3rd Quarter Results

Telefonica SA
13 November 2003

Quarterly Results

January - September 2003



Table of Contents

Telefonica Group

Financial Highlights

Results

Analysis of Results By Business Line

Fixed Line Business

Telefonica de Espana Group

Telefonica Latinoamerica Group

Telefonica Empresas

Mobile Business

Mobile Business

Other Business

Directories Business

Terra-Lycos Group

Atento Group

Content and Media Business.

Addendum

Companies included in each Financial Statement

Key Holdings of the Telefonica Group and its Subsidiaries

Significant Events

Changes to the Perimeter and Accounting Criteria of Consolidation

NOTE:

The English language translation of the consolidated financial statements
originally issued in Spanish has been prepared solely for the convenience of
English speaking readers. Despite all the efforts devoted to this translation,
certain omissions or approximations may subsist. Telefonica, its representatives
and employees decline all responsibility in this regard. In the event of a
discrepancy, the Spanish-language version prevails.

These consolidated financial statements are presented on the basis of accounting
principles generally accepted in Spain. Certain accounting practices applied by
the Group that conform with generally accepted accounting principles in Spain
may not conform with generally accepted accounting principles in other
countries.


TELEFONICA GROUP



Financial Highlights

The most relevant factors of Telefonica Group results during the first nine
months of the year are the following:


  • Reported net income exceeded 2,000 million euros, due to both the positive
    evolution of operations and the improvement of non-operating items
    (associates, financial expenses and extraordinary results and goodwill).

  • Revenues and EBITDA increased their growth rate during the third quarter
    (+6.4% and +17.0%). Thus, the Group's cumulative EBITDA grew by 4.1% in
    absolute terms.

  • The Group's customer base continues to expand greatly, particularly the
    cellular managed customers (+43.8%), which exceeded 47 million and broadband
    business clients (+96.4%), with 2.3 millions connections at September.

  • The slow-down in the negative impact of exchange rates continued,
    deducting to the revenues and EBITDA growth 9.1 percentage points and 9.0
    percentage points in September, compared with the 13.5 percentage points and
    13.7 percentage points in June.

  • Accelerated rate of organic growth by business lines, as shown by the
    increase in revenues (+5.5%), EBITDA (+12.2%) and Operating Profit (+28.3%),
    excluding the exchange rate and perimeter effect. These rates are higher
    than those recorded in previous quarters.

  • General improvement in the profitability of operations, with the Group's
    EBITDA margin reaching 44.6%, 3.0 percentage points above September 2002
    figure and 0.7 percentage points above that of the first half of the year.

  • Free cash flow generation (EBITDA-CapEx) increased by 8.0% in relation to
    the previous year to 6,937.2 million euros.

  • Telefonica Latinoamerica experienced a change in trend and a notable
    recovery, with growth rates in revenues and EBITDA of 15.8% each in the
    third quarter, reversing the decrease in trend registered since 2001.

  • Solid performance of the mobile business, which is contributing the most
    to the Group's growth, accelerating significantly in terms of revenues
    (+7.0%), EBITDA (+18.8%) and profitability (45.8% EBITDA margin versus the
    41.2% of the previous year).

  • At Telefonica de Espana it should be highlighted the year-on-year increase
    in ADSL connections (+90.2%), totaling 1.4 million as of September, 30. ADSL
    connections had exceeded 1.5 millions as of October, 31.

Telefonica Group Results



The results obtained by Telefonica Group and the management report included in
this report are based on the actions carried out by the various business units
in the Group and which constitute the units over which management of these
businesses is conducted. This implies a presentation of results based on the
actual management of the various businesses in which Telefonica Group is
present, instead of adhering to the legal structure observed by the
participating companies.

In this sense, income statements are presented by business, which basically
implies that each line of activity participate in the companies that the Group
holds in the corresponding business, regardless of whether said holding has
already been transferred or not, even though it might be the final intent of
Telefonica, S.A. to do so in the future.

It should be emphasized that this presentation by businesses in no case alters
the total results obtained by Telefonica Group. These results are incorporated
from the date of effective acquisition of the holding.

Moreover, the results corresponding to Data, Solutions, and TIWS (wholesale
international IP traffic and Broadband Capacity Management business, integrating
Emergia within its assets) are published in the business line of Telefonica
Empresas.

During the first nine months of 2003, Telefonica Group obtained a net income of
2,014.4 million euros compared with the net loss of 5,036.1 million euros in the
same period of the previous year, when extraordinary provisions were accounted
for. These provisions were associated with the write-down of assets and the
provision for restructuring costs of Telefonica Moviles business (UMTS) in
Germany, Austria, Italy and Switzerland. The positive evolution of net income
during the year was a result of the progressive quarter-by-quarter acceleration
of operating results and the good performance of non-operating items, namely the
better performance of associates companies, goodwill amortization, financial
results and extraordinary results. Thus, in quarterly terms, net income for the
third quarter (588.7 million euros) exceeded the one recorded for the third
quarter of 2002 by 9.4%.

The results of the Telefonica Group as of September have been characterized by a
significant acceleration experienced by the growth of revenues, which during the
third quarter increased by 6.4% year-on-year, and by the improvement in
profitability, resulting in an cumulative EBITDA margin of 44.6% (41.6% a year
ago) and 45.9% during the third quarter (41.8% in July-September 2002). This is
reflected in a higher growth in free cash flow generation (EBITDA-CapEx) in
comparison with the previous year (+8.0% to 6,937.2 million euros), as a result
of the better performance of revenues, greater efficiency and the control of
investments.

In addition, it is important to note that the negative impact of exchange rates
on consolidated revenues and on consolidated EBITDA has been reduced for the
second consecutive quarter.

The improvement in results is based on the solid growth of the Group client
base. The Group's fixed, cellular and pay television managed client base at
September 30 rose to 88.9 million clients, 20.1% more than at September 2002 and
1.4% more than at June 2003. Taking the total number of clients into account,
this figure rose to 94.0 million (79.2 million in September 2002 and 92.8
million in June 2003). The highest growth came from cellular telephony and from
broadband. Thus, there were 47.8 million managed cellular clients, which is
equivalent to a year-on-year growth of 43.8% following the incorporation of
Brasilcel and greater client additions in the remaining operating countries.
ADSL connections reached 2.3 million at the end of the third quarter in
comparison with the 1.2 million a year ago, mostly driven by net adds in Spain
(673,439 to 1,420,458) and Brazil (117,009 to 423,548). As of October 31, ADSL
connections in Spain had exceeded 1.5 million.

Consolidated revenues from operations of the Telefonica Group during the period
January-September 2003 rose to 20,833.2 million euros, 3.0% lower than those
obtained during the same period in 2002, although there has been a significant
slowdown in the fall since June (-7.3%), basically due to the lower effect of
exchange rates (deducting 9.1 percentage points as of September versus the 13.5
percentage points as of June). This accelerated growth rate in revenues was also
registered after excluding changes in the consolidation perimeter. In a
homogenous comparison - i.e. excluding the impact of both effects - revenues
would have grown by 5.5%, compared with the 5.2% of the first half. This
accelerated growth rate is mainly due to Telefonica Moviles Espana (+8.7% versus
+7.8% in June) and Telesp (+18.8% versus 16.2% in June in local currency).

By companies, revenues from the mobile business of 7,539.4 million euros grew by
7.0% in comparison with the first nine months of 2002, led by increasing service
revenues (year-on-year increase of 7.2%). Furthermore, it remains the business
line that contributes the most to the Group's revenues growth.

It is important to mention the change in trend in the evolution of Telefonica
Latinoamerica's performance during the third quarter of 2003, given that its
revenues grew at a year-on-year rate of 15.8% in current euros, reversing the
year-on-year decrease shown during the third quarter of 2001. Due to this, the
cumulative drop in revenues was reduced to 14.4% compared with the 25.5% of the
first half of the year. Likewise, sales continued to improve in constant euros
during the year, having grown by 9.1% in comparison with the 8.0% of June,
because of the growth in local currency of Telesp (+18.8%) and TASA (+13.2%)
more than offset lower revenues for CTC (-10.4%) and TdP (-0.1%).

Telefonica de Espana Group reached revenues of 7,593.3 million euros during the
first nine months of the year (36.4% of total consolidated revenues), with a
year-on-year drop of 1.2%. In quarterly terms, the year-on-year comparison in
the third quarter was the best of the year, dropping by 0.6% in comparison with
the 1.7% decline posted in the second quarter and the 1.3% drop of the first
quarter.

By geographical area, as of September 30, 2003, 61.8% of total consolidated
revenues came from Spain, compared with the 57.7% of the previous year,
basically due to the reduced weight of Brazil over the past year due to the
forex effect (-2.6 percentage points to 16.8%).

The evolution of operating costs reflected the transformation towards a leaner
cost structure, with the consequent increase in profitability as a premise for a
more efficient and flexible business model. Thus, cumulative total operating
costs for the Telefonica Group as of September reached 12,087.8 million euros,
recording a drop of 8.0% compared with the first nine months of the previous
year, although this drop was lower than that recorded in the first half (-10.9%)
due to the lower effect of exchange rate fluctuations. Assuming constant
exchange rates and excluding changes in the perimeter, total operating costs
changed sign and grew by 0.7% year-on-year during the period January-September
2003 This evolution is due to the growth in the mobile business (+1.4% related
to the higher commercial activity in Brazil an Mexico) and in Telefonica
Latinoamerica (+4.3% as the development of the long-distance business in Brazil
and ADSL expansion progresses) are not compensating the drop in expenses of most
business lines. However, it should be highlighted that this growth rate in the
Group's total operating expenses slowed down in comparison with the first
quarter (+2.3%) and the first half of the year (+1.3%).

Bad debt control carried out during the last year continued to provide positive
results, achieving a cumulative bad debt provision ratio of 1.6% as of September
(0.7 percentage points lower than the first nine months of 2002). It is
important to note that Telefonica de Argentina, thanks to the policies
implemented (control products, entering filters, ....) was able to improve its
bad debt over revenues for the past twelve months to end below 2.5% (7.7% in
September last year). Telefonica de Espana Group and the mobile business also
significantly improved their ratio to 1.0% and 1.1%, respectively (1.5% in both
businesses a year ago). However, the remaining Latin American operators
experienced an increase in bad debt, particularly in CTC Chile where it
increased by 1.2 percentage points to 3.7% of revenues in September, although in
comparison with June it stood at practically the same level (3.6%). In Telesp,
the ratio to revenues in September was at 3.8%, 0.2 percentage points better
than in June.

As a result of the evolution in revenues and expenses described above,
cumulative consolidated EBITDA at the end of the third quarter rose to 9,294.1
million euros, 4.1% above that obtained during the same period of 2002, changing
the year-on-year downward trend shown in the past six quarters. For the second
consecutive time during the year, quarterly EBITDA showed a year-on-year
increase, which in the case of the third quarter stood at 17.0%. In a homogenous
comparison - i.e. excluding the changes in exchange rates and in the
consolidation perimeter - reported cumulative EBITDA would have increased by
12.2%, 1.5 percentage points above first half 2003 figure.

Consolidated EBITDA margin for the period January-September 2003 has evolved
positively, reaching 44.6% in comparison with the 41.6% of September 2002, as a
result of the improvement in margins in all of the business lines, except for
Telefonica Latinoamerica where it dropped by 0.5 percentage points to 48.0%.
However, it must be noted that the margin of Telefonica Latinoamerica increased
by 0.3 percentage points in comparison with the first half and is practically
equal to EBITDA margin at closing of 2002 (48.1%). Furthermore, the year-on-year
increase in margins of Telefonica Empresas (+10.1 percentage points to 15.2%)
and Terra Lycos Group (+12.9 percentage points to -12.1%) need to be
highlighted.

By company and in relative terms, the cellular business continues to be the one
that contributes the most to the Group's EBITDA growth. Furthermore, as of
September 2003, the mobile business also became the greater contributor in
absolute terms (37.1% compared with 32.5% a year ago), reaching 3,451.3 million
euros, a growth of 18.8% in comparison with the first nine months of the
previous year, and 11.8 percentage points above the revenues growth rate,
placing the margin at 45.8% (4.6 percentage points above September 2002). The
solid performance of Telefonica Moviles Espana EBITDA (+13.8% 9M03/9M02), the
incorporation of TCO to the consolidation perimeter and the freezing of
operations in the rest of Europe in July last year pushed the EBITDA margin of
the mobile business.



EBITDA of the Telefonica de Espana Group, the second biggest contributor to
consolidated EBITDA (36.0% of total in comparison with 37.7% in September 2002),
has ended the first nine months of the year at 3,347.7 million euros, equivalent
to a 0.7% drop in comparison with the same period of the previous year, and 1.2
percentage points above January-June growth rate, thanks to the year-on-year
progress of 2.0% in the third quarter.

On the other hand, Telefonica Latinoamerica reached an EBITDA of 2,231.3 million
euros in the first nine months of 2003, 15.3% below that obtained during the
same period of the previous year, due to the depreciation of the currencies in
the region in comparison with the euro. In constant euros the year-on-year
growth was 8.4% (+7.0% in June). This accelerated growth rate was mainly driven
by Telesp (+10.1% in local currency versus +7.3% in June). The downward trend of
the negative impact of exchange rates continued during the third quarter,
enabling the EBITDA of Telefonica Latinoamerica to reach a positive year-on-year
variation in current euros (+15.8%) for the first time since the first quarter
of 2001.

The composition of EBITDA by geographical area in September 2003, like in the
case of revenues, showed an increase in the contribution of Spain to the total
over the past year (+2.6 percentage points to 70.1%) and a reduction in the
contribution of Brazil to 17.6% (21.2% in September 2002).

