4th Qtr & Final Rslts - Prt 1

Telefonica SA
29 February 2000

PART 1
                                 RESULTS 

                         JANUARY - DECEMBER 1999

Note: Financial statements in this report have been compiled by translating the
company's accounts from pesetas into euros line by line. Sub-totals are then
calculated in euros. This could give rise to small rounding discrepancies.

Results by business lines corresponding to 1998, which are presented to allow
for a comparison with the current year may differ from those presented in March
1999, as these were pro-forma and resulted from the restructuring of the group
on January 1st 1999. During 1999 the process of segregation of business lines
was completed, which caused slight changes in the results by business lines in
1998.

Telefonica has filed four registration statements on Form F-4 with the SEC, one
for each of the exchange offers Telefonica is making for the outstanding shares
in TdP, Telesp, Tele Sudeste and Telefonica Argentina. Each of these
registration statements is preliminary and subject to completion. Telefonica
will be filing with the SEC one or more amendments to these registration
statements to complete the information contained therein, as well as other
relevant documents concerning the exchange offers. WE URGE INVESTORS TO READ THE
FINAL REGISTRATION STATEMENTS / PROSPECTUSES AND ANY OTHER RELEVANT DOCUMENTS
THAT TELEFONICA HAS FILED AND WILL FILE WITH THE SEC, BECAUSE THEY CONTAIN
IMPORTANT INFORMATION.

Investors will be able to obtain copies of the registration statements and other
documents from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Telephone [phone], Fax [phone], Email:
[e-mail]. In addition, documents (excluding any exhibits) filed with
the SEC by Telefonica will be available free of charge from the Director of
Investor Relations of Telefonica at Gran Via 28, 28013 Madrid, Spain, Telephone
011-3491-584-0306. Once the registration statements have become effective,
investors will also be able to obtain them free of charge at Telefonica's
website, http://www.telefonica.com. READ THE DEFINITIVE REGISTRATION STATEMENTS
/ PROSPECTUSES CAREFULLY BEFORE MAKING A DECISION REGARDING THE EXCHANGE OFFERS.

This communication shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of such jurisdiction.

Introduction 

Basis for the Presentation of Consolidated Financial Statements

- In accordance with generally accepted accounting principles in Spain, the
Brazilian companies acquired in August 1998 (Telesp Participacoes, S.A. and
TeleSudeste Celular Participacoes, S.A.) have been fully consolidated in 1999.
To facilitate an understanding of the impact of the consolidation of Telesp
Participacoes, S.A. and TeleSudeste Celular Participacoes, S.A., consolidated
financial statements include detailed information relating to these operations. 

- In 1999 Telefonica Internacional increased its shareholding in certain
Brazilian companies acquired in August 1998 through direct purchases on the open
market, an increase in the shareholding in some of the consortia bidding for the
privatisation of Telebras and as result of the corporate restructuring of Telesp
S.A. At end-December 1999 Telefonica Internacional held 19.3% of Telesp, S.A.
(12.1% in 1998), 17.6% of TeleSudeste Celular Participacoes, S.A. (15.9% in
1999) and 9.0% of TeleLeste Celular Participacoes, S.A. (7.3% in 1998). The
direct acquisitions took legal effect at the same time as the Telesp
restructuring and the bids for the Brazilian cellular operators.

- In the first half of the year CRT was split into CRT Fixa and Celular CRT. At
the end of 1999 the Group's shareholdings in CRT Fixa was 16.7%, which continued
to be reported by equity method, and 36.7% in Celular CRT Participacoes,
following its capital increase in August. As from 1999, this company is fully
consolidated.

- In December, Telesp acquired 72.6% of CETERP. Since effective control of this
company was taken in January 2000, as of end-1999 it was reported on Telefonica
Group accounts at acquisition cost.  

- In 1999 Telefonica Internacional acquired 5.03 % of Telefonica del Peru. With
this operation, the Telefonica Group's total shareholding in the company at
end-1999 was 40.03% (35% in December 1998). The company continues to be fully
consolidated. 

- In June, Telefonica Internacional exercised a buy option on 19% TLD, so
increasing its stake in this company to 98%. TLD continues to be fully
consolidated. 

- In January 1999, CTC acquired 60% of the Sonda group. With this, the company
was reported by full consolidation method.

- In January 1999, Telefonica Intercontinental, a 100%-owned subsidiary of
Telefonica, acquired 100% of Austrian company European Telecom International
GmbH. The company has been reported by full consolidation method. 

Subsequently, in the course of 1999, Telefonica Intercontinental participated in
the creation of Medi Telecom (the consortium was awarded the second mobile phone
licence in Morocco) and Acea-Telefonica (a telecoms company in Italy). Both
companies are reported on the Telefonica Group accounts at acquisition cost. 

- In the first half of the year Telefonica Media increased its interest in Via
Digital through various operations (purchase from RTVE and a capital increase)
to reach a direct shareholding of 68.6%. This company continued to be reported
by equity method in 1999 since a 19.6% stake was pending to be sold. After
January 2000 capital increase's the stake in the company was reduced to 48.7%.  

- In 1999 Telefonica Media increased its interest in Antena 3 de Television to
47.21% (through acquisitions of 17.09% in February, 6.43% in July and another
0.29% in December). This company continues to be reported by equity method. 

- In June, Telefonica Media acquired 5% of the Pearson publishing group. This
company is reported by equity method. 

- In 1999, Telefonica Media acquired 30% of Patagonik Film group, S.A. At the
close of 1999, the company was reported at acquisition cost. 

- In August, Telefonica Media acquired 100% of Uniprex, S.A. The company was
reported on the Telefonica Group's 1999 accounts by full consolidation method. 

- Subsequently, in December, Telefonica Media acquired 100% of Cadena Voz of
Radiodifusion, S.A., which was reported by full consolidation method. 

