, 100% of the shares in Pegaso
    and those of Telefonica Moviles' companies in Northern Mexico have been
    contributed to the recently created company, Telefonica Moviles Mexico, S.A.
    de C.V., in which Telefonica Moviles has a 92% stake. Telefonica Moviles'
    payment for the entire operation was $299.91 million.

  • In January, Telefonica, S.A. acquired 50,000 shares in Telefonica Moviles,
    S.A. for 410,000 euros.

  • Following these operations, Telefonica Group now directly and indirectly
    holds 92.43% of the equity in Telefonica Moviles, S.A., a company that
    continues to be incorporated into Telefonica Group's consolidation perimeter
    using the global integration method.

Admira Media Group


  • In September, the company proceeded to formalize the sale of 100% of the
    Admira Media Group, S.A.'s equity in both Group Uniprex Onda Cero and Cadena
    Voz de Radiodifusion, S.A. Admira Group sold this equity to Antena 3 de
    Television Group, obtaining consolidated capital gains totaling 35.82
    million euros. Both companies, which during fiscal 2001 were being
    incorporated into Telefonica Group's consolidation perimeter using the
    global integration method, are now being incorporated (forming part of
    Antena 3 de Television Group) using the equity method.

  • During this fiscal year, Mediapark, S.A. carried out a capital increase in
    which Admira Media Group did not participate, thus diluting its interest to
    7.40%, for which reason the aforementioned interest was recorded at its net
    book value in Telefonica Group's consolidated financial statements as of
    September 30, 2002.

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

  • In June 2002, Admira sold its interest in Prime Argentina, owner of the
    channel Azul Television, for 12 million US$, which led to recording of
    extraordinary losses of 161,24 million euros. The company, which was
    included in Telefonica Group's consolidated financial statements using the
    equity method, caused a reduction in the perimeter of consolidation.

Telefonica Internacional Group


  • In September, Telefonica Internacional Group sold 25% of the Chilean Group
    Sonda for 38 million US$, obtaining consolidation losses of 3.17 million
    euros. Following this sale, Telefonica Internacional Group reduced its stake
    in the capital of the Chilean company to 35%. Starting at the end of this
    period, Sonda, which had been integrated into the consolidation perimeter
    using the global integration method, will now be included using the equity
    method.

TPI Group


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

  • In July, Iniciativa de Mercados Interactivos, S.A., acquired Adquira
    Espana, S.L.. Following this operation, TPI Group now controls 20% of the
    absorbing company, a company that was included in Telefonica Group's
    consolidation perimeter using the equity method.

  • In July, Telefonica Publicidad e Informacion, S.A., the Group's parent
    company, acquired 9.33% of the capital of the Spanish company Goodman
    Business Press, S.A., paying 980,000 euros in the transaction. With this
    acquisition, the parent company now controls 100% of Goodman Business Press.
    The company continues to be incorporated Telefonica Group's consolidation
    perimeter using the global integration method.

  • Publiguias Holding, S.A., a fully owned subsidiary of Telefonica
    Publicidad e Informacion Group took part in the constitution of Urge Chile,
    S.A. in August, subscribing and paying 59.94 million Chilean pesos,
    corresponding to 99.99% of the capital of said company. Urge Chile, S.A. has
    been included in Telefonica Group's consolidation perimeter using the global
    integration method.

Katalyx Group


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

Atento Group


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

Terra Lycos Group


  • Emplaza, S.A. raised capital by 1,421,000 euros in July of this year.
    Terra Networks, S.A. acquired the shares it needed to increase its interest
    in this company from the 50% it had before the capital increase to the 80%
    it now holds. The company, which had been incorporated into Telefonica
    Group's consolidation perimeter using the capital equity method, is now
    being incorporated using the global integration method.

  • Terra Networks, S.A., owns all existing capital in the U.S. company Lycos,
    Inc. Through this holding, Terra Networks sold its entire stake (44.82%), in
    Lycos Korea, Inc., this August, generating consolidated capital gains of 10
    million US$. In addition, Lycos sold approximately 27% of Sympatico Lycos in
    September, generating consolidated capital gains of US$8 million. Both
    companies, which were integrated in Telefonica Group's consolidated
    financial statements using the equity method, caused a reduction in the
    group's consolidation perimeter.



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