Operating profit totalled 4,591.4 million euros in the period January-September
2003, exceeding that obtained during the same period of 2002 by 20.7% and
accelerating the growth rate recorded during the first quarter (+4.1%) and the
first half (+12.0%). This performance was explained by change in the trend of
the EBITDA evolution (+4.1% versus -7.4% in March and -2.0% in June),
compensating for the lower drop in depreciation in comparison with June (-8.2%
vs -11.9%) due to the better evolution of exchange rates. In constant euros,
depreciation has grown by 2.1%, a slower rate than that of the first three and
six months of the year, when it grew by 5.2% and 3.7% respectively. It is
important to note that the growth in operating profit, excluding the effect of
the exchange rate and the variations in the consolidation perimeter, rose to
28.3%, 5.5 percentage points above that of June and 6.6 percentage points above
that of March.

In terms of non-operating captions the better year-by-year and item-by-item
performance of the associates companies (254.1 million euros), financial results
(1,260.3 million euros), amortization of goodwill (177.0 million euros) and
extraordinary results (6,304.0 million euros) must be noted.

The negative results of companies consolidated using the equity method continued
to show clear signs of improvement, with a reduction of 61.1% compared with the
first nine months of 2002 to reach 161.4 million euros. This improvement is
mainly due to the sale of ETI Austria, Data Uruguay and Azul TV in 2002 and of
Antena 3TV in 2003, together with the lower losses related to associates at
Terra Lycos Group level, Via Digital (consolidation of Sogecable since July),
IPSE-2000, Pearson and Medi Telecom.

Total net financial costs reached 750.6 million euros as of September 2003,
including a positive impact from the appreciation of the Argentinean peso of
172.3 million euros. Excluding that effect, the financial results rose to 922.9
million euros, which meant a drop compared to the comparable financial results
for 2002 (1,402.6 million euros) of 34,2%. Of that percentage,19.1 percentage
points were due to the positive result of 267.5 million euros coming from the
cancellation of US dollars denominated debt. So, excluding also this positive
result, the financial results of the nine months of the year will be 1,476.5
million euros, falling 15.1% versus the above-mentioned comparable figure of
2002.

Net debt of Telefonica Group reached 20,462.8 million euros at the end of
September 2003. The reduction of 2,070.3 million euros in relation to
consolidated debt at the end of financial year 2002 (22,533.1 million euros)
arose mainly from the generation of 4,409.4 million euros in operating cash flow
for the Group, of which 1,936.5 million euros were devoted to financial
investments and 821.1 million euros to dividend payments. Also, out of the total
net debt reduction in the period, 586.8 million euros were related to the
currencies movements effect on the non-euro denominated debt, basically due to
the euro apreciation versus dollar, partially compensated by the increase of
debt of 168.3 million euros due to variations in consolidation perimeter and
other factors over financial statements. During the third quarter of the year,
Telefonica Group's net debt increased in 472.2 million euros because of the
cash-out flows relating to the Terra Lycos's shares buy-out (1,035.8 million
euros) and the payment of Telefonica, S.A. dividend (641.9 million euros) in
July 2003 exceeded the operating cash flow for the quarter (1,403 million
euros).

Goodwill amortization to September reached 326.0 million euros, a year-on-year
reduction of 35.2%. This reduction is basically due to the write-offs carried
out during 2002 in the investments in Terra Lycos, Telefonica Deutschland, Iobox
and Pearson. It is important to note that the mobile business experienced a
growth of 17.9% in its goodwill amortization in comparison with
January-September 2002 through the purchase of Pegaso in 2002 and the
acquisition of TCO in 2003.

In the first nine months of 2003 extraordinary results totaled -52.3 million
euros. The most significant positive extraordinaries for the period were the net
capital gain related to real estate disposals by 166.1 million euros and the
reversion of the provision for adapting to market prices the amortized shares in
the second quarter and the shares in the treasury stock as of 30 September (0.5%
of share capital), which rose to 156.9 million euros. With regard to
extraordinary negative results for the year, updating provisions for retirements
and pre-retirements of the 1999 Redundancy Program in Telefonica de Espana,
different contingencies in Telefonica Latinoamerica and personnel restructuring
in Telesp and TdP are the main ones. In the third quarter, extraordinary results
were a loss of 92.1 million euros. In addition to effects already explained, it
is worth to mention the sale of Atlanet stake, effective in October.

With regard to the Telefonica de Espana 2003-2007 Redundancy Program, it should
be highlighted the closing of its first phase in the month of October. The
number of employees Telefonica de Espana accepted to join the program totaled
5,489, which will result in a provision net of taxes amounting to 894,5 million
euros that will be accounted for in the financial statement of Telefonica Group
during the fourth quarter.

The provision for accumulated tax at the third quarter reached 1,118.2 million
euros and will mean a very reduced cash outflow for the Group due to
compensation of negative tax bases occurring in previous years.

Minority interests for the first nine months of the year was negative in 168.5
million euros compared with the positive amount of 237.8 million euros in
January-September of the previous year. This change resulted from, among other
factors: 1) the closing of cellular activities in Germany, 2) smaller losses of
the Terra Lycos Group, 3) the change in the criteria for consolidation of
Atlanet, which has been consolidated by the equity method since July 2002, 4)
the issue of preferred shares in December 2002 and 5) the higher participation
of minority interests in the net results of Telefonica Latinoamerica operators.

With regard to Telefonica Group CapEx, total investments for the first nine
months of the year amounted to 2,356.9 million euros, which represented a
decrease of 5.9% year-on-year (-4.5% in constant euros). The mobile business is
the only one to have experienced an increase during the period of 11.5% to 738.1
million euros due to the deployment of the GSM network in Mexico and Chile.

The average workforce of the Telefonica Group as of September 2003 rose to
150,370 employees compared with the 158,833 employees ending September 2002,
mainly related to cuts in personnel at Telefonica Latinoamerica, Telefonica
Moviles and Terra Lycos.

With regard to the above-mentioned impact of the updating of external debt in
the Group's companies in Argentina, the consolidated accounts showed positive
impacts on the consolidated profit and loss account and in the heading
'Translation differences in consolidation' in the Shareholder Equity caption of
108.0 million euros and of 328.3 million euros in the first nine months of the
financial year 2003, respectively, as a result of the appreciation of the
Argentinean peso in this period from 1US$ per 3.37 pesos as of 31 of December,
2002 (1 euro per 3.53 pesos) to US$ 1 per 2.92 pesos as of 30 September, 2003 (1
euro per 3.40 pesos). In the same period of the previous year this impact was
negative, at 398.2 million euros in the profit and loss account.

As of September 30th, the exposure of the Telefonica Group in the different
Argentinean companies is 1,162.2 million euros, this amount including equity
value, goodwill and internal financing attributable to these investments (once
incorporated the losses before any fiscal effect).

The matters still not resolved, that could affect to the Group investments in
Argentina, include, among others, the necessary renegotiation with the Argentine
Government of future tariffs due to the effect of the provisions of Law 25.561.
Accordingly, although the book value of the fixed assets was maintained on the
basis of estimates based on the information currently available, neither the
results of the negotiations relating to tariff levels nor, therefore, quantify
their effect, if any, on the consolidated financial statements as of September
30, 2003.

Analysis of Results by Business Line

FIXED LINE BUSINESS

Telefonica de Espana Group

The results of the fixed telephony business for January-September 2003 showed an
improvement on the year-on-year figures, despite the continuing heavy
competitive pressure and the fact that the voice market continued to shrink (the
estimated total voice market was 4.8% down from the same period of the previous
year).

In this context, Telefonica's competitors held an 8.9% share of the direct
access market at the end of September, reflecting a slightly slower rate of
growth in the first nine months of 2003 than in 2002. This has resulted in the
loss of 297,951 PSTN and ISDN basic access lines so far in 2003, of which 98,593
lines were lost during the third quarter, a significantly better performance
than that of 2002. Preselected lines grew more slowly than in the previous
quarter, partly due to the impact of the vacation period, and stood at 2,156,344
lines at September 30. Of those, 89.5% were globally preselected (1,929,503).
Telefonica de Espana's estimated market share in voice traffic was 78.5%, 1.0
percentage points lower than in the second quarter and 3.5 percentage points
lower than at December 31, 2002.

The estimated total volume of minutes processed by the Telefonica de Espana
network amounted to 103,297 million, 3.6% less than in September 2002 (2.6% less
than in June). Outgoing traffic (voice + Internet), which accounted for 61.8% of
total traffic, amounted to 63,799 million minutes, a fall of 11.8% (10.6% down
in June). Outgoing voice traffic amounted to 42,394 million minutes, a fall of
8.9% year-on-year. As in the previous quarter, only fixed-to-mobile and
Intelligent Network traffic recorded positive year-on-year growth of 3.2% and
9.4%, respectively; the remaining types of outgoing voice traffic decreased in
comparison with the previous year. Local traffic fell by 13.7%, provincial
traffic by 5.9%, DLD traffic by 8.7% and international traffic by 2.6%. The
number of outgoing minutes to the Internet amounted to 21,406 million, which
represented a year-on-year decrease of 16.9%, a decline that has sharpened in
the last two quarters. Finally, incoming traffic rose by 13.4% to 39,498 million
minutes.

The total number of price plans stood at 3,834,358 at the end of September,
following a net loss of 111,215 plans in the quarter as a result of the decrease
in activity during the vacation period. The successful marketing of the new
plans launched in June (Bonos Minuto Compacto 500 plus, Bononet 7-20, Bono
Americas 120, etc.), amounting to 42,255 plans, made it possible to contain the
drop in the price plans. Additionally, the approval in October of the new
modular plans ('Combinados') by the CMT, shall allow regaining momentum from the
fourth quarter onwards.

The positive trend in Value Added Services continued, with year-on-year growth
rates of 5.2% in the number of mailboxes available (11,414,597) and 33.5% in the
number of subscribers to the Caller ID Service (6,593,937). The service allowing
text messages to be sent from fixed line telephones continued to prove quite
successful: 7,001,088 messages had been sent in the nine months to September
2003, while inclusion of the 6,288,062 messages received by fixed line phones
from mobile phones took the total number of messages managed to 13,289,150.

Aiming to revitalize traditional voice services, Telefonica de Espana increased
its commercial efforts in the third quarter by launching new products and
services of which the following deserve mention: Linea Vacaciones (Vacation
Line, enabling activation / deactivation of a second low-cost fixed line at the
subscriber's vacation home), Linea Joven I (Youth Line I, an additional or
simultaneous line linked to a telephone line at the same address, with
restrictions on calls), Rechazo Selectivo de Llamadas (Selective Rejection of
calls, enabling subscribers to reject those calls they do not wish to take at a
given moment), among others.

In addition, the Broadband market increased its year-on-year growth rate in the
third quarter, due in part to the success of the specific summer campaigns. In
this respect, the number of ADSL lines stood at 1,420,458 at September 30,
registering a net gain in the quarter of 126,892 accesses and improving on the
year-on-year net gain growth rates achieved in the first two quarters of the
year (+47.3% in the third quarter, against +18.2% in the second quarter and
+17.9% in the first). The retail ADSL service achieved 91,351 new accesses in
the third quarter, totaling 937,962 accesses by September 30. Retail new
connections using the self-installation kit remained high at 63.8% of total
retail additions in the year. By October 31, the number of ADSL lines have
surpassed the 1.5 million mark.

On the top of ADSL connectivity services, Telefonica de Espana is marketing
Value Added Services (VAS) that are making a growing contribution to the
increase in ARPU (5.3% of total ARPU at September end, compared with 2.0% at the
end of 2002). Particularly noteworthy are business segment VAS with 81,420 fully
operational Soluciones ADSL (ADSL Solutions), of which 32,073 are Net Lan (ADSL
head-offices and remote accesses).

At the same time, the launching of new ADSL value added services progresses,
deserving mention the following: Wi-Fi LAN ADSL (a solution offering wireless
broadband access to the subscriber's corporate network and to the Internet), a
wireless ADSL PCMCIA/USB Kit (enabling subscribers to set up a wireless local
network) and Comprehensive ADSL Maintenance (a maintenance service that includes
labor and the replacement of faulty equipment) among others.

Against this background, Telefonica de Espana Group operating revenues were down
by 0.6% year-on-year in the third quarter, improving the figures for the
previous quarters (-1.3% in the first quarter and -1.7% in the second quarter).
For the nine months period, operating revenues were down by 1.2% at 7,593.3
million euros.

The operating revenues obtained by the Telefonica de Espana parent company in
the first nine months of the year (96.2% of the Group total) were 1.3% lower
than in the same period of 2002, as a result of the decrease in revenues from
Traditional Services (down by 3.2%) and Wholesale Services (down by 5.7%), which
were not fully offset by the increase in revenues from Internet and Broadband
Services (up by 33.7%). The percentage of total revenues accounted for by
recurring fixed revenues (monthly fees plus franchised plans and flat rates)
rose to 52.7%, representing an increase of 4.6 percentage points since the
beginning of the year.

At 5,637.0 million euros, revenues from Traditional Services registered a
year-on-year decrease of 3.2%, since they continued to be affected by the drop
in effective revenues from Voice usage caused by the shrinking market and the
loss of market share in direct and indirect access mentioned earlier, as well as
by the impact of the price reductions in 2002 imposed by the Price Cap. However,
the attenuation in the third quarter of the cumulative fall in Voice usage
revenues (-8.1%) contributed to the slight improvement in the performance of
Traditional Services year-on-year. There was a 3.4% increase in cumulative
revenues from Client network access and network services at September end, due
primarily to the increase in the monthly fee for the PSTN lines which came into
effect at the beginning of 2003.

Revenues from Internet and Broadband Services increased by 33.7% to 611.0
million euros. Noteworthy was the good performance of Broadband revenues, which
amounted to 394.5 million euros due to the success of the retail ADSL service.
On the other hand, narrowband Internet revenues fell by 24.3%, as a result of
not only the fall in the traffic billed to end customers but also the reduction
in the average price due to the lesser weight of odd minutes and a greater use
of flat rates.