- In December 1999, Producciones Multitematicas, a subsidiary of Telefonica
Media, increased its shareholding in Lola Films, S.A., to approximately 70%.
This company was fully consolidated in 1999 (in 1998 by the equity method). 

- In December, Telefonica Medios de Comunicacion, S.A., a subsidiary of
Telefonica Media, sold the 20% interest it held in Recoletos Compania Editorial.
This company had been reported by the equity method.

- In January 1999, Telefonica sold shares representing 12.2% of Amper. At the
end of 1999 Telefonica held 12.2% of this company, which continued to be
reported by equity method.

- In February 1999, Telefonica created Atento Holding of Telecomunicaciones,
S.A., which was reported on the financial statements of the Telefonica Group by
full consolidation method. 

- In March, Telefonica sold all the shares that it owned in Sofres Audiencia of
Medios, representing 25% of the company, which was reported by equity method. 

- In May, Telefonica Data S.A. acquired 50% of the Colombian company Rey Moreno
S.A. This company is reported by equity method. Subsequently in June, Telefonica
Data S.A. acquired 50.93% of Telecomunicaciones Ganaderas S.A. (Colombia), which
is reported by the equity method. 

- On 19 May, Telefonica sold 100% of its subsidiary Temasa to Tyco Submarine
Systems Ltd. This company was fully consolidated. 

- In June, the initial public offering of 35% of TPI-Paginas Amarillas was
completed. This company continues to be reported by full consolidation method. 

- In July, Portugal Telecom, S.A. increased its share capital in the proportion
of one new share for ten old shares. Telefonica, S.A. subscribed to all the
shares to which it was entitled. Subsequently, in July, Telefonica, S.A.
acquired 50% of the company Alianza Atlantica Holding B.V., which owns 950,000
shares in Portugal Telecom, S.A., with which Telefonica S.A.'s shareholding in
this company increased to 3.75%. Portugal Telecom S.A. continues to be reported
by equity method. 

- In November, the initial public offering of Terra Networks, S.A. was held.
After this operation, Telefonica's interest in the company was reduced to
70.47%. The company continues to be fully consolidated. 

- In 1999, Terra acquired 100% of CIERV (Teknoland), 27.1% of CRTT, 95% of Terra
Networks Guatemala, 96% of Terra Networks Brazil (previously Nutec Informatica),
100% of Ordenamiento de Links Especializados, S.L., 95% of Terra Networks Chile
(previously Proveedora de Servicios de Conectividad S.A.), 100% of Donde
Latinoamericana S.A. and 100% of Netgocios S.A.. The company also created the
following companies: Terra Interactiva de Contenidos, Terra Networks USA Inc.,
Terra Network Access (51%-owned by Terra Networks USA and 49% by IDT), Terra
Networks Interactive Services USA Inc. (90%-owned by Terra Networks USA and 10%
by IDT), Telefonica Interactiva Chile Limitada, Telefonica Interactiva Argentina
S.A. and Terra Networks Peru. In addition, Terra Networks sold 100% of its
shareholding in Doubleclick Iberoamerica S.L. 

- On 16 December 1999, Infonet was floated on the stock market, thus reducing
the Telefonica Group's shareholding to 14.63%. Until then this company had been
reported at cost and started to be consolidated by equity method after its IPO. 

- In 1999, Telefonica Servicios Moviles S.A. acquired the remaining 10% of
Compania Gestora del Servicio Mensatel, S.A., which continues to be fully
consolidated by global integration method. 

- Solely for the purposes of presentation, in this report the depreciation of
the administrative concession arising out of the acquisitions of the companies
in Peru and Brazil has been reclassified under goodwill amortisation in order to
present under a single caption the amortisation of the initial consolidation
differences arising out of the acquisition of the companies. In previous years,
the depreciation of these concessions was reported under 'fixed asset
depreciation'. However, 1998 figures presented here have been restated to apply
the same criteria for the two years. 

- It should be noted that 'work in progress' has been reclassified. In previous
reports it was reported by making a deduction under supplies expenses and now it
is reported as an increase in 'own work capitalised'. The corresponding figures
for 1998 have been restated to facilitate comparisons between the two years.


                 TELEFONICA S.A. SELECTED FINANCIAL FIGURES

           (TISA SHAREHOLDINGS CONSOLIDATED BY THE EQUITY METHOD)


Figures audited                            million
                         January-December               September-December
                        1999        1998    % Chg.    1999      1998   % Chg.
Operating revenues    13,552.8   12,266.2    10.5   3,695.0   3,275.4   12.8
EBITDA                 6,577.3    6,611.0    (0.5)  1,520.1   1,593.1   (4.6)
Operating profits      2,861.6    3,353.1   (14.7)    611.5     782.1  (21.8)
Profit before tax      1,766.5    1,560.9    13.2      22.4     280.3  (92.0)
Net income             1,804.8    1,307.7    38.0     391.0     326.0   20.0
Net income per share     0.55       0.43     30.1     0.12      0.11     9.1

No. of shares,
 millions (1)          3,262.8    3,074.6     6.1   3,262.8   3,074.6    4.0


(1) Shares at the end of the period. Increases of 20,497,545 shares in January
1999, 20,907,509 shares in March 1999 and 63,976,998 shares in November 1999 due
to three bonus issues (1x50). The number of shares shown above includes the 3x1
share split of 23/07/99. The 1998 comparison base has been similarly adjusted to
facilitate comparisons. 

Telefonica, S.A. Results

All management comments given in this report refer to the financial performance
of Telefonica, S.A., including all subsidiaries in which Telefonica
Internacional has interests reported by equity method.

The Group posted consolidated net income of 1.8 billion in 1999. This 38.0% gain
over the 1998 figure came in a year marked by heightening competition in the
fixed-line telephone business in Spain, explosive growth in the Spanish cellular
market, economic crisis in Latin America and the launching of new business
initiatives.

This growth figure was significantly influenced by several exceptional
operations carried out during the course of the year: 

- Capital gains on the initial public offerings of Group companies (TPI, Terra
and Infonet). 

- Sale of non-strategic holdings such as Temasa and Recoletos. 

- Write-offs of Telefonica de Espana fixed assets and amortisation of goodwill
in a number of financial holdings. 

Stripping out these items, the underlying growth in the Group net income was
18.8%, 4.3 percentage points higher than the 1998 result. Most remarkably, this
18.8% gain has been achieved against a backdrop of sharply lower average prices
in both the fixed and cellular telephony in the Spanish market (down 19% and
28%, respectively).

These results were bolstered by EBITDA which remained stable at close to 1998
levels, despite the extremely competitive environment, and the combined effect
of higher depreciation, lower downsizing costs in Telefonica de Espana, smaller
Latin American profits due to the economic slump suffered by the region during
the year, and favourable developments in the rest of the non-operational items
during 1999, especially the tax charge.

The Group's EBITDA was buoyed by strong performance in fast growing businesses
such as mobile telephony and data transmission services. These gains allowed
Group EBITDA to weather the impact of operating performance in other business
lines such as the fixed line business in Spain, where margins have narrowed as a
result of the commercial efforts needed to confront the opening of this market
to competition, and the costs associated with launching new businesses to
strengthen the Company's positioning in internet and other high growth-potential
sectors.

Noteworthy in this connection is the 10.5% gain in consolidated operating
revenues, thanks to the good results achieved by sales drives carried out in the
various business lines, which boosted revenues strongly at Telefonica Moviles
(32.9%) and Telefonica Data (25.2%), while allowing a 2.4% rise in sales at
Telefonica de Espana. These figures may be considered satisfactory in view of
the far-reaching price cuts made during the year.

Cuts in fixed-line tariffs in the last six months of the year and reduction in
mobile-fixed interconnection rates combined to depress Telefonica de Espana
revenues by 289.5 million. Stripping out this decline at the Spanish operator,
Group EBITDA would have grown by approximately 1.2%.

Operating expenses rose faster than operating revenues as a result of higher
interconnection expenses as fixed-mobile traffic continued to grow and spending
on building customer loyalty and boosting usage. The overall impact of these
increases was softened by continued progress in cutting staff costs in
Telefonica de Espana, which fell 11% for the year as a result of reduced
staffing levels (11,580 fewer employees than in December 1998). The ongoing
campaign to rationalise the Telefonica de Espana personnel structure has boosted
productivity levels to 412 lines per employee, 31.7% higher than in 1998. This
ratio makes Telefonica a productivity leader in Europe and the outlook for
further improvement on this front is good.

Major improvement was also recorded in EBITDA at Telefonica Moviles, with a gain
of 15.9% over the December 1998 figure. The EBITDA margin reached 36,2% due to
extraordinary growth in the customer base during the year (up 85%), making this
subsidiary one of the fastest growing companies in all of Europe in terms of
absolute numbers of new customers, with a net gain of 4,158,083 for the year.

Below we give a breakdown of the contribution of the rest of the profit & loss
account items to the 18.8% growth achieved in 1999 in profits before exceptional
items: 

- EBIT fell 14.7% y-o-y due to higher depreciation (+14.0%), mainly as a result
of Telefonica de Espana's decision to cut average life for assets affected by
technological upgrade. 

- Extraordinary charges associated with the downsizing plan at Telefonica de
Espana were 78.3% lower, as all costs of the 1999-2000 staff cuts had already
been written off against reserves in the last quarter of 1998. 

- Net financial results declined 35.8% as a result of the hedges adopted after
acquisition of the Brazilian subsidiaries. 

- Equity income from Latin American subsidiaries decreased 53.61% with respect
to 1998. The impact of the regional economic downturn would have been greater
still had it not been for the financial hedges applied during the year. Indeed,
in a year marked by the crisis in the economy, an active financial-risk
management policy allowed the Group to boost its stake in certain companies (by
as much as 100% in some cases) and reduce the average acquisition price
considerably. 

- Higher goodwill amortization charges, due to the acquisitions made in the
second half of 1998 and in 1999. 

- The effective tax rate before exceptional items fell from 16.21% in 1998 to 4%
in 1999, largely due the application of provisions for depreciation of
investments in Brazil. These are deductible upon calculating the expense for
corporate tax and are eliminated in the consolidation process. At the same time,
capital gains from the Terra Networks and Infonet flotations generated no tax
lability.

Most noteworthy amongst the exceptional items was the extraordinary asset
write-down carried out in Telefonica de Espana, with a charge of 1.32 billion
before taxes. This provision was calculated on the basis of detailed analysis of
recoverability of Telefonica de Espana fixed assets, taking into account the
direct impact of an asymmetrical regulatory framework and indirect implications
of increased competition. The company is now better situated to tackle the need
to modernise its network and adapt to new technologies (ADSL, broadband, etc)
that will strengthen Telefonica de Espana's competitive position by allowing the
company to enhance its offering of services and anticipate the awaited rise in
demand. The reduction in the company's fixed assets will also improve asset
turnover and return-on-assets ratios.

 
SIGNIFICANT EVENTS

- On 24 February, Telefonica and La Caixa confirmed the deal announced on 14
January setting up a 50/50 JV to develop new payment systems and services using
smart cards, mobile phones an the internet. La Caixa also had a role in the deal
between BBVA and Telefonica on 11 February 2000. 

As a result of this deal La Caixa will acquired a 20% stake in Telefonica B2B,
contribute $200 million to the Comunnicapital partners fund; will have a 5%
stake in a Telefonica-led consortium bidding for European UMTS licenses and
would count on a significant stake in the property company Telefonica
Inmobiliaria S.L.U.