Revenues from Wholesale Services, which were down year-on-year by 5.7% at
1,057.0 million euros, continued to recover with respect to previous quarters
(-6.4% in June and -9.2% in March), primarily as a result of the gradual
recovery of incoming international traffic and Commercial Wholesale Services
(national and international carrier services and carrier capacity).
Interconnection revenues reflected a slowdown in the growth of traffic and the
stabilization of the average revenue per minute.

The downward trend in Telefonica de Espana Group operating expenses was
accentuated in the third quarter (they were down by 3.1% year-on-year in the
third quarter, by 1.1% in the second quarter and by 0.6% in the first quarter).
Recording a cumulative fall of 1.6% year-on-year, they totaled 4,303.4 million
euros as a direct result of the measures to improve operating efficiency
implemented in the course of 2003 and the evolution of supplies expenses.

Telefonica de Espana Group supplies expenses totaled 1,823.6 million euros, 8.3%
lower than in September 2002. This fall is the result of the evolution in
interconnection expenses at the Telefonica de Espana parent company (66.5% of
total supplies expenses), which were down year-on-year by 6.8% due to the lower
fixed-to-mobile interconnection expenses, which in turn were the result of the
reduction in mobile operators' termination prices at the end of 2002.

Telefonica de Espana Group expenses for external services and others were 5.7%
higher than for the same period of the previous year (6.4% higher in June) and
stood at 686.6 million euros. This improvement in the quarter was the result of
the policies and commitments to save expenses in order to improve efficiency.

Telefonica de Espana Group personnel expenses amounted to 1,666.5 million euros,
representing an increase of 3.4% on the same period of the previous year. Those
of the Telefonica de Espana parent company accounted for 97.9% of the total, and
were 3.7% higher; as we had anticipated, the increase in personnel expenses
abated as the year progressed (they were up by 4.8% in June and by 6.8% in
March) due to the adjustment to the real rate of inflation for 2002 made in the
first quarter of 2003. Telefonica de Espana workforce consisted of 40,357
employees, representing a year-on-year decrease of 1.2%. However, in the last
quarter there will be a significant drop as a result of the implementation of
the Redundancy Program 2003-2007. With regard to the aforementioned Telefonica
de Espana 2003-2007 Redundancy Program, it should be highlighted the closing of
its first phase in the month of October. The number of employees Telefonica de
Espana accepted to join the program totaled 5,489, which will result in a
provision net of taxes amounting to 894,5 million euros that will be accounted
for in the financial statement of Telefonica Group during the fourth quarter.

With regard to other operating expenses, the significant reduction in bad debt
provisions continued: they were down by 31.9% and accounted for 1.0% of
operating revenues.

Telefonica de Espana Group EBITDA amounted to 3,347.7 million euros at the end
of third quarter, a decrease of 0.7% which was an improvement of 1.2 percentage
points on the cumulative figure for the first half of the year, as a result of
the recovery experienced in the third quarter (+2.0% in the third quarter,
compared with -2.3% in the second and -1.6% in the first). The Group's EBITDA
margin stood at 44.1% (0.1 percentage points more than the margin for 2002 as a
whole and 0.2 percentage points more than in the period January-September 2002).
At the parent company the EBITDA margin was 45.6%, 0.1 percentage points lower
than in 2002 as a whole and 0.1 percentage points lower than in the period
January-September 2002.



The performance of EBITDA in the last quarter of the year will be affected by
the application of the Price Cap, the decrease in fixed-to-mobile
interconnection prices, higher commercial expenses related to both ADSL and
traditional services, and also a reduction in personnel expenses as a result of
the implementation of the Redundancy Program 2003-2007. As a result, by the end
of the year EBITDA will be within the upper part of the guidance range (-2.0% -
0.0%).

Operating profit amounted to 1,405.6 million euros, showing growth of 5.4% as a
result of the performance of the amortization and depreciation of fixed assets,
which were 4.6% lower at the end of September.

CapEx by the Telefonica de Espana Group through September stood at 936.6 million
euros, representing a decrease of 18.3% from the same period of the previous
year. 35.7% of total CapEx was devoted to investments generating Internet and
Broadband Business revenues, 48.6% to investments generating Traditional
Business revenues and the remaining 15.7% to Information Systems and Others. FCF
generation at Telefonica de Espana Group, defined as EBITDA minus CapEx,
amounted to 2,411.1 million euros, representing an increase of 8.4%.

Telefonica Latinoamerica Group

Until September, the Latin American currencies performed positively against the
dollar, with appreciations from December 31, 2002 to September 30, 2003 of 20.9%
in the Brazilian real, 15.6% in the Argentinean peso, 8.7% in the Chilean peso
and 0.9% in the Peruvian nuevo sol.

Additionally, and unlike previous quarters, on a year-on-year basis all of these
currencies continued to appreciate against the dollar, except for the Brazilian
real that, although it has depreciated by 14.6% (average exchange rate), its
exchange rate has improved by almost 10 percentage points compared with June
(24.4%). However, the depreciation of the dollar versus the euro (16.8% average
exchange rate) absorbs the improvement of Latin American currencies. Thus, in
September they all showed levels of year-on-year depreciation in comparison with
the euro, although at a lesser level than in June: 28.6% in the Brazilian real
(38.2% in June), 14.9% in the Argentinean peso (26.7% in June), 6.2% in the
Chilean peso (19.8% in June) and 12.9% in the Peruvian nuevo sol (17.8% in
June).

As a result, the negative effect of the variation in exchange rates on the
accounts of Telefonica Latinoamerica continued to drop as in previous quarters.
Thus, the Group's revenues of 4,649.9 million euros and EBITDA of 2,231.3
million euros registered year-on-year decreases of 14.4% and 15.3%,
respectively, (in comparison with 25.5% and -26.8% in June), which in constant
euros become appreciations of 9.1% and 8.4%, respectively (+1.0 percentage
points and +1.4 percentage points, in relation to June). This acceleration in
the growth of company revenue has been brought about through the increased
growth in Telesp and TASA revenue, which compensate for the deceleration in
TdP's and CTC's sales:


  • Telesp, with 18.8% higher revenues in local currency as compared to
    January-September 2002 (2.6 percentage points higher than as of June) due to
    both the expansion of long distance and ADSL services and to the tariff
    increase in 2002 and 2003 (fixed-mobile in February and the rest of tariffs
    in June).

  • TASA, the growth in revenues to September (+13.2%) continues the trend of
    the first half of the year, maintaining both the improvements in plant and
    traffic and the application of CER (inflation indexing of the wholesale
    offering), which accounts for 5.6 percentage points of this growth.

  • TdP, revenues remain on similar levels as in 2002 (-0.1%) despite the
    launching of new tariff plans and the intensification of long distance and
    public telephony competition. On a positive side, it has influenced the
    larger plant of traditional lines (+7.2%) and the growth of broadband.

  • At CTC, revenue performance (-10.4%) was affected by the change in the
    consolidation method applied to Sonda from September 2002; without this
    effect, CTC's revenues remained almost constant (+0.1%), reflecting tariff
    indexing and the growth in broadband and pre-paid products, which counteract
    the strong competition and lower plant in service.

The total operating expenses of Telefonica Latinoamerica stood at 2,510.6
million euros as of September, 13.0% less than in 2002 in current euros. In
constant euros, these expenses rose by 10.6%, +3.1% net of interconnection
expenses, as a result of the increase in this item experienced by all of the
operators (at Telesp due to increased long-distance activity through the new
services launched in 2002, together with the traffic generated by the new
modality of Personal Mobile Service modality (SMP) and in the remainder mostly
due to greater traffic to mobiles). In relation to the remaining expenses, lower
staff costs must be noted, reflecting the smaller average operator workforces,
while higher commercial expenses, especially in Telesp and CTC.

As a result of the growth of EBITDA in constant euros (+8.4%) and the lower
increase in depreciation (+0.5% at a constant exchange rate, reflecting the
lower volume of investment by operators over recent years),the operating profit
(959.3 million euros) registered a year-on-year improvement of 20.3% in constant
euros (in comparison with 16.2% as of June).

Telefonica Latinoamerica recorded negative extraordinary results of 99.5 million
euros as of September (compared with the -47.2 million euros as of June), 9.2%
lower those recorded in 2002 in current euros. The most significant items of
this result are the provisions for contingencies (legal, tax and regulatory, at
a total of 61.4 million euros at TdP, Telesp and TASA), compensation for
workforce restructuring (18.5 million euros at TdP and Telesp), as well as the
negative results of the sale of the remaining 35% share held by CTC in Sonda
(-9.7 million euros) and the write-off of the TLD share in the cable TCS-1 upon
cancelling its operations (-8.7 million euros).

The financial results improved from -1,101.6 million euros in the previous year
to -36.3 million euros at the end of September. This positive evolution was
mainly due to the change in sign of the exchange differences produced by foreign
debt in dollars in Argentina, which led to a negative result of 521.6 million
euros during the period January-September 2002, while during the same period
2003 it produced a positive result of 140.6 million euros. Likewise, a positive
influence was reflected by the 248.7 million euro profit obtained from the
cancellation of debt at the holding company denominated in dollars, recorded
during the first half of the year.

These results, together with the tax provision of 271.2 million euros and
minority interests of 57.4 million euros, give a net income of 434.2 million
euros, compared with a loss of 195.6 million euros in the same period of 2002.

The operators' aggregate free cash-flow (EBITDA-CapEx) amounted to 1,859.7
million euros, down by 15.7% in current euros due to exchange rates changes,
given that in constant euros it shows an upward trend of 13.6% reflecting both
the improvement in EBITDA and the policy of CapEx control implemented by the
operators. Thus, aggregate CAPEX amounted to 371.7 million euros, reduced by
20.2% in constant euros (-15.4% in current euros).

The equivalent lines in service managed by Telefonica Latinoamerica rose to 21.6
million in September, in line with the previous year and of which 3.0%
correspond to Broadband (2.6% in June).

Traditional business lines, 20.9 million, dropped 1.6% in comparison with
September 2002, reflecting the decrease in plant at Telesp and CTC (due to
stricter debt control). However, TdP continues the upward trend of lines (+7.2%
on a year-on-year basis) and at TASA the plant in service remains almost stable
(-0.4% on a year-on-year basis).

Broadband connections, 655,218, continued to grow at a significant rate, up
62.0% on September 2002 thanks to the operators' plans to accelerate ADSL
penetration. During the quarter, a net gain of 87,820 connections was produced,
particularly highlighting Telesp and CTC, which together accounted for 72.6% of
this growth.

The headcount at the Latin American operators amounted to 22,716 (24,298
including the subsidiaries consolidated in TdP), which was 2,672 employees less
than in the previous twelve months.

Brazil

In terms of long distance business from Sao Paulo, it continued to make
positive progress, registering an estimated market share at the end of September
of around 86% in intra-state long distance, close to 50% in inter-state long
distance and around 40% in international long distance. Telesp began providing
long distance services outside Sao Paulo on March 7 2003, focusing mainly on
the corporate segment of the market, thus strengthening its presence nationwide.
It is worth noting that in July the new SMP modality for cellular operators
entered into force, involving the selection of a long distance carrier by mobile
clients. This regulatory change enabled Telesp to include mobile calls in its
potential market and the presence of the brand nationwide.

The Telesp plant in service remained virtually unchanged with respect to the
previous quarter, with a year-on-year decrease in traditional lines of 1.7% due
to disconnections through the application of stricter debt control measures.

The company continued to foster the development of broadband, with a total of
423,548 ADSL connections at the end of September, registering a net gain in the
quarter of 40,381 connections compared with 33,861 in the previous quarter
(+19.3%). Last July itelefonica, Telesp's free ISP, was launched with the aim of
expanding the customer base and developing the Internet business. After three
months of operations itelefonica has reached almost 600,000 registered customers
and an estimated market share of 18%, becoming number two in the free ISP
market.

The operating revenues showed year-on-year growth of 18.8% in local currency in
the first nine months of the year (+16.2% in the first six months), driven by
both the increase in long distance revenues (+66.9%) and the higher revenues
obtained in local telephony (+12.0%) as a result of the increases in monthly
fees and traffic tariffs in June 2002 and 2003, as well as by the greater
fixed-to-mobile tariff applied in February 2002 and 2003, which made it possible
to offset the 2.1% reduction in billable plant. Moreover, this growth in
revenues was strengthened, although to a lesser extent, by the expansion of
broadband services following the 47.5% increase in average ADSL plant.

On the other hand, aggregate expenses through September rose by 26.9% (+16.6%
excluding interconnection expenses), basically as a result of the higher level
of activity due to the incorporation of the long distance business and the
broadband expansion. Additionally, an increase in operational costs has been
registered due to price increases (in relation to higher inflation rate)
affecting external services and supplies connected and the application of
stricter provisioning policies (although the provision on revenue remains
stable, at 3.8% in the period January-September).

With this evolution in operating revenues and expenses, by September 2003 Telesp
had an EBITDA of 1,210.0 million euros with year-on-year growth of 10.1% in
local currency (in comparison with the 7.3% of the first six months). EBITDA
margin dropped 3.8 percentage points to 47.6%, mainly due to the higher
weighting of long distance services, with lower margins. However, the margin
reached during the third quarter, placed at 48.2% and favoured by the increase
in tariffs, must be noted.

Telesp has recorded extraordinary results totalling -33.9 million euros coming
mainly from the cost associated with the workforce-restructuring program, which
affected 1,629 employees, of which 1,358 have taken voluntary redundancy.

The year-on-year decline in CapEx (-27.0% in local currency) has continued as of
September, although to a lesser extent than in the previous quarter (-34.3%
accumulated at June), partially due to the delay in the tender of some contracts
and to the rescheduling of some projects for the second half of the year, the
implementation of which has now begun. As a result of the fall in investment and
the rise in EBITDA, free cash flow (EBITDA - CapEx) amounted to 961.1 million
euros, a year-on-year increase of 26.4% in local currency.

At the end of September, Telesp had 8,229 employees, with a ratio of 1,553 lines
per employee, almost in line with the previous quarter.

Argentina

The relative economic stability of the first half of the year continued into the
third quarter in Argentina, with a controlled inflation rate (totalling 2.6% as
of September) and a currency that had actually appreciated against the dollar by
15.6% since December 31 2002. The improved economic environment led to the
recovery of plant and traffic operating indicators that had experienced a severe
decline throughout 2002. In this context, the demand for traditional lines (an
increase of 50.0% in comparison with the first nine months of 2002) must be
noted, enabling the plant in service to remain virtually unchanged with respect
to the previous year (-0.4%). Local traffic per line has also increased greatly
(+11.6%), driven primarily by prepaid and Internet traffic. It is also important
to note the 29.7% year-on-year increase in long distance revenues, mainly due to
a higher average price following the elimination of discounts.



As a result of the good performance of the operating variables of plant, traffic
and long distance prices, TASA's operating revenues rose by 13.2% year-on-year
in local currency, favoured by the impact of establishing agreements with
operators for mutual invoicing applying CER (inflation indexing of wholesale
offerings) retroactive to 2002, as it had not been implemented in the previous
year. Without this effect, there would have been a year-on-year increase in
revenues of 7.6%, driven by the good performance of the operating parameters and
despite the freezing of tariffs since January 2002. In addition, the determining
factor of TASA operating profit was the aggressive cost reduction and control
policy implemented, enabling the reduction of operating expenses by 8.5% in
relation to 2002 (an 11.0% drop in expenses, excluding the effect of CER). Of
particular note was the effective management of bad debts with the launch of
specific products into the market aimed at maximising debt recovery and ensuring
that profitable customers are maintained. Thus, bad debt provision as a
percentage of revenues stood below 2.5%.

The positive progress in operating variables, combined with the ongoing policy
of cost containment, enabled TASA to achieve EBITDA of 359.1 million euros in
the first nine months of the year, an increase in local currency of 35.3% on
that of the same period in 2002. On the other hand, the year-on-year improvement
in EBITDA margin (net of fixed-mobile interconnection) continued, reaching 59.7%
(9.6 percentage points higher than in the same period of 2002). In addition,
TASA continued to implement a restrictive policy of investment, which together
with the improvement in EBITDA enabled the company to achieve a free cash flow
(EBITDA - CapEx) of 339.1 million euros, 36.7% more in local currency than that
obtained during the same period in 2002.

At the end of September, TASA had 7,990 employees, 5.1% less than in the same
period of 2002, with a ratio of 528 lines per employee (a year-on-year increase
of 5.5%).

Chile

In mid-October, Chilean regulator approved tariff flexibility for CTC, giving
the company the possibility to offer alternative commercial plans and enabling
it to compete under better conditions on the market.

Moreover, in July the regulator authorised CTC Chile to launch prepaid tariff
plans aimed at clients with low income, which allows for greater bad debt
control through two modalities, Control Line and Full Variable. By September,
the number of lines corresponding to these plans was placed at 24,645 and
33,168, respectively. As of September, CTC had a plant in service of 2.6 million
traditional lines, which was an 8.6% year-on-year reduction, due to the
disconnection of lines with bad debt problems.

The ADSL business evolved very positively, placing CTC as the market leader for
the first time in September, with a market share of 35% (6 percentage points
above that of the previous year), with 107,580 connections (+160.7%
year-on-year) and a net gain in the year of 53,417 connections, doubling the
figure recorded during the same period in 2002 (+101.9%).

Despite the fall in the domestic long distance market affected by the mobile
substitution and international long distance because of the aggressive
competition, CTC maintained its leadership on the domestic long distance market,
with a 40.1% market share at the end of the period (+1.4 percentage points
year-on-year), while the company market share in the international long distance
segment was placed at 29%.

From a financial point of view CTC's results have been negatively affected by
the change in the consolidation method of Sonda in September 2002. Thus,
operating revenues for the first nine months of the year amounted to 706.0
million euros, 10.4% lower in local currency than for the same period of 2002.
Excluding this effect, revenues presented a similar evolution to that of the
previous year (+0.1%), mainly due to the increase in broadband revenues, and to
the tariff indexation, which compensated for the decrease in long distance
business revenues through market contraction and price drops, as well as lower
local telephony revenues through plant decrease.

Operating expenses increased by 2.0% in local currency, excluding the Sonda
effect, influenced by the increase in the expenses of subcontracts subject to
revenue generating actions and to the increase in the bad debt provision. The
increase in these items was partially compensated for with the drop in staff
expenses, which decreased by 15.4% due to the workforce reduction during the
previous year. The ratio of bad debt provision to revenues, although placed at
3.7% in September, has stabilised in relation to the first half as a result of
the management measures adopted by the company.

The EBITDA reached 306.2 million euros, 5.9% less in local currency than for the
same period of the previous year due to the effect of the Sonda sale. Net of
this effect, the fall would have been only 3.0% in local currency.

The Free Cash Flow (EBITDA - CapEx) generated by the company amounted to 252.1
million euros, 5.3% lower than the figure for the previous year in local
currency (excluding the Sonda effect), due to the 3.0% decrease recorded in
EBITDA and the 8.7% increase in CAPEX in local currency linked to higher
investment in ADSL.

Following the last workforce restructuring program, CTC has 3,236 employees,
17.7% less than in the previous year (net of the effect of the Sonda sale), with
a line/employee ratio of 802, 14.2% higher productivity than during the previous
year.

Peru

In the third quarter of the year, Telefonica del Peru considerably extended its
range of tariff plans as a complement to the current price-cap tariff system,
which has meant a large increase in the offer of products and services for users
in line with their levels of usage, while at the same time maintaining a notable
growth rate in the company's plant in service (+7.2% year-on-year in September
compared with 5.7% in June).

Operating revenues amounted to 815.6 million euros, 0.1% lower in local currency
than the figure for September 2002. Although this behaviour is mainly a result
of the impact of the tariff plans and the intensification of long distance
competition, it was also affected in the opposite manner by the increase in
plant and the growth of Broadband (with a sharp rise in plant from 24,841
connections in the same period of the previous year to the current figure of
68,197).





Regarding total operating expenses, they have increased by 4.5% year-on-year in
local currency. Higher commercial expenses, due to the activity associated to
the new tariff plans launchment and higher interconnection costs because of the
Public Telephony to Mobile traffic increase are the main reasons for this
behaviour. On a quarterly basis, operating expenses have reduced their growth
rate (2.1 percentage points less than in June) in the third quarter compared
with the first half of the year, due to the better performance of both
commercial and interconnection expenses in this period.

TdP is making great efforts in the development of broadband, the net adds of
ADSL and Cable modem connections having doubled in comparison with that of the
same period 2002 (+93.8%), leading to a 28.4% year-on-year increase in company
investment in local currency to 47.4 million euros. This is reflected in a free
cash flow (EBITDA - CapEx) of 312.0 million euros, with a fall of 9.5%
year-on-year in local currency.

The number of fixed telephony operator (FTO) employees increased by 7.9% in
comparison with the third quarter of the previous year (due to the
reincorporation of 372 employees to September due to the Constitutional Court's
sentence) to 3,261, with a productivity ratio of 610 lines/employee (+1.4%
year-on-year). The total TdP workforce, including the subsidiaries consolidated
with the FTO, stood at 4,843 employees.

Telefonica Empresas

Telefonica Empresas is the business line that comprises Telefonica Data,
Telefonica Soluciones and Telefonica International Wholesale Services, and is
responsible within the Telefonica Group for providing integrated solutions to
meet the communication needs of the corporate segment (businesses, public
authorities and other telecom operators).

The operating revenues of the consolidated Telefonica Empresas Group for the
first nine months of 2003 amounted to 1,308.4 million euros, 0.7% less than in
the same period of 2002. The main reasons for this variation were the changes in
the consolidation perimeter and the depreciation of the main Latin American
currencies. Without these two effects, revenues would have grown by
approximately 10%. Taking into account the same perimeter, there would have been
a 3.9% increase in revenues.

The consolidation of Atlanet by the equity method in Telefonica Data in the
first half of 2003, when in the same period of 2002 it was fully consolidated,
together with the effective inclusion of the Telefonica Mobile Solutions results
within the consolidation perimeter of Telefonica Soluciones from April 2003,
were the main factors contributing to the change in the company's perimeter with
respect to the previous year.

The consolidated EBITDA of the Telefonica Empresas Group amounted to 199.5
million euros in the first nine months of 2003, compared with 67.4 million euros
in the same period of 2002. The EBITDA margin for the first nine months amounted
to 15.2%, 10. percentage points higher than in the first nine months of 2002.

With an aggregate CapEx figure at the end of September 2003 of 84.7 million
euros, the operating cash flow generated (EBITDA-CapEx) amounted to 114.8
million euros, as compared with the negative 70.5 million euros for the same
period in 2002.

TELEFONICA DATA GROUP

Throughout the year 2003 the Telefonica Data Group has continued to integrate
its operations within the fixed line telephony operators in those markets where
Telefonica is the incumbent (Spain, Brazil, Argentina, Chile and Peru),
maintaining the trend of positive cash flow generation (EBITDA-CapEx), already
begun in previous quarters. In regions where Telefonica is not present as a
fixed telephony operator (mainly Germany, United Kingdom, United States, Mexico
and Colombia), Telefonica Data continues to leverage its sound regional
capabilities to care of Telefonica Group multinational customers, and in the
specific case of Germany, by the expansion of its customer base through its
broadband (retail and wholesale) offering.

Operating revenues of the Telefonica Data Group for the first nine months of
2003 amounted to 1,193.0 million euros, 3.9% less than in the same period of
2002. Excluding the Atlanet revenues for 2002 and on the basis of a constant
exchange rate, revenues would have increased by approximately 10%. Taking into
account the same perimeter (excluding Atlanet in 2002), the increase in revenues
would have been 3.6%.

The aggregate EBITDA of the Telefonica Data Group in the first nine months of
2003 amounted to 205.3 million euros, compared with 130.0 million euros in the
same period of 2002. The 17.2% EBITDA margin achieved shows an improvement of
6.7 percentage points versus the same figure of the previous year. Taking into
account the same perimeter (excluding Atlanet in 2002) and if the effects of the
variation in exchange rates in Latin America were eliminated, there would have
been a 4.0 percentage points improvement in the EBITDA margin. The capacity to
generate operating cash flow was enhanced by the 41.2% reduction in CapEx with
respect to the first nine months of 2002. CapEx for the first nine months of
2003 were down to 68.9.2 million euros, thereby achieving a CapEx/Revenues ratio
of 5.7%.

Spain

Operating revenues in Spain for the first nine months of 2003 amounted to 605.7
million euros, 6.5% more than in the same period of the previous year. The
Corporate Communications and Internet business (94.6% of the revenues), which
constitutes the basis of connectivity on which the proposal of value to the
corporate customers of Telefonica Data is built, continued to be the company's
main driver of growth. Telefonica Data's top priority is to offer integrated
technological solutions that make it possible to achieve a significant and
sustainable improvement in the running of the businesses of Telefonica Data's
customers.

During the first nine months of 2003, 14 telecommunications integral management
agreements were obtained worth a total of more than 40 million euros a year.
These outsourcing agreements are focused mainly on the financial sector,
although also noteworthy is the award in a competitive tender of a contract with
the Spanish Ministry of Defense for the provision of all its communications
services. The emerging business lines of Corporate Information Management
(Hosting, Network Application Services, Security Services and Content
Distribution) are the ones that have benefited most from this value proposal,
contributing 4.3% to the total revenues of Telefonica Data Espana and achieving
year-on-year growth of 3.2%.

At September 30, 2003, cumulative EBITDA stood at 172.0 million euros, up by
25.7% year on year, with a margin over revenues of 28.4%, representing a
year-on-year improvement of 4.3 percentage points.

As a result of the year-on-year increase in EBITDA and appropriate control of
CapEx, the operating cash flow generated (EBITDA-CapEx) was 22.6% higher than in
the same period of the previous year to reach 135.9 million euros.

Latin America

In a greater macroeconomic environment stability, the favorable trend of the
previous quarters continued in the incumbent Latin American markets, with
significant advances both in revenues in local currency and in operating
profitability. The operating cash flow (EBITDA-CapEx) for the first nine months
of 2003 totaled 30.6 million euros, seven times more than the figure for the
same period of 2002.

In the first nine months of 2003, operating revenues in Argentina, Brazil, Chile
and Peru amounted to 256.8 million euros, 1.2% less than in the same period of
2002. Without the exchange rate effect, this revenue figure would have
registered an increase of 23.7% on that of the same period in 2002, driven by
Telefonica Empresas Brazil, which increased its revenues in local currency by
34%, and achieved an EBITDA margin of 14.5%.

It is also important to highlight the positive progress made by Telefonica
Empresas Argentina, whose revenues in local currency recorded growth of 22.2%,
with respect to the same period of the previous year, thereby achieving an
EBITDA margin of 17.9%, which is a reflection of the company's efficient
management and quality of its customer portfolio.

Consolidated EBITDA for the Telefonica Data Group in Incumbent Latin America
rose to 45.9 million euros, representing a year-on-year improvement in the
EBITDA margin of 2.5 percentage points and taking it to 17.9%.

In the countries of the American continent where Telefonica Data Group is
operating as a new entrant, operating revenues totaled 46.6 million euros in the
first nine months of 2003, 51.7% more than those obtained in the same period of
2002. The EBITDA generated during the period was negative by 11.1 million euros,
in comparison with the negative figure of 26.9 million euros for the same period
of the previous year.