- On 17 February Atento reached an agreement to combine its operations with
Quatro/A's throughout Brazil. As a result of the deal, Atento will have full
control of the operations of Quatro/A Telemarketing & Centrais de Atendimento
and of its subsidiary in Bahia, Quatro/A do Nordeste.

- On 11 February, Telefonica and BBVA reached a strategic agreement in the areas
of Internet, e-commerce, mobile services platforms and payment means. In
accordance with this agreement, BBVA will increase its shareholding in
Telefonica to 10% through purchases on the open market (after the capital
increase to carry on the exchange shares offers for the take-overs of certain of
the Latin American subsidiaries) and Telefonica will acquire up to 3% of BBVA.
The agreement sets out 14 specific areas of joint co-operation, most notably
Terra's closer participation and increased shareholding from 20% to 49% in
internet bank Uno-e S.A., which in a prior move will be merged with Banco of
Comercio; and BBVA's taking of 40% of Telefonica's business-to-business 
e-commerce company Telefonica B2B. It should be noted that the other core
shareholder in the Group, La Caixa, has also been invited to participate in this
agreement. 

- Also on 11 February, TelefOnica B2B and Ariba, world leader in
business-to-business services and software development, reached an agreement by
which Telefonica will develop business-to-business activities in Latin America,
Spain and Portugal using Ariba's solutions. 

- On the same day, Telefonica S.A. agreed to sell 6.1% of Amper S.A. to the
mutual funds European Renaissance Fund and European Strategic Investors
Holdings, owned by asset management company Arlington Capital Investors Limited.
After this operation, Telefonica, S.A.'s shareholding in this company is reduced
to 6.1%. 

- On 2 February, Telefonica El Salvador signed a strategic partnership with
Amzak Internacional, to create a joint venture offering cable telephone services
to residential clients under the Telefonica name, via Amzak Internacional's
cable TV system. The two firms will also co-operate in other broadband
communication services like high-speed data transmission. The joint venture,
Amnet, will hold exclusive rights to provide telecoms services through Amzak's
network in El Salvador.

- On 14 January Telefonica and 'La Caixa' launched a joint venture to develop
and market means of payment, framed within a broader strategic co-operation
agreement. The new finance company, 50%-owned by each partner, will issue
shared-brand cards. The agreement also envisages future ventures ranging from a
financial services Internet bank and specialised portal, targeted on business
clients, to the development of specific services for individual users. Finally,
both firms will participate in a European mobile telephony projects consortium
(UMTS).

- On 12 January, Telefonica's Board of Directors approved the creation of two
new global businesses along the lines of the management model adopted two years
back. The first, Telefonica Moviles, will bring together all the Group's
worldwide mobile communications businesses in Spain, Latin America, Europe and
the Maghreb. Mr Luis Martin de Bustamante, formerly Chief Executive of
Telefonica de Espana, has been appointed Executive Chairman of the new company.
The second, Telefonica DataCorp, will handle data communications and integrated
business solutions for the large corporate sector in Spain, Latin America and
Europe. Mr. Antonio Viana-Baptista, Chief Executive Officer at Telefonica
Internacional, will become the Chairman of the company. The same meeting gave
the green light to Telefonica B2B, a new business line to advance the
development of business-to-business e-commerce in collaboration with Terra
Networks and Telefonica DataCorp. 

This process is part of Telefonica's strategy to create global business lines.
During the two years of this strategy the value of Telefonica's various business
units has taken off making Telefonica one of the world's leading telecoms
operators and giving it enormous financial flexibility.

With the goal of stepping up the development and globalisation of these
businesses, the Board of Directors authorised the launch of take-over bids for
up to 100% of Brazil's Telesp and TeleSudeste Celular, Telefonica de Argentina
and Telefonica del Peru, in an exchange deal for Telefonica S.A. shares. The
offer terms included a 40% premium to the average share price on the five days'
trading prior to the day of the announcement. The Board also proposed a capital
increase to fund the operation subsequently approved at the Extraordinary
Shareholders Meeting of 4 February last. As part of this initiative,
Telefonica.S.A. has applied for its shares to be listed on the Sao Paulo, Rio de
Janeiro, Buenos Aires and Lima stock exchanges.

- On 3 January, Telefonica and the investment group headed by Hicks, Muse, Tate
& Furst-main shareholder of CEI - reached an agreement on the share out of
assets belonging to Cointel, Cablevision, ATCO and Torneos y Competencias. Under
its terms, Telefonica will raise the indirect stake in TASA, held via Cointel by
25.5% to 51% (100% of Cointel) and will receive 50% of TASA's management fee.
Telefonica also becomes owner of ATCO, which runs the television channel Telefe,
ten regional channels and Argentine's top two radio stations by audience
numbers. At the same time, HMT&F and remaining CEI shareholders will create a
new company to take on majority control of Cablevision and Torneos y
Competencias. Besides, Telefonica will take an equity interest in Canal Azul
through AC Inversora and the stake held by the Vigil group. The capital
increases required to carry out this operation were ratified at the
Extraordinary Shareholders' Meeting held on 4 February. 

- On January 4, Terra Networks reached a co-operation agreement with BBVA for
the development of new Internet services and applications, which led to the
acquisition by Terra of 20% of Banco Uno-e and the acquisition by BBVA of 3% of
the share capital of Terra. 


                      TELEFONICA S.A.

MARKET SIZE
                    

Thousand                 December        % Chg    Weighted figures(*)  % Chg
                     1999        1998    99/98    Dec 99     Dec 98    99/98

Lines In Service    40,199.1   36,790.0    9.3   24,296.9   22,172.1     9.6

Spain               19,226.2   18,205.2    5.6   19,226.2   18,205.2     5.6
Other countries     20,972.9   18,584.8   12.8    5,070.7    3,966.9    27.8

Mobile clients      19,582.1   10,514.4   86.2   11,207.7    5,848.4    91.6

Spain                9,052.3    4,894.3   85.0    9,052.3    4,894.3    85.0
Other countries     10,529.8    5,620.1   87.4    2,155.4      954.1   125.9

Pay TV clients       2,489.5    2,369.8    5.1    1,072.0      822.7    30.3

Spain                  440.1      282.0   56.1      301.9      104.2   189.7
Other countries      2,049.4    2,087.8   (1.8)     770.1      718.5     7.2

TOTAL               62,270.7   49,674.2   25.4   36,576.6   28,843.3    26.8    
  
(*)  Weighted for the economic interest held in each company.



                      TELEFONICA S.A. RESULTS BY COMPANY (*)

Audited figures             Revenues                      EBITDA
 million                January-December              January-December    
                     1999        1998    % Chg     1999       1998    % Chg

Telefonica de
 Espana Group       10,075.2    9,836.9    2.4    5,037.2    5,268.8   (4.4)
Telefonica Servicios
 Moviles Grp         3,739.0    2,812.9   32.9    1,353.4    1,168.2   15.9
Telefonica Data Group  574.7      458.9   25.2      120.0       71.4   68.0
Other subsidiaries   1,641.8    1,249.9   31.3       68.4      107.9  (36.6)
Disposals           (2,477.9)  (2,092.5) (18.0)      (1.8)      (5.3)  65.0

GROUP               13,552.8   12,266.2   10.5    6,577.3    6,611.0   (0.5)

(*) TISA's subsidiaries consolidated by the equity method.



RESULTS ANALYSIS BY COMPANY


Telefonica de Espana Group

The formal demerger of the Telefonica Group took effect on 1 January 1999,
configuring Telefonica de Espana as the independent business line operating
fixed-line telephone business in Spain, with the exception of data transmission,
which passes to TelefOnica Data.

The keynote trend of 1999 was the fast spread of market competition, with two
competitors fully operational nationwide from the year's outset, the entry of
new national cable and niche operators, and the start-up of operations of the B1
licences of the mobile operators.

The year also saw some advance towards solving the tariff re-balancing issue,
within the asymmetrical regulatory framework still in place. Telefonica,
specifically, may now increase its tariffs in line with the CPI under a kind of
price-cap formula to be applied as of August 2000. The Government, too, has
authorised a Ptas. 300 rise in monthly charges to be instrumented in three steps
between 2000 and 2001. This move, though positive, does not fully resolve the
access deficit claimed by Telefonica de Espana and supported by the audited
reports submitted to the regulator. The company is obliged to render its
services in a wholly liberalised market with regulated and at times seriously
imbalanced tariffs-in breach of the European Community directives, which
stipulate that this conflict must settled before moving to full market
liberalisation. 

The Telefonica de Espana Group reported full-year revenues of .10.075 billion, a
satisfactory 2.4% increase over 1998 despite the significant tariff cuts imposed
in the year, amounting in nominal terms to: international long distance -12.5%,
domestic long distance -26.3%, provincial -10.6%; fixed-mobile -7.1%, and local
- 8.4%. Although the market share slippage brought by stiffening competition,
and the implementation of tariff reductions approved in the prior quarter,
pushed revenues from usage down 6.8% with respect to fourth-quarter 1998, the
full-year reduction under this revenues head was only 2.6%, a decline
considerably less than initially forecast. We should also underline that the
revenues weight of long-distance services dropped by 4.6 pp.-to 23.4%- with
respect to 1998.

This good revenue performance was thanks mainly to the development of new
services, traffic growth, the rise in monthly charges from August 1998 and the
Company's success in facing competition, showed by the Company's market shares
ahead of forecast levels. Revenues from ISDN, intelligent networks, Centrex,
broadband services and VPN amounted to 990.4 million, and made up 10.3% of total
Telefonica de Espana operating revenues, a jump of 64.4% versus the previous
year. This result highlights the success of the customer segmentation policy
carried through by the Telefonica de Espana Group. 1999 also saw a massive
commercial drive and much more sophisticated client segmentation of the
company's customers. These developments highlight Telefonica's increased
attention to customer tracking, the re-organisation and extension of its call
centers and the strengthening of the sales team with 500 new recruits to boost
the corporate business segment and increase the effectiveness of customer
tracking. Among the new services, we would highlight Telefonica de Espana's ADSL
service, which in accordance with current legislation is marketed under the name
of GiacomADSL. The coverage of this service should rise from 4.6 million lines
at the end 1999 (28% of the network ) to 9.4 million in 2000 (56%).

Similarly encouraging was the advance in traffic per line as far as 13.4 minutes
per line per day, giving a year-on-year growth rate of 11.9%. The total number
of minutes sold was likewise 15.9% higher at 82.5 billion, with internet traffic
as the main growth driver.

ISDN lines continued in strong expansion with growth of 100.6% in basic accesses
(355,493 at the December close) and 78.3% in primary accesses (8,928 accesses in
service).

Telefonica de Espana Group operating expenses moved up 7.5% to .5.403 billion,
mainly due to the increase of Telefonica de Espana expenses (+5.2%) that
contribute 4.9 p.p. to total Group operating expenses, and to the higher
commercial activity of other companies within the group, like Telyco, which
contributes 1.9 p.p.

Telefonica de Espana's operating expenses are driven by the competitive
framework, as shown in the evolution of interconnection expenses and other
subcontracts related to revenue generation (advertising, commissions to
dealers), that combined grew 42% whereas other expenses dropped 7.5%. 

Cost reductions are a direct result of the plans to digitise the network and cut
staff resulting from the regulator's insistence on maintaining an unbalanced
regulatory regime, resulting in an annual saving of some .300 million in staff
and non commercial expenses. The rate of decline of personnel costs slowed due
to the concentration of layoffs in the first months of the year and the year
ended with a decline of 11%. Cost control measures are also reflected in the
fourth-quarter figure for subcontracts, which successfully reined in growth to a
year-end 15.6% from the 27.7% reported to September.