Europe

In the German and British markets, Telefonica Empresas obtained operating
revenues of 288.4 million euros in the first nine months of 2003, a decrease of
2.9% year on year, due primarily to the reduction in revenues from narrowband
services which has not yet been offset by the increase in the broadband
business, which accounted for 9.3% of total revenues.

With respect to the broadband business, it is noteworthy the incorporation of
150,000 ADSL accesses within Telefonica Deutschland's wholesale offering to its
customer AOL in the German market. As a result, the total number of broadband
accesses (including both the retail and wholesale offerings) surpasses the
figure of 220,000, more than 12 times higher than the figure recorded in
September 2002.

Similarly it is worth to highlight the signing of a major contract with NAAFI
(the British Army's Logistics Organization) to connect military establishments
in the United Kingdom and Germany. The project will run for an initial term of 3
years and is worth approximately 1.3 million euros.

EBITDA for the first nine months of 2003 amounted to 11.1 million euros, a
decrease of 39.9% year on year, reaching an EBITDA margin of 3.9%.

TELEFONICA SOLUCIONES

Following completion of this business line restructuring process, total revenues
amounted to 101.9 million euros in the first nine months of 2003, an increase of
3% on the same period of the previous year. With regard to the company's
business scope, network integration projects accounted for 52% of its portfolio
of projects for implementation in 2003. EBITDA for the period amounted to -12.1
million euros, although this figure represented an improvement of 40.6% on that
of the same period in 2002, due to the efforts made to rationalize structural
costs.

TELEFONICA INTERNATIONAL WHOLESALE SERVICES

Operating revenues amounted to 97.4 million euros in the first nine months of
2003, which was 20% higher than in the same period of 2002. This growth in
revenues was mainly due to the increase in IP traffic managed in the markets in
which Telefonica is making major efforts to roll out broadband access
infrastructures, particularly Spain, which accounted for 55% of the total
traffic managed, Germany, with 24%, and Brazil, with 17%.

As a result of the renegotiation of agreements with international traffic
suppliers and operators based on the increase in the volume of traffic
(international IP voice + data) under integrated management by the Telefonica
Group, direct operating costs had fallen by 24% in the first nine months of the
year. This meant that cumulative EBITDA at September 30 2003 was positive by 6.6
million euros, in comparison with the negative figure of 40.3 million euros for
the same period of the previous year.

With regard to the Group's international voice business, which is managed by
Telefonica International Wholesale Services and is consolidated in the
individual accounts recording international traffic revenues at each of the
Telefonica Group's fixed telephony operators, it should be highlighted the
support given to revenues contributed by this business line by the combined
management of the volume of incoming and outgoing traffic. In this way, the
total increase of 13% in the volume of incoming international traffic in a
scenario of falling prices was offset by the 24% reduction in termination prices
in a scenario of stabilized outgoing traffic.

MOBILE BUSINESS

Mobile Business

As of September 2003, Telefonica Moviles reported a net income of over 1,257
million euros, vs. losses of 3,923 million euros registered at the end of
September 2002. Excluding the impact of the net extraordinary provisions booked
in the first half 2002, the Group would have reported a year-over-year net
income increase of 28.4% as of September 2003 vs. the same period in 2002
(1,257.5 million euros vs. 979 million euros in September 2002).



Key aspects of these results are listed below:


  • Year-over-year growth operating revenues of 7.0% to over 7,300 million
    euros. Operating revenues in the third quarter 2003 rose 15.4% vs. the third
    quarter 2002, signalling an acceleration in growth from previous quarters
    (+11.1% in the second quarter of this year vs. the same period of 2002).
    Assuming constant exchange rates and excluding the impact of the acquisition
    of TCO, revenues would have grown 12.9% in September 2003 year-over-year.


    Consolidated revenue growth was mainly driven by higher service revenues,
    which rose 7.2% year-over-year in September 2003 and 16% in the third
    quarter 2003 vs. the same period last year.

    The Group increased its commercial activity in all areas of operations,
    achieving net adds of over 1.7 million customers in the third quarter 2003.
    Telefonica Moviles' active managed customer base at the end of September
    2003 stood at over 47.8 million (vs. 46.1 million as of June 2003).

    By geographical areas, revenues at Telefonica Moviles Espana showed a
    year-over-year increase of 8.7% in September 2003, driven by the increasing
    contribution from service revenues (+9.1% vs. September 2002). Particularly
    noteworthy was the growth of revenues in the third quarter 2003 (+10.3% vs.
    the same period last year), reflecting the consolidation of the growth trend
    in ARPU.

    Operating revenues from fully-consolidated Latin American operators -which
    reflect the consolidation of TCO from May 2003 - accounted for 25% of Group
    revenues in September 2003, a year-over-year increase of 5.2% in euros,
    reversing the downward trend seen in the first half 2003 (-6.8% vs. 1H02).
    Excluding the impact of exchange rates and the incorporation of TCO into the
    Group's consolidation perimeter, revenues would have shown growth of 28.6%
    vs. September 2002.


  • Group EBITDA as of September 2003 reached 3,368.7 million euros, 18.7%
    higher than in the same period of 2002. Excluding the impact of exchange
    rates and the incorporation of TCO into the Group's consolidation perimeter,
    EBITDA would have shown growth of 21.6% vs. September 2002. On a quarterly
    comparison, EBITDA growth in the third quarter 2003 was 27.4%, 12 p.p.
    higher than the revenue growth.


    Accordingly, the consolidated EBITDA margin as of September 2003 was 46.1%
    vs. 41.6% in the same period last year reflecting not only improved margins
    at Telefonica Moviles Espana, but also TCO's incorporation to the
    consolidation perimeter and the halting of operations elsewhere in Europe in
    July 2002. The EBITDA margin in the third quarter 2003 was 46.5% (vs. 45.2%
    in the second quarter this year), despite the increased commercial activity
    mentioned above and higher operating losses from Telefonica Moviles Mexico.

    By areas, Telefonica Moviles Espana's EBITDA showed a year-over-year
    increase of 13.8%, with an EBITDA margin of 54.3% as of September 2003 (+2.4
    p.p. vs. September 2002) and 54.6% in the third quarter 2003 (+2.1 p.p. vs.
    third quarter 2002).



    EBITDA for the Group's fully-consolidated Latin America subsidiaries rose 2%
    vs. September 2002, assuming constant exchange rates and excluding TCO's
    incorporation into the Group's consolidation perimeter. However, in euros
    they show a 13.65% decline, a positive evolution vs. that shown in the first
    half 2003 (-25.5% vs. first half 2002). Margin performance in Brazil must be
    highlighted, reaching 40.2% in the third quarter 2003, an improvement of
    nearly 5 p.p. vs. the second quarter 2003 despite the increase in net adds.


  • As of September 2003, CapEx totalled 647 million euros, a 7%
    year-over-year increase, boosted by the rollout of the Group's GSM network
    in Mexico.

Regarding the evolution of the Mobile Business of Telefonica Group (Telefonica
Moviles Group and Telefonica Movil Chile), the operating revenues totalled
7,539.4 million euros as of September 2003, a year over year increase of 7.0%
compared to the same period in 2002. On the other hand, EBITDA reached 3,451.3
million euros, a year over year increase of 18.8%.

Spain

With net adds of 230,747 in the third quarter 2003, Telefonica Moviles Espana
had 19.1 million active customers at the end of September, a 5.4% increase vs.
the third quarter 2002. Of the total, more than 39% were contract customers,
increasing this segment's weighting by 5.5 p.p. vs. 2002. The growth of this
segment is a result of the company's customer acquisition and loyalty
initiatives:


  • As of September 2003, there were over 800,000 prepaid to contract
    migrations, with approximately 300,000 taking place in the third quarter.
    This has had a direct impact on the company's usage ratios, given that as we
    have been seeing, migrated customers significantly increase their MOU and
    ARPU, feeding through positively to the company's EBITDA.

  • During the third quarter there were almost 400,000 handset upgrades made
    by prepaid customers and 775,000 made by contract customers, signalling
    large increases with respect to the thrid quarter 2002 (38% and 83%,
    respectively). In all, close to 3 million handsets were upgraded at the end
    of September 2003 (vs. 1.8 million in the first half and 1.4 million in the
    first nine months of 2002).


    These schemes not have only led to improvements in the annual churn rate,
    but allowed us to bring our customers closer to the latest technological
    developments (e.g., colour, MMS, Java). We would highlight the containment
    of the churn rate, which declined to 0.9% as of September 2003, 0.2 p.p.
    lower than the previous year.

At the same time, significant improvement was seen in our customers' usage
ratios.


  • MOU in the third quarter 2003 surpassed 120 minutes, a year-over-year
    increase of 10.6% vs. the same period last year and 4% higher than in the
    second quarter 2003, reaching its highest level since the third quarter
    1999. As of September 2003, MOU grew more than 10% to 114 minutes. It must
    be highlighted that MOU growth vs. 2002 is recorded both in prepaid as in
    contract despite the impact of migrations to the contract segment.
    Accordingly, traffic carried on Telefonica Moviles Espana's networks reached
    27,808 million minutes at the end of September 2003, a year-over-year
    increase of 18.5%.


    By components, both incoming and outgoing MOU showed increases from last
    year: 5% and 13%, respectively vs. September 2002.


  • ARPU in the third quarter 2003 was 31.4 euros, 4.3% higher than in the
    third quarter 2002 and 6.5% higher than in the second quarter 2003. As of
    September 2003, ARPU was 29.6 euros, +2.6% vs. September 2002, underscoring
    the growth trend marked since the beginning of the year, with increases in
    ARPU from both voice and data services. It must be remembered that
    year-over-year comparisons are still distorted by the replacement of monthly
    fees by a minimum usage commitment in March 2002 and the 17% cut in
    termination rates, which impacted mostly from November 2002. In this sense,
    we would underscore that ARPU for outgoing calls rose more than 7% vs.
    September 2002.


    Meanwhile, data ARPU in the third quarter 2003 stood at 4.0 euros, 9.5%
    higher than in the third quarter 2002 and 12% above the obtained in the
    second quarter of this year, with increases in all areas (SMS, e-mocion,
    data transmission, etc.).

    We must underscored the positive impact of loyalty programs, given that the
    significant increase of handset upgrades is allowing for the progressive
    technological renewal of the customer base, introducing more sophisticated
    handsets which enhance date usage.

The alliance formed by Telefonica Moviles, TIM, Orange and T-Mobile began
operating in the third quarter, progressing in areas such as roaming and in
leveraging economies of scale when negotiating with handset and equipment
providers and suppliers.

As regards usage of roaming services, we would underscore the increase in nearly
1 million incoming roamers in the third quarter 2003 compared to the same period
last year (+13%) bringing the total of incoming roamers to more than 7 million.
At the same time, over 2 million Telefonica Moviles Espana customers used the
company's roaming services in the third quarter 2003, 400,000 more than in the
third quarter 2002 (growth of over 20%). Accordingly, roaming out revenues rose
20% vs. the third quarter 2002.

Overall, the company has produced a solid set of earnings:


  • In the third quarter 2003, operating revenues stood at 1,998 million euros
    with a year-over-year growth of 10.3%, fuelled by the 12% increase in
    service revenues (i.e. operating revenues ex-handset sales) vs. third
    quarter 2002, continuing the acceleration versus previous quarters (+6% in
    1Q03 vs. 1Q02 and +9% in 2Q03 vs. 2Q02). Handset sales in the third quarter
    of this year fell slightly from the same period in 2002 (-1.4%), due to
    timing differences in stocks in the distribution network in 2002 and 2003.
    In 2002, stocking took place in the third quarter, whereas this year it was
    done in the second quarter.

  • As of September 2003 operating revenue totalled 5,467.2 million euros, an
    8.7% increase on the same period in the previous year. Service revenue was
    9.1% higher than in September 2002, while handset sales rose 4.8%.

  • The weight of subscriber acquisition and retention costs over operating
    revenues in the third quarter 2003 stood at 6.8%, the same as in cumulative
    terms, signalling declines of 2.7 p.p. and 1.2 p.p. from the third quarter
    2002 and the accumulated figure as of September 2002, respectively.

  • EBITDA in the third quarter 2003 was 1,091 million euros, an increase of
    14.9% vs. the same period 2002, with a 54.6% margin in the third quarter
    2003 (+2.1p.p. vs. the third quarter 2002). In cumulative terms, EBITDA
    totalled 2,966.9 million euros (+13.8% vs. September 2002), with a margin of
    54.3% (+2.4 p.p. vs. a year ago).

  • TME maintained the growth trend in EBITDA per customer and month, which
    amounted to 19.1 euros in September 2003, a year-over-year increase of 7.7%
    compared to +5% in the first half vs. the same period last year.

Morocco

Medi Telecom ended the third quarter with 1.9 million active customers, 23.4%
more than in September 2002. Net adds in the third quarter were over 103,000
customers, a 31% increase from the second quarter of this year, driven by the
summer campaigns. The strong performance of net adds enabled the operator to
slightly increase its market share, estimated at approximately 42%.

From the economic and financial point of view, we would highlight the sustained
growth of revenues -which show higher increases than the customer base- and
control over costs and CapEx, which fed through to a sharp improvement in
operating efficiency. EBITDA in the third quarter 2003 was virtually the same as
in the first half (32 million euros vs. 36.5 million euros in the first half
2003), leaving an EBITDA margin of 42.2% in the third quarter 2003 and 33.9% in
cumulative terms. Thus, as of September 2003 EBITDA stood at 68.5 million euros.
In all, the operator generated positive operating cash flow (EBITDA-CapEx).

Latin America

Brazil

At the end of the third quarter 2003, Brasilcel, which markets its services
under the Vivo brand, had nearly 18.5 million active customers. Growth in the
customer base from the second quarter 2003 (+5.4%) reflects the major commercial
activity carried out in the market during the quarter, despite the typical
seasonality of the third quarter vs. the second.