At year end, Telefonica de Espana's workforce numbered 46,619 persons, 19.8%
less than in the previous year. This net reduction in the headcount locates
Telefonica de Espana among the world's most efficient operators, on a
productivity ratio of 412.4 lines/employee.

The 24.3% decline reported in group operating profit is mainly explained by the
'Special Depreciation Plan' in force of Telefonica de Espana, since the first
quarter of the year, encompassing customer premises equipment, curb to customer
premises, software and R&D projects. The shorter depreciation periods applied to
this asset range entailed an additional depreciation charge of some 296 million.

Besides this 'Special Depreciation Plan', Telefonica de Espana made a series of
extraordinary asset writedowns in the fourth quarter of the year, to adapt
Telefonica de Espana's balance sheet to the regulatory and competitive
environment prevailing. The corresponding charge (1.322 billion before taxes)
lead Telefonica de Espana to present in 1999 a reported net loss of and the
depreciation change referred to occasioned a 1999 book loss of 206.8 million.
Taking a longer view, however, this extraordinary charge will deliver a marked
improvement in the asset turnover and profitability of Telefonica de Espana
assets in coming years. Regarding the provisioning drive, we would stress that
Telefonica de Espana has submitted a complaint to the European Commission about
the Spanish States violation of EU directives on resolving an unequal tariff
regime before opening the market to full competition. Since November 1999 it has
also had another case before the Administration General del Estado Espanol.
Telefonica de Espana is seeking compensation for losses suffered due to the
breaking of the remuneration scheme established with the concession contract in
1991, and the government's failure to fulfil its obligation to correct the
imbalance in the tariff 

Telefonica Moviles Group 

The Spanish mobile telephony market registered quite extraordinary growth in the
fourth quarter of 1999, beating the full-year rate of 1998 and lifting market
penetration more than 7 p.p. higher to 37.5%. Telefonica Moviles, moreover, came
out top among European operators in penetration growth with an increase of 10.4
p.p.

The company raised customer numbers 1,352,615 in the fourth quarter, culminating
last December in the highest net adds number of its history. By the year end,
the company had a customer base of 9,052,347, translating as 85% growth in
absolute number and 144% in net adds. Market share by the declared clients
yardstick held at over 60%, while its estimated share by traffic was ahead of
64%, indicating a larger share of effective clients and/or a sizeably increased
share in higher-value clients.

The MoviLine service closed with 690,138 clients while MoviStar enlarged its
customer base by 109% to a year-end 8,362,209, beating the digital client share
of other top European operators. MoviStar Activa (pre-paid) users tripled in the
year while professional contracts doubled, on a 3.7 times increase in MoviStar
Corporativo numbers. Residential contracts, meantime, held flat with respect to
the previous year. The result is that Movistar Activa represented 82% of the net
additions in the digital client base, and held on to its pre-paid market lead by
offering unique features like roaming, e-mail, detailed information on internet
traffic, etc., together with a wider array of tariffs and handset models.

On the customer data furnished by competitor companies, we find that Telefonica
Moviles has a lead of more than 4.1 million over its closest rival, and has in
fact widened the gap 50.3% with respect to December 1998.

As to wireless traffic, Telefonica Moviles networks channelled 13.6 billion
minutes in the year, 69% more than in 1998, with data services showing
particularly dynamic. Another stand-out was the four-fold increase in short
message traffic, as far as a December ratio of 10.7 messages/user/month. This
development bodes well for take-up of the mobile-internet convergence services
set to extend their net this year (MoviStar Net, Correo Electronico MoviStar ,
MoviStar Datos Express, mobile portal, etc.).

In a bid to tap the enormous development potential of these new services,
Telefonica Moviles inaugurated a 'Centro de Desarrollo y Tecnologia'
(Development & Technology center) in November 1999, and set up a specific
'Wireless Internet' unit to develop new applications and secure clients the
benefits of innovative information and transactional services.

Group operating revenues of 3.739 billion were 32.9% up on the previous year.
Despite a 19% decline in , resulting from deep price reductions and the rise of
the pre-paid format, EBITDA margin before acquisition costs held close to 60%,
thanks to tight control of operating costs and economies of scale. Also, though
the boom in customer numbers entailed a higher commercial spend on subscriber
acquisitions, the corresponding ratio moved down almost 5% versus 1998.

Net income closed the year 16.6% higher at 562.8 million. Notably, the quarterly
figure of 143 million was a full 23.5% up on fourth-quarter 1998 numbers.

Securing quality ratings even higher than the previous year's in the face of
strong customer (85%) and traffic (69%) growth required a hefty 748.8 million
investment, 37% more than in 1998.

Likewise, architectures and networks were progressively put in place to ensure
the company a successful transition to the e-business model in both internal and
external relations. Finally, to remark the following events subsequent to the
annual close:

The presentation of a highly structured bid for one of the four UMTS licences
shortly to be granted.

The award of one of the two licences tendered for the operation of digital
trunking services (TETRA).

The launch of the MoviStar Plus concept, enshrining cheaper monthly charges for
contract subscribers, backed by a series of initiatives aimed at encouraging
customer commitment to Telefonica Moviles. This measure, whose cost impact was
already considered into the year's budget, not only reinforces Telefonica
Moviles' customer commitment but is also a token of its leadership vocation,
pioneering a new approach to business management in a future context of more
subdued growth.


Telefonica Internacional Group

In 1999, Telefonica Internacional consolidated its leadership in the overall
Latin American telecoms market by strengthening its subsidiaries' competitive
positioning in their respective countries and entering new markets.

With regard to Telefonica Internacional's geographical expansion, note the award
of three PCS licences in Argentina in June, enabling Telefonica de Argentina to
provide mobile telephony over the entire country. In addition, Telefonica
Guatemala began operating in July while mobile services were launched in Puerto
Rico in September under the Movistar brand name.

In 1999, Telefonica Internacional also reached agreements with Tyco and IDT to
build and develop the submarine fibre-optic SAM-1 cable to connect South
America, Central America and the US and to combine with Telefonica's fixed-line
network in the region. SAM-1, which is the only submarine cable with these
characteristics currently being constructed in the region, will be the first
broadband backbone to begin operating in the area, with inter-city and
end-to-end connectivity and fully open access. Phase one is scheduled to begin
operating in the third quarter of 2000. The SAM-1 cable will initially have 40
Gb/s capacity, which can be increased to 1.92 Tb/s. On their own, the needs of
the Telefonica subsidiaries in the region will guarantee that a large part of
this capacity is taken up.

We would also highlight achievements in actively managing the Latin American
investments, bearing in mind the region's difficult macroeconomic year in 1999.
Note the early cancellation of debts to the BNDES from the acquisition of former
Telebras companies; takeover bids were launched for mobile operators in Rio of
Janeiro (Telerj Celular), Espiritu Santo (Telest Celular), Bahia (Telebahia
Celular) and Sergipe (Telergipe Celular); CRT Celular's capital increase; and
corporate restructuring at Telesp Participacoes and its subsidiaries.

On 31 December 1999, Telefonica Internacional had 18.4 million lines under
management (21 million in total), representing 15.1% growth in the year. The
increase in line numbers was thanks mainly to Telesp. After installing over 2.7
million lines and comfortably exceeding the goals Anatel set for 1999, it now
has 8.2 million lines in service (+28.7%). We would also note the company's
investments last year, which allowed above a 5 percentage point increase in the
state of Sao Paulo's fixed line telephony penetration in just one year, to 24%
(against 14% for Brazil overall). Despite the large number of line installations
last year and the unfavourable macroeconomic environment, the waiting list rose
by over 1 million lines. Also, note growth at CRT Fija (+12.5%) and Telefonica
del Peru (+8.6%), which benefited from the introduction of the pre-paid product
marketed under the name 'Telefono Popular' in the second half of 1998.

The total number of Grupo Telefonica's mobile phone clients in Latin America
rose by 103.2% to 10.5 million, of which Telefonica Internacional manages 6.5
million. Firstly, note CTC Startel's 108.2% growth, which benefited from the
introduction of the Calling Party Pays system last February. The number of
clients at Tele Sudeste Celular also increased considerably (+139.9%) to 1.85
million at end-1999, against the 1.5 million forecast at the start of the year.
This was due to an aggressive marketing policy to expand the client base and the
introduction over the year of the pre-payment card. The large increase in the
client base enabled penetration in the states of Rio of Janeiro and Espiritu
Santo to reach 12% (against 7% for Brazil as a whole). This faster growth will
allow the group to achieve the economies of scale that are characteristic of
mobile telephony ahead of schedule and so improve profit margins substantially
in the short and medium terms. We also underline the growth of TCP in Argentina
(+96.8%), which in the next few years should benefit from the increase in
competition (award of PCS licences in 1999) and the growth potential of the
market itself (the Buenos Aires region has nearly the same income per capita as
Portugal but significantly less mobile telephony penetration). The other mobile
phone companies that TISA manages also recorded growth of around 100%, with the
exception of TDP (+41.1%). 

Telefonica Internacional's strategy of building up second operators in Central
America has yielded very positive results. On 31 December TISA had 175,000
mobile phone clients in the region (40,000 in 1998), had increased its share of
the El Salvador market to 35% and had reached 16.5% in Guatemala in just five
months. Turning to fixed-line telephony, the group achieved a 40% share of the
long-distance international market in El Salvador.

Equity income from the Latin American shareholdings totalled Euro156 million,
53.6% less than in 1998 (-76.2% to September). These profits were severely
affected by the region's recession and its currencies' widespread depreciation
against the dollar throughout 1999. 

The 95 million book losses recorded by Telefonica CTC Chile were due mainly to: 
- The new tariff decree approved in August, reducing revenues by 145 million. 
- The 63 million increase in extraordinary expenses resulting from the          
 restructuring of CTC's workforce, in response to the new tariff framework. 
- The increase in bad debt provisions to 7% of sales. 
- The accelerated depreciation of 23 million in December of mobile subscriber   
 acquisition costs clients that cancelled their subscriptions.
- The increase in financial expenses to 197 million as a result of higher       
 interest rates and higher stock of debt. 
- The Chilean peso's depreciation against the dollar, causing a 105             
 million negative 'correccion monetaria'.

Telefonica de  posted a 10.8% fall in net profit 1999, despite a small rise in
operating profit (EBITDA:+1.3%). 1999 was a year when macro-economic factors had
a damaging effect on usage and the market was opened to competition. The fall in
net income was basically due to non-operating headings which showed greater
financial costs from the 1998 share buy-back and redundancy payments.

Telefonica del Peru's net income increased by 3.5%. Revenues rose by 3.9%,
thanks to the increase in usage and client numbers, while operating expenses
were unchanged on 1998's levels (+0.3%). A negative 'correccion monetaria'
(+31.6%) and higher financial expenses resulting from the buyback programme on
10% of shares in 1998 also reduced non-operating profit. The company also cut
bad debt substantially which greatly reduced bad debt provisions compared to
1998, especially in the second half of the year. 

The Brazilian subsidiaries contributed 76.2 million overall to Telefonica
Internacional's earnings. This amount was severely affected by the reais
devaluation and the resulting negative 'correccion monetaria', which totalled
around 31 million. We should add that the recorded useful life of all
Telefonica's Brazilian companies' assets are now shorter as a result of the new
depreciation policy adopted at the start of 1999. Turning to the mobile phone
companies, note the effect of the large increase in the client base on EBITDA
margins at Tele Sudeste Celular (+139.9% in the customer base), Tele Leste
Celular (+98.5%) and CRT Celular (+78.3%). 