In this context, and despite the increasing competitive environment, Vivo has
led growth in its areas of operations, with 949,440 net adds in the third
quarter 2003, driven by positive results of the Fathers' Day campaign in August.
Thus, Vivo's estimated average share of gross adds in the quarter was over 46%.
Vivo's strong commercial activity in TCP's areas of operations must be
highlighted, with 788,000 new customers in the third quarter 2003.

Accordingly, Vivo maintains its leadership position in all regions where it
operates, with an average estimated market share of nearly 57%.

Total MOU in the third quarter was 101 minutes, while total ARPU in the quarter
was 40 reais. We would highlight the increasing contribution from data revenues
(2.5% over operating revenues in the third quarter 2003), driven by the
increasing use of SMS, which account for approximately 70% of the total.

As regards the Brazilian companies' contribution to Telefonica Moviles Group's
consolidated results, it should be remembered that comparison between the
cumulative results as of September 2003 and the previous year results is not
homogeneous as 2003 figures include Brasilcel under proportional consolidation -
including TCO's results from May 1 2003- while in 2002 the consolidated results
included those of the three companies controlled by Telefonica Moviles in Brazil
at that time. Nonetheless, the change in sign in year-over-year comparison must
be underscored, with growth being recorded in both cumulative revenues and
EBITDA (vs. -15.7% and -20.4% in the first half 2003).

Operating revenues showed growth in local currency of 8.1% vs. the second
quarter 2003 (+0.8% excluding TCO). EBITDA increased by 23.8% in local currency
(+17.3% excluding TCO), despite the heavy commercial activity carried out in the
quarter, thanks to lower commercial costs and the elimination of interconnection
costs deriving from the application of SMP (Servico Movel Pessoal). It must be
remembered that the second quarter of this year figures were affected by the
advertising costs associated with the launch of the Vivo brand.

Lower growth in operating expenses prompted a significant advance in EBITDA
margin of nearly 5 p.p. in the third quarter 2003 (to 40.2%) from the second.
The EBITDA margin for as of September 2003 stood at 38.3%, in line with the
company's medium-term target of reaching margins above 40%.

Mexico

In the third quarter 2003, Telefonica Moviles Mexico has focused strongly on
driving GSM services and substantially increasing its commercial activity by
expanding its distribution channel to more than 3,600 points of sale, whilst
further speeding up the deployment of its GSM network.

At the end of the third quarter, Telefonica Moviles Mexico offered GSM service
in 17 cities covering 38 million POPS, with the coverage being extended to an
additional 39 cities in October. A total of 56 cities are already covered.

In this context, net adds in the third quarter 2003 totalled 191,000 new
customers, signalling a sharp rise with respect to previous quarters (109,000 in
the second quarter 2003). It is worth noting that 66 % of net adds in the third
quarter 2003 were GSM clients. At the end of September, Telefonica Moviles
Mexico had 2.7 million active customers, +21.1% vs. September 2002.

MOU in the third quarter was 70 minutes, while ARPU was 184 Mexican pesos.

As for Telefonica Moviles Mexico's financial results, it must be remembered that
the year-over-year comparison of cumulative results is not meaningful, as Pegaso
Telecomunicaciones Group was recorded at cost in September 2002. Revenues stood
at 115 million euros in the third quarter 2003, slightly lower than in the
previous quarter (-1,6% in local currency) due to the decline in ARPUs, which
more than offset growth in the customer base. Operating losses amounted to 34
million euros in the third quarter on the back of the increase in commercial
activity this quarter. Cumulative EBITDA was -50.4 million euros, in line with
the company full-year target of operating losses being under 100 million euros.

Argentina

The positive trend seen in the second of this year was consolidated in the third
one, confirming that the Argentine mobile market is returning to a new growth
phase, with an estimated increase of over 2% in total customers in the third
quarter 2003 and 3.5% since the end of 2002. Unifon has led this growth,
expanding its customer base by 5% in the quarter, with 1.7 million active
customers at the end of September 2003 maintaining its position as Argentina's
second largest wireless operator and reversing for the first time this year the
declining trend in its customer base. It must be highlighted that growth was
higher in contract customers, with an increase of 7% vs. the second quarter of
this year.

Unifon has increased its commercial activities initiatives, both those directed
at capturing new customers as those aimed at boosting usage of voice and data
services. Thanks to these initiatives, gross adds rose 30% in the third quarter
2003 vs. the same period last year with a greater emphasis on contract customers
(+66%), and 165% over the third quarter in 2002. Net adds in the third quarter
2003 totalled 81,200 customers, a significant increase vs. the previous quarter
(+32%). Total minutes increased by 11% in the third quarter 2003 the previous
one and 18% vs. the third quarter 2002, despite the smaller growth of the
customer base. The increases in MOU and higher prices compared to 2002
underpinned an 32% year-over-year increase in ARPU in local currency vs. a year
ago.

This led to growth in operating revenues of 33% in pesos as of September 2003
compared to 2002. Meanwhile, EBITDA advanced 64% vs. last year figures, on the
back of tight cost control. Consequently, the EBITDA margin stood at 29.8%,
5.6p.p. higher than in September 2002. We would highlight the good performance
of revenues and EBITDA in euros (+13.4% and +39.8% vs. figures as of September
2002, respectively), despite the Argentinean peso's strong depreciation in the
past 12 months.

Peru

Telefonica Moviles Peru ended September 2003 with 1.4 million active customers,
with year-over-year growth of 11.3% (+10.5 % in the first half 2003 vs. first
half 2002). With net adds in the third quarter 2003 of over 63,000, the company
has maintained its leadership in customer acquisition in the Peruvian market.
The estimated market share stood at 52.5%.

As regards results, Telefonica Moviles Peru's cumulative operating revenues in
local currency showed a slight increase vs. a year ago. This was due largely to
higher revenues from outgoing traffic, which were partially offset by lower
interconnection revenues. In the first nine months of the year, EBITDA in local
currency grew 6.5% vs. last year figures, while the EBITDA margin was 36.2%, 2.9
p.p. higher than in September 2002.

Chile

Telefonica Movil, the subsidiary of Telefonica CTC Chile managed by Telefonica
Moviles, ended the third quarter 2003 with over 2 million active customers,
+15.3% vs. the third quarter 2002. Following the launch of the new GSM/GPRS
network last April, the pace of customer acquisition has accelerated with net
adds of over 86,000 customers in the third quarter 2003 vs. 95,000 in the first
six months of the year (35,000 in the first quarter and 60,000 in the second),
leading growth in the market during the quarter.

As regards financial results, as of September 2003 the EBITDA margin was 33%, 1
p.p. higher than in the same period last year.

Guatemala and El Salvador

The total customer base managed by Telefonica Moviles' operators in Guatemala
and El Salvador at the end of September 2003 stood at 371,000 active customers
(138,000 in Guatemala and 233,000 in El Salvador), with a year-over-year rise of
over 12%, reversing the declining trend seen at the beginning of the year.



OTHER BUSINESSES

Directories Business

During the first nine months of 2003 the TPI Group's operating revenues
increased by 3.1% to 421.7 million euros, reflecting the negative performance of
exchange rates in Latin America during the last year (+6.7% in constant currency
terms). The Group's EBITDA amounted to 138.1 million euros, 18.0% higher than
the figure for the same period of 2002. Net income rose 10.7% to 71.1 million
euros. These results are explained by:


  • TPI Espana, whose advertising revenues rose by 3.0% to 279.8 million
    euros. Moreover, due to the 11888 commercial launch, the revenues coming
    from telephony traffic has progressed to 13.9 million euros in the first
    nine months of the year, accounting for the 4.4% of the Group revenues in
    Spain.

  • In Chile, it should be highlighted the publication of the Santiago
    directory in July, with a book to book growth of 9.8%. As a result,
    Publiguias keeps its positive trend in the third quarter and obtains an
    organic growth rate of 9.5% and 17.0% in local currency for revenues and
    EBITDA, respectively.

  • TPI Brasil has reduced the negative EBITDA from -12.1 million euros in the
    third quarter of 2002 to a final figure of -5.2 million euros in the first
    nine months of 2003.

  • The increase in total revenues at TPI Peru by 8.4% in local currency, and
    the significant improvement in EBITDA, which in turn rose by 20.2% in local
    currency.

Once again it is important to remember that the seasonal nature of revenues, due
to accounting criteria in place once each guide was actually published, make it
so that the quarterly results are not comparable or standardised, nor can they
be extrapolated to year end.

TPI Espana contributed 74.5% of the Group's revenues, and made a positive
contribution to the Group's EBITDA of 112.7 million euros (81.6% of total). TPI
Espana revenues rose by 7.0% to 314.3 million euros, triggered mainly by the
organic growth of 1.3% and 8.6% experienced by the Yellow Pages and the White
Pages directories, respectively. In addition, it should be highlighted the
strong performance achieved by the telephony traffic product.

Latin America represents the 25.1% of revenues and contributed 25.9 million
euros to the Group's consolidated EBITDA, a 55.0% increase compared to the same
period of the previous year.

Finally, the directories business of the Telefonica Group, which includes the
Argentinean company Telinver, recorded an increase in revenues of 2.5% compared
with the same period last year, amounted to 425.8 million euros. Cumulative
EBITDA reached 138.4 million euros, representing a year-on-year growth rate of
18.7%.

Terra Lycos Group

In the first nine months of 2003, the operating revenues obtained by Terra
totaled 390.1 million euros, 16.2% less than in the same period of the previous
year. This fall in revenues was due mainly to two factors: the termination of
the agreement with Bertelsmann at the end of 2002 and the negative performance
of exchange rates in relation to the euro. Without these two effects, Terra
would have achieved a 15.0% increase in revenues in the first nine months of
2003 as compared with the same period of 2002. The revenues obtained from the
alliance with Telefonica amounted to 66 million euros in the period (77 million
euros in constant terms).

If we consider the company's individual business areas, we can see that they
continued to make positive progress except for the online advertising and
e-commerce line, where recovery has not yet been achieved (-56.3%). Mention
should be made of the good performance achieved in the period by the
communication, portal and content services line (up 165.4% year on year). Access
subscriptions now account for 40.5% of Terra Lycos total revenues; online
advertising and e-commerce account for 25.5%; communication and portal services
22.5%; and other revenues, the remaining 11.5%.

By country, Spain and Brazil are once again the countries that accounted for the
highest percentages of Terra Lycos revenues, at 33.4% and 27.1% respectively.
The United States, which was seriously affected by the end of the agreement with
Bertelsmann, has gradually stabilized its participation in the course of the
year, with a contribution to total revenues of 17.5% (without considering
OneTravel). The remaining 22.0% related to the rest of the countries in which
Terra operates, mainly Mexico, Chile and Peru. As for the revenues obtained from
the agreement with Telefonica, most of them continued to relate to services
provided in Spain and Latin America.

EBITDA for the first nine months of 2003 stood at -47.1 million euros,
representing an EBITDA margin of -12.1%. This signified an improvement of 12.9
percentage points on the same period of 2002. With respect to the situation of
the agreement with Telefonica, this registered coverage of 68.1% of the value
committed, which amounted to a total of 53.5 million euros at the end of the
third quarter.

Terra Lycos continued to make greater efforts over the last quarter to increase
the number of paying customers. As a result, a total of 4.6 million subscribers
was achieved in the first nine months of 2003, representing a significant
increase of 81.9% on the figure for the same period of the previous year. The
total number of paying access customers also rose to 1.6 million at the end of
the period. Particularly noteworthy among these were ADSL access customers, with
a significant increase in the period to a total of 543,203 customers (up by
58.9% over the first nine months of 2002).

The rest of the paying customer base totaled more than 3 million customers who
had signed up for OBP (Open, Basic, Premium) products consisting of either
communication or portal products (OBPs+CSPs), as compared with the 1.1 million
customers there were in the first nine months of 2002 (an increase of 166.0%).
This sharp increase in customers of OBP products meant that revenues from these
products totaled 88.1 million euros, as compared with 33.2 million euros in the
first nine months of 2002. It is important to point out that this line of
revenues has benefited from the agreement with Telefonica. As of September 30,
2003, 66.8% of the 3 million OBP service subscribers were Telefonica Internet
access customers receiving communication and portal services, and this figure
represents a net increase in this category of 1.1 million subscribers in the
first nine months of 2003.

At the end of September the cash position amounted to 1,618 million euros.

In recent months Terra Lycos maintained its commitment to launching new and
innovative products and services while enhancing those already available, and to
setting up new agreements.

Among the initiatives taken in the period with a view to enhancing existing
products in the portal framework we can highlight the following: the
introduction of a completely new version of Matchmaker, an online dating portal;
the redesign of the marketing site 'InSite Search Engine', which distinguishes
between search engine optimization and the paid inclusion of search hits; the
relaunch of the Quote.com financial site, with a completely new design and
functionality, etc.

In addition, the initiatives aimed at launching new products and services can be
summed up as follows: the launch of 'Lycos Entertainment Top 50 Video View',
available from Lycos Entertainment TV; the launch in Mexico of 'Terra Joven', an
8 p.m. to 8 a.m. flat rate for dial-up connections targeted at young people; the
offer by Terra Espana of wireless Internet services covering its entire
broadband range and increasing its catalogue of high speed products with the new
WiFi technology, etc.

Finally, the main agreements reached in the period were as follows: Terra Lycos
and Google Inc., developer of the leading performance-based advertising program,
signed an agreement lasting several years to use Google's AdSense program to
make ads available through certain sites of the Lycos network; Movielink, LLC
and Terra Lycos launched a joint site to offer Movielink's movie download
service to Lycos users.

Other successes in the period included the consolidation of Terra.es as Spain's
leading portal with a total of 3,613,000 users, according to the data published
by EGM's 2nd Wave in 2003, and also the confirmation by comScore Media Metrix
that Angelfire is the number one site in its category.

Atento Group

During the third quarter of 2003 the Atento Group continued to consolidate its
position as a leading provider of contact center services to the Spanish and
Portuguese speaking markets, focusing its efforts on strategic sectors and
customers with the aim of achieving the maximum profitability of its operations.

The main commercial successes achieved by the Atento Group in the third quarter
included the agreement signed with the Repsol YPF Group for management of their
customer service center in Spain, providing telesales, fault reporting and
Repsol Gas services, which managed more than 4.5 million calls in 2002. In
addition, new tariffs were negotiated with Unibanco, Telesp, Losango and Vivo.
Also noteworthy were the agreement signed in August with AT&T Wireless in Puerto
Rico to extend the contract with them to three years, which will mean doubling
the current revenues; the expansion of services with Technion in the United
States and Microsoft in Colombia; the commercial partnership with BBVA which has
made it possible to further develop relations in Venezuela (telephone banking)
and Mexico (telephone payment collection). In Morocco, it should be pointed the
increased activity in the French market with BMCE Europe, Call One and
Outsourcia. All these agreements have made it possible to achieve increased
diversification of the Group's customers over the past year.

Thus, Atento Group operating revenues for the first nine months of 2003 amounted
to 356.6 million euros, 18.1% less than in the same period of 2002, mainly due
to the depreciation of the Latin American currencies against the euro, which was
responsible for a drop of more than 15 percentage points, and the fall at Atento
Espana, partly due to the liberalization of the telephone information service.

With respect to the geographical distribution of revenues, Spain and Brazil
continued to be the countries contributing the highest volume of revenues (71%
of the total), although this percentage has fallen by almost 3 percentage points
over the past year as a result of the increased contribution of other countries
such as Mexico, Venezuela and Colombia.

Operating expenses amounted to 317.1 million euros, 21.0% less than in the
period January-September 2002 (8.8% less excluding the exchange rate effect).
This decrease is greater than that recorded in revenues as a result of the
optimization of installed capacity and the adjustments made to the resizing of
platforms, particularly in Spain, Brazil and Argentina. This significant control
of costs was reflected in the year-on-year decreases presented at the end of
September by the supplies (-28.3%), subcontracts (-25.7%) and personnel expenses
(-18.9%) captions.

As a result, EBITDA for the first nine months of the year stood at 41.0 million
euros, a year over year increase of 34.2%. The EBITDA margin of 11.5% was 4.5
percentage points higher year on year, and 1 percentage point higher than the
figure for the first half of 2003. It is important to highlight the performance
of EBITDA in the third quarter (13.6%) This performance makes the Atento Group
one of the most profitable companies in the contact center sector.

At the end of September, the operating profit totaled 0.2 million euros,
compared with losses of 29.7 million euros in September 2002 and 2.1 million
euros in June 2003, mainly as a result of the increase in EBITDA and the
decrease in amortization and depreciation (32.3% less than in the first nine
months of 2002), due to the degree of maturity achieved in operations.

At operating level, Atento Group had 24,635 positions in place at the end of the
third quarter of 2003, compared with 24,640 at the end of June 2003 and 28,258
at September 30, 2002. This decrease is due to the closure of centers primarily
in Spain and Brazil with the aim of maximizing the return on installed capacity
and increasing occupation, together with the closure of business in Japan.

The number of occupied positions as of September 30, 2003, was 17,541,
representing a level of occupation of 76%, and a decrease of 1 percentage points
from September 30, 2002, largely as a result of the liberalization of the
telephone information service in Spain. The revenue per occupied position in the
period January-September 2003 amounted to 2,249 euros, compared with 2,337 euros
in the same period of 2002.

Finally, CapEx totaled 8.9 million euros as of September 30, 37.3% less than in
September 2002, in line with the Group's policy of platform optimization.

Content and Media Business

The Content and Media Business obtained consolidated operating revenues of
1,036.7 million euros in the first nine months of 2003, as compared with 724.2
million euros in the same period of the previous year. The Business's
consolidated EBITDA amounted to 160.8 million euros, compared with 77.6 million
euros in the period January-September 2002. This performance was mainly due to
the fact that Antena 3 and its subsidiary Onda Cero were consolidated by the
full integration method during the first six months of 2003, whereas in 2002
both companies were consolidated using the equity method. Since July 1, 2003,
following the sale of a 25% stake in the capital of Antena 3 to the Planeta
Group, Telefonica has consolidated its participation in the company at the cost
of acquisition and will continue to do so until it is no longer included in the
Group's consolidation perimeter. In addition, the Content and Media Business
also benefited from the positive performance of Endemol and ATCO, the main
companies that are consolidated using the full integration method.

ATCO

Continuing the trend set in the first half of 2003, the advertising market in
Argentina continued to improve, with an estimated increase in volume of
approximately 96% over the same period of the previous year.

Telefe's audience share of 34.9% made it the leading television channel,
followed by Canal 13, its main competitor, with a share of 28.8%. The good
performance in audience share made it possible to achieve an aggregate market
share of 41.4% at the end of September (in the Capital and Greater Buenos Aires
areas), 4.5 percentage points more than the company's main competitor, and 5.0
percentage points higher with respect to the same period of the previous year.

Cumulative revenues totaled 168.3 million pesos at the end of September 2003,
69.9 million more than in the same period of 2002 (an improvement of 71.0%),
giving positive EBITDA of 18.6 million pesos, as compared with the loss of 44.2
million pesos recorded in the first nine months of 2002.

Telefonica DE Contenidos

Endemol

The cumulative revenues of the Endemol Group amounted to 616.4 million euros at
the end of September, which was 7.2% more than in the same period of 2002. This
positive progress in revenues was the result of the recovery of some of the
Group's traditional markets, in particular, the United Kingdom, Netherlands,
France and Gestmusic Endemol in Spain. In addition, Endemol continued to pursue
its policy of revenue diversification by fully exploiting the scope of the
multiplatform concept (merchandising, telephone calls, text messaging, content
marketing through the Internet, etc...), as a result of which non-production
activity revenues currently account for 10% of the total.

The Endemol Group's cumulative EBITDA stood at 105.2 million euros at the end of
the third quarter of 2003, in line with that achieved in the same period of the
previous year (107.4 million euros). This meant that the EBITDA margin fell by
1.6 percentage points year on year to 17.1%.


ADDENDUM

Companies included in each Financial Statement

Based on what was indicated at the start of this report, the results breakdown
of Telefonica Group are detailed according to the business in which the Group
has a presence. The main differences between this view and the one that would
apply to what had been made clear adhering to the legal structure, are the
following:


  • Telefonica, S.A. directly participates in the share capital of Endemol
    Entertainment Holding, N.V. and Antena 3 de Television, S.A., which have
    been included in Telefonica de Contenidos Group. Furthermore, the investment
    in Telefonica Deutschland (previously Mediaways), participated through a
    part of the year 2002 by Telefonica S.A., has been included in that fiscal
    year results of Telefonica Data Group for the maintenance of the
    presentation of the Group results according to a vision of business lines.

  • Telefonica Holding Argentina, S.A. holds 26.82% of Atlantida de
    Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A. which, for
    those purposes, are considered belong to Telefonica de Contenidos Group,
    consolidating 100% share capital of both companies.

  • In the case of Compania de Telecomunicaciones de Chile, S.A. (CTC),
    participated by Telefonica Latinoamerica, the activities of the mobile
    telephony business in Chile has already been assigned to the mobile
    business, and the activity of data transmission to Telefonica Data.

  • The activities of the data business in Brazil, participated by
    Telecomunicaciones Sao Paulo, S.A. -Telesp-, (dependent to Telefonica
    Latinoamerica), and by Telefonica Data, have been assigned to Telefonica
    Data in this presentation by business lines.

  • In the case of Telefonica de Argentina (TASA), participated by Telefonica
    Latinoamerica, the directories business (Telinver) has been assigned to the
    directories business, in line with our vision for the total Telefonica's
    directories business.


  • Following the agreement during the months of December 2001 and February
    2002 with Iberdrola S.A., Telefonica S.A. acquired several participations in
    both fixed and cellular companies in Brazil. These participations were
    included in the year 2002 in the fixed line business in Latin America and
    cellular business until its definitive contribution to them, according to
    the presentation of Telefonica results by global business lines.

Significant Events


  • On October 31, 2003, Telefonica de Espana cut its rates for DLD and
    fixed-to-mobile calls.


    The reduction in the price per minute during peak hours (Monday to Friday
    from 8:00am to 8:00pm) for DLD calls was 4.73%. For fixed to mobile calls to
    Telefonica Moviles or Vodafone, the price per minute declined by 6.18% on
    calls made from Monday to Friday between 8:00am and 8:00pm and by 5.88%
    during off-peak hours. For calls to Amena made from Monday to Friday between
    8.00am and 8.00pm, the reduction in the price per minute was 10.85% and for
    calls made between 8.00pm and 10.00pm hours these same days by 11.08%. For
    other periods the reduction was 10.36%.

    The rate cut also applied to the price of leased circuits, which saw an
    average reduction of 23.10% in the case of 2 Mbps domestic digital circuits
    and 7.12% for domestic analogue circuits.

    As a result, Telefonica de Espana fully satisfied the global 2% reduction
    included in the 2003 Price Cap.


  • On October 17, 2003, the Spanish Securities Markets Commission (Comision
    Nacional del Mercado de Valores) verified the listing for stock market
    trading of the shares of 'Antena 3 de Television, S.A.' (Antena 3), thereby
    fulfilling the condition precedent for the resolution adopted in the Annual
    General Meeting regarding the extraordinary in-kind distribution to the
    Company shareholders of part of the Additional Paid- in Capital Reserve, by
    means of allocation of shares representing 30% of the share capital of
    Antena 3 (16,666,800 shares). The exchange ratio was set at one share of
    Antena 3 for every 295.60802997576 shares of Telefonica. Those Telefonica
    shareholders entitled to a fraction of an Antena 3 share as a result of
    applying the above exchange ratio shall receive a cash payment for such
    fractions. For this purpose, the ANTENA 3 shares have been assigned a value
    of 25.20 euros per share.

  • On October 15, 2003, Telefonica proceed to make the second of the two
    payments approved at the General Shareholders Meeting as an extraordinary
    cash distribution of additional paid-in capital. Telefonica, S.A. paid to
    all duly entitled outstanding Company shares the amount of 0.12 euros per
    share.

  • On September 24, 2003, the Board of Directors of Telefonica Group approved
    a new organisation model for the Company, in which the Chairman assumed all
    executive functions directly and the COO position disappeared. Consequently,
    Mr. Fernando Abril-Martorell leaved his executive functions on October 1st.




    Once the asset reduction and restructuring process has been completed, the
    new model pursues to simplify Business Lines through the incorporation of
    the corporate business (Telefonica Data) into fixed telephony business in
    Spain and Latin America, and the disappearance of Admira. To concentrate the
    corporate structure, Planning and Management Control will depend on
    Strategy, and Resources will depend on Finance.

Changes to the Perimeter and Accounting Criteria of Consolidation

In the nine months period ending 30 September 2003, the following changes have
occurred in the consolidation perimeter:

Telefonica GROUP S.A.


  • In July, Telefonica, S.A. settled the Public Offer for the Acquisition of
    Shares in Terra Networks, S.A., acquiring 202,092,043 shares in the company
    at a price of 5.25 euros each, which is 33.6% of the total capital.
    Following this operation, Telefonica holds 71.97% of Terra's equity capital.
    The company continues to be included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

  • Telefonica Group, acquired in January 2003, 19,532,625 shares of Antena 3
    de Television, S.A. from Banco Santander Central Hispano, S.A. after the
    execution of a call option for 117.65 million euros, representing 11.72% of
    the share capital. After this transaction, Telefonica Group reached a 59.24%
    stake in the capital of Antena 3 T.V.


    In June, the disposal of 25.1% in the capital share of Antena 3 de
    Television, S.A. to Planeta Group took place for 364 million euros. This
    sale is subject to the resolutory condition of the shares of Antena 3 de
    Television being admitted to listing on the Spanish Securities Market, which
    has already taken place at today's date.

    On the other hand, the AGM of April 11th 2003 approved the distribution of
    shares representing 30% of Antena 3 de Television, S.A. equity capital as a
    cash dividend to shareholders. This distribution took place in October after
    being quoted on the Securities Market. As a result of this, the company,
    which in the first six months of financial year 2003 was consolidated using
    the full integration method, has passed to be considered in the consolidated
    balance sheet of the Telefonica Group at the end of the period as a
    financial investment.


  • In January, the Mexican company Fisatel Mexico, S.A. de C.V. was
    incorporated with an initial share capital of 5 million Mexican pesos,
    comprising 500 shares of 100 mexican pesos each. Later, the company
    increased capital by 4.95 million mexican pesos. Telefonica Group subscribed
    all of the shares that made up the capital of the new company. The company
    was incorporated at its acquisition cost because its activity had not begun.

  • In April and May, respectively, Telefonica Capital, S.A., a wholly-owned
    subsidiary of Telefonica, S.A., set up a collective investment institution
    management company called Fonditel Gestion, Sociedad Gestora de
    Instituciones de Inversion Colectiva, S.A. and a brokerage company called
    Fonditel Valores, Agencia de Valores, S.A., subscribing the total number of
    shares that make up the capital share of both companies and paying in 1.5
    million euros and 3 million euros, respectively. Both companies have been
    included in the consolidation perimeter of Telefonica Group using the full
    integration method.

  • In January, Telefonica, S.A., acquired 376,000 shares in its subsidiary
    Telefonica Moviles, S.A. for the sum of 2.43 million euros. Following this
    purchase, the new percentage shareholding of Telefonica Group in its
    subsidiary is 92.44%. The company continues to be included in the
    consolidation perimeter of Telefonica Group using the full integration
    method.

  • All the capital share of Playa de Madrid, S.A., participated by
    Telefonica, S.A. has been sold. This company, which in 2002 was integrated
    in the Telefonica Group financial statements using the full integration
    method, has been removed from the consolidation perimeter.