At Telefonica Internacional's net income level, the lower equity income from the
Latin American subsidiaries and higher financial expenses were offset by a 23%
rise in management fees (149.6 million) and lower taxes. The decrease in the
corporate tax provision is explained by the application of provisions for
depreciation of the Brazilian investments, deductible upon calculating the
expense for corporate tax and eliminated in the consolidation process.

 
Telefonica Data Group

1999 was Telefonica Data's first year as an independent global business line. 

In the course of the year, Telefonica Data consolidated its leadership in Spain,
where it has a market share of more than 90% in the number of client
connections. And, once the exchange offers for some of the Latin American
subsidiaries concluded, it is likely to stand in second place in the
international ranking of specialised data companies in terms of revenue volume. 

Telefonica's competitive advantage rests on the concepts of high capillarity and
extensive distribution network, the capacity to innovate and customer loyalty,
particularly the loyalty of Spain's major banking and industrial corporations. 

The excellent data service offered by Telefonica to its corporate clients for
more than 25 years, combined with the extension and complexity of the network
placed at their service, means that the degree of loyalty of the major client
segment to Telefonica Data has become a solid entry barrier to our competitors.

In the result of close collaboration with the national banking sector, the
automatic teller network in Spain, one of Europe's largest, has approximately
36,000 tellers and some 400,000 point-of-sale terminals for automatic credit
card payments.

Aside from the traditional business of data communications to companies via
X.25, Frame Relay and IP platforms, internet traffic is now a new element of
diversification and growth. With 875 million minutes per month registered at
end-1999 and around 50% annual growth, Telefonica Data has confirmed its
leadership in this area, with a more than 60% market share. 

In the segment of small- and medium-sized firms, it is worth highlighting the
success of the Internet access service for companies (Infonegocio). In the
present year, the volume of connections has risen from 1,662 to 43,584, and,
notably, 90% of the new connections occurred in the second half of the year,
which gives an idea of the service's growth potential. 

In 1999 we created the operational base of our 'Multinational Group of
Companies' through the launch of subsidiaries outside Spain, such as Telefonica
Data Colombia. Likewise, the legal bases have been established and headway has
been made, with varying degrees of scope, for the launch of subsidiaries in
other countries where Grupo Telefonica was not previously present, such as
Venezuela, Uruguay/Paraguay, Canada, the Caribbean, Mexico, Morocco and the
United States. 

Through the collaboration agreement with Telefonica Internacional, in May 1999
Telefonica Data collaborated on the management of the Latin American operators'
corporate business in which TISA has stakes in Sao Paulo, Chile, Argentina, Peru
and Central America. The volume of the corporate business managed in the year in
these countries was $643 million, of which $198 million represent revenues from
data services. The most important achievement of this collaboration was the
commercial and operational launch of services based on the IP network in Sao
Paulo. 

In this same line, in 1999 it worked with Telefonica Intercontinental on the
preparation of the launch of its data operations in Austria (European Telecom)
and Italy (ACEA-Telefonica). Directly from Telefonica Data, the bases have been
established for the operational launch of the points of presence of the global
network in London, Paris, Frankfurt and Milan. 

Also under way is the development of infrastructure for the multiservice global
network, offering global coverage wherever Telefonica Data is present. 

In addition, strategic alliances have been signed for the development of
services with ARIBA, Hewlett-Packard and SAP, commercial alliances for the
distribution of services with Microsoft, IBM and EDS, and strategic alliances 
for the provision of basic technologies with Lucent Technologies, Cisco and
Nortel. 

As to its financial data, in its first year of activity as a group with a global
presence Telefonica Data achieved accumulated sales of 574.7 million,
representing 25.2% growth, EBITDA of 120.0 million (20% of revenues, 68%
growth), and profit before interest and taxes of around 50.4 million..


Telefonica Media Group

Telefonica Media has gradually strengthened its position in the sector with new
acquisitions and agreements, such as those announced on 3 January 2000 with the
group of investors HTM&F (Hicks, Muse, Tate & Furst), main shareholders of CEI,
for the Argentinean open television channel Telefe, Radio Continental and other
regional television channels. Telefonica Media also announced on 7 January 2000
its agreement with the Disney group, via the acquisition of 30% of the producer
Patagonik Film group, in which the Disney group owns 30% and the Clarin group a
further 30%.

Likewise, Telefonica Media continued its process of corporate restructuring and
asset reorganisation with a view to its upcoming IPO, grouping in Telefonica
Media other media-linked stakes of Grupo Telefonica that were controlled by
Telefonica Internacional: ATCO, AC Inversora, and Torneos y Competencias. Also
transferred to Telefonica Media were the 22.7% stake of Grupo Telefonica in
Hispasat and the 5% of the Pearson group. Other changes in the stakes of
Telefonica Media occurred in the producer Lola Films, where it has enlarged its
share to 70%. In addition, as announced on 14 January, the sale of 20% of
Recoletos Compania Editorial to the Pearson Plc. group was carried out in
December, generating capital gains of 41 million.

The group is present in all stages of the chain of value of the audio-visual
business, from the creation and production of contents to their sale and
distribution. This gives it sufficient strategic flexibility to benefit from the
expected convergence among the sectors of telecommunications, contents and
information technologies. 

Antena3 
Antena 3 remains the leading private open TV channel in Spain, with the largest
audience share (an accumulated 22.8% in 1999 and 23.8% in December), moving
closer to TVE's share, at a distance of only 0.8 p.p. in December. 

In 1999 revenues from operations were 593.3 million, up 38% compared in 1998.
Operating profit reached 169.8 million, for an annual increase of 34.5%. This
was explained by healthy performance in sales, the cost control policy (one of
the focus of the management since Telefonica assumed the control of the company)
and despite higher depreciation charges. The positive performance of financial
results led to a 59.5% growth in net income, reaching 126 million. 

Finally, it should be recalled that Telefonica Media's stake in Antena