  • The companies Pleyade Argentina, S.A., Pleyade Peru Corredores de Seguros,
    S.A.C., TGP Brasil Corretora de Seguros e Resseguros, Ltda. and Pleyade
    Mexico, Agente de Seguros y de Fianzas, S.A. de C.V., which are all
    subsidiaries of Pleyade Peninsular, Correduria de Seguros y Reaseguros of
    Telefonica Group, S.A. have all been incorporated in the Telefonica Group
    financial statements using the full integration method.

  • Telefonica Ingenieria de Seguridad, S.A., a wholly-owned subsidiary of the
    Telefonica Group, took part in setting up the company Telefonica Ingenieria
    de Seguridad Mexico, S.A. de C.V., by subscribing to and paying in 0.34
    million euros relating to 65% of the new company's capital stock. The
    company has been included in the financial statements of Telefonica Group
    using the full integration method.

Telefonica de Espana Group


  • Telefonica Cable, S.A. a wholly owned subsidiary of Telefonica de Espana,
    S.A., has taken over three of its local operator companies: Telefonica Cable
    Madrid, S.A., Telefonica Cable Ceuta, S.A. and Telefonica Cable Melilla,
    S.A. The three companies have been removed from the consolidation perimeter
    of the Telefonica Group.

  • It has also acquired 17% of the capital share of Telefonica Cable
    Extremadura, S.A. for 0.10 million euros. With this purchase, the Telefonica
    Group becomes the owner of 100% of the capital share of the aforementioned
    company, which continues to be included in the consolidation perimeter of
    Telefonica Group using the full integration method.

Telefonica Internacional Group


  • As a result of the cancellation by US-based Infonet Services Corporation
    of its own shares in the current fiscal year, Telefonica International Group
    has increased its stake in the company from 14.32% to 14.52%. The company
    continues to be included in the financial statements of Telefonica Group
    using the equity method.

  • On September 1st 2003, Compania de Telecomunicaciones de Chile S.A., a
    43.64%-owned subsidiary of Telefonica Internacional, S.A., sold 100% of the
    shares it owned in Compania de Telecomunicaciones de Chile S.A - Isapre,
    S.A., generating a capital loss for the Telefonica Group of 0.12 million
    euros. The company, which was included in the financial statements of the
    Telefonica Group using the full integration method, has been removed from
    the consolidation perimeter.

  • On July 29th 2003, Telefonica Empresas recognized the decision of
    Inversiones Santa Isabel Limitada to exercise its anticipated call option on
    the remaining 35% of Sonda, S. A. The company, which was included in the
    financial statements of the Telefonica Group using the equity method, has
    been removed from the consolidation perimeter.

Telefonica Data Group


  • The U.S. companies Katalyx Food Service, Llc; Katalyx Sip, Llc; Katalyx
    Cataloguing, Inc; and Katalyx Construction, Inc; all of them 100%
    subsidiaries of the company Katalyx, Inc, and included in the subgroup
    Telefonica Soluciones, were liquidated. These companies, which in 2002 were
    integrated into the consolidation perimeter of Telefonica Group using the
    full integration method, have caused a drop in the perimeter.

  • Telefonica Data Colombia, S.A. increased its capital share in May in order
    to admit a new shareholder. As a result, the Telefonica Group percentage
    fell from 100% to 65%. The company continues to be included in the
    consolidation perimeter of the Telefonica Group using the full integration
    method.

  • Telefonica Soluciones de Informatica and Comunicaciones de Espana, S.A.
    (formerly Telefonica Sistemas, S.A.), a wholly owned subsidiary of
    Telefonica Datacorp, S.A., the Group's parent company, purchased 100% of the
    Spanish company Telefonica Mobile Solutions, S.A. from Telefonica Moviles,
    S.A. in June for 1.13 million euros. As a result of this transaction, the
    Telefonica Group's effective shareholding rose from 92.43% to 100%. The
    company continues to be included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

  • The subsidiary Telefonica Data Argentina, S.A., in which Telefonica
    Datacorp, S.A. owns a 97.92% shareholding, bought 20% of the Argentinean
    company Tyssa, Telecomunicaciones y Sistemas, S.A., which was owned by the
    Telefonica Internacional Group. As a result, Telefonica Data Argentina now
    controls 100% of Tyssa's shares. Following this transaction, the Telefonica
    Group's effective shareholding in this company fell from 98.34% to 97.92%.
    Subsequently, in the month of September Tyssa has been absorb by its parent
    company.

Telefonica MOVILES Group


  • On April 25, 2003, Telesp Celular Participacoes, S.A., acquired
    77,256,410,396 ON common shares in Tele Centro Oeste Participacoes, S.A.,
    for 1,505.5 million Brazilian reales. The number of shares purchased
    represents 61.10% of total ON common shares and 20.37% of the total capital
    shareof Tele Centro Oeste Participacoes, S.A. This company is integrated in
    the consolidated financial statements of Brasilcel, which in turn are
    incorporated in the Telefonica Group using the proportional integration
    method.

  • Telefonica Moviles, S.A. has purchased 20% of the Spanish company
    Telefonica Moviles Interacciona, S.A. (formerly Terra Mobile, S.A.), from
    Terra Networks, S.A., bringing its shareholding in the company to 100% of
    the capital stock. The percentage effectively held by the Telefonica Group
    in this company has increased from 81.66% to 92.44%. The company continues
    to be included in the consolidation perimeter of the Telefonica Group using
    the full integration method.

  • The Moroccan company Medi Telecom, S.A. increased its capital in July.
    Telefonica Moviles Group increased its stake in the company from 31.34% to
    the present 32.18%. The company continues to be included in the
    consolidation perimeter of the Telefonica Group using the equity method.

  • In September, Telefonica Moviles, S.A. constituted Telefonica Moviles
    Puerto Rico, Inc. with an initial capital share of 40 thousand euros. The
    company has been included in the consolidation perimeter of the Telefonica
    Group using the full integration method.

TPI Group


  • Telefonica Publicidad e Informacion, S.A. formed the Spanish company 11888
    Servicios Consulta Telefonica, S.A., by incorporating and paying in full the
    initial share capital, 60,000 euros. The new company was included in the
    Telefonica Group consolidated financial statements using the full
    integration method.

  • In July, the Brazilian company Telefonica Publicidade e Informacao,
    Ltda. owned by Telefonica Publicidad e Informacion, S.A. and Telefonica
    Internacional, S.A., simultaneously reduced and increased capital, in which
    Telefonica Publicidad e Informacion, S.A. subscribed and paid in the entire
    capital share, becoming the sole company shareholder. Telefonica Group
    decreased its stake in the company from 79.55% to 59.90%. The company
    continues to be included in the consolidation perimeter of the Telefonica
    Group using the full integration method.

  • In September, Buildnet, S.A. simultaneously reduced and increased capital
    to 61,000 euros, which was subscribed and fully paid in by the subsidiary of
    Telefonica Publicidad e Informacion, S.A., Goodman Business Press, S.A.
    Following this operation, Telefonica Group has increased its share in this
    company from 58.46% to the present 59.90%. The company continues to be
    included in the consolidation perimeter of the Telefonica Group using the
    full integration method.

TERRA LYCOS GRoup


  • The subsidiaries Terra Networks Uruguay, S.A., Terra Global Management,
    Inc., Bumeran Participaciones, S.L. and Emplaza, S.A., the first two
    wholly-owned, the third 84.2%-owned and the fourth 80%-owned by Terra Group,
    which in 2002 were consolidated using the full integration method, have been
    removed from the consolidation perimeter of the Telefonica Group. These
    societies are being eliminated or they are in dissolution process.

  • The Terra Group has increased by 15.08% its holding in the capital share
    of the US company One Travel.com, Inc. to 54.15%, in a transaction involving
    the disbursement of 3.33 million euros. The company, which in 2002 was
    integrated in the Telefonica Group financial statements using the equity
    method, is now incorporated using the full integration method since April
    2003.

  • In January 2003, an agreement was reached with BBVA for the integration of
    Uno-e Bank, S.A. in the branch of activity of consumer business of Finanzia,
    Banco de Credito, S.A. Subsequently, at an extraordinary shareholders'
    meeting of Uno-e Bank, S.A. (held on April 23, 2003), Terra Networks, S.A.
    and BBVA approved a capital increase at Uno-e Bank, S.A., which was fully
    subscribed by Finanzia Banco de Credito, S.A. (wholly-owned by BBVA) by
    means of the non-cash contribution of the branch of activity of its consumer
    business. As a result of this transaction, Terra Networks, S.A. now owns a
    33% shareholding in Uno-e Bank, S.A., instead of the 49% that it owned at
    the end of 2002, being removed from the consolidation perimeter of the
    Telefonica Group.

Atento Group


  • In May, Atento Teleservicios Espana, S.A. subscribed and paid in the
    entire capital share of the newly formed company Atento Servicios Tecnicos y
    Consultoria, S.L., consisting of 3,006 shares of 1-euro face value each. The
    company has been included in the consolidation perimeter of the Telefonica
    Group using the full integration method.

  • In July, Atento Teleservicios Espana, S.A. subscribed and paid in the
    entire capital share of the newly formed company Servicios Integrales de
    Asistencia y Atencion, S.L., consisting of 3,006 shares of 1-euro face value
    each. The company has been included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

  • Atento North America, Inc., a company wholly owned by Atento Holding,
    Inc., is no longer included in the consolidation perimeter of the Telefonica
    Group because it has been liquidated.

  • Atento Teleservicios Espana, S.A. has taken over its wholly owned
    subsidiary, Gestion de Servicios de Emergencia y Atencion al Ciudadano,
    S.A., which has therefore been removed from the consolidation perimeter.

  • In June, Atento Holding, Inc., the Atento Group's parent company, disposed
    of 70% of the shares it owned in Atento Pasona, Inc. This company, which in
    2002 was consolidated using the full integration method, has been removed
    from the consolidation perimeter.

TELEFONICA DE CONTENIDOS Group


  • Telefonica de Contenidos, S.A. sold 100% of the Spanish company Famosos,
    Artistas, Musicos y Actores, S.A.U. (FAMA), which caused a negative result
    for Telefonica Group of 1.06 million euros. The company, which in 2002 was
    shown in the consolidated financial statements of Telefonica Group using the
    full integration method, has been removed from the consolidation perimeter.

  • The Dutch company Fieldy, B.V. and the American company Lideres
    Entertainment Group, Inc, in which Telefonica de Contenidos holds 51% and
    49% of the capital, respectively, based on management criteria, went on to
    be recorded in the accounts of Telefonica Group at their acquisition cost.

  • As part of the process of integration of DTS Distribuidora de Television
    Digital, S.A. (Via Digital) and Sogecable, S.A., in the first half of 2003,
    Telefonica de Contenidos, S.A. acquired shares representing 12.63% of the
    capital share of Distribuidora de Television Digital, S.A. (Via Digital).
    The shares came from a number of shareholders and the purchase price was
    165.6 million euros. Likewise, there was a process to convert obligations
    into shares for the sum of 164.3 million euros and a subsequent capital
    increase for the sum of 949.84 million euros. As a result of these
    transactions, Telefonica de Contenidos' shareholding in Via Digital prior to
    its merger with Sogecable amounted to 96.64%. These acquisitions carried out
    in the year have been registered like long term investments as they were
    intended for subsequent contribution to Sogecable, S.A.


    On July 2nd 2003, Telefonica de Contenidos, S.A. subscribed to the capital
    increase of Sogecable, S.A., contributing the shares it owned in Via
    Digital. As a result of the operation, Telefonica Group acquired 28,008,149
    shares in the capital increase, which is a 22.228% share in Sogecable's
    equity capital. The company Via Digital, which was consolidated during
    financial year 2002 using the equity method, has been removed from the
    consolidation perimeter. Sogecable, S.A. has been included in the
    consolidation perimeter of the Telefonica Group using the equity method.


  • On July 16th and within the framework of the integration process of
    digital platforms, Gestora de Medios Audiovisuales Futbol, S.L. sold its 40%
    share in the capital share of Audiovisual Sport, S.L. to Gestion de Derechos
    Audiovisuales y Deportivos, S.A., a company belonging to the Sogecable
    Group. The company, which was included in the consolidation perimeter of the
    Telefonica Group using the equity method, has been removed from the
    consolidated financial statements of the Group.

  • On 21st July, Telefonica de Contenidos, S.A. sold its share in Tick, Tack,
    Ticket, S.A. The 47.5% stake in its capital share was transferred in the
    same operation together with another participation of the same amount in
    this company by Banco Bilbao Vizcaya Argentaria, S.A. This disposal has
    generated a negative accounting result for the Telefonica Group of 0.13
    million euros.















DISCLAIMER

This document contains statements that constitute forward looking statements in
its general meaning and within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
document and include statements regarding the intent, belief or current
expectations of the customer base, estimates regarding future growth in the
different business lines and the global business, market share, financial
results and other aspects of the activity and situation relating to the Company.
The forward-looking statements in this document can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends',
'believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.

Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and actual results may differ materially from
those in the forward looking statements as a result of various factors.

Analysts and investors are cautioned not to place undue reliance on those
forward looking statements which speak only as of the date of this presentation.
Telefonica undertakes no obligation to release publicly the results of any
revisions to these forward looking statements which may be made to reflect
events and circumstances after the date of this presentation, including, without
limitation, changes in Telefonica's business or acquisition strategy or to
reflect the occurrence of unanticipated events. Analysts and investors are
encouraged to consult the Company's Annual Report as well as periodic filings
filed with the relevant Securities Markets Regulators, and in particular with
the Spanish Market Regulator

For additional information, please contact.

Investor Relations

Gran Via, 28     Tel: [phone]

28013 Madrid (Spain)     Fax: [phone]

Email:


        [e-mail]     www.telefonica.com/ir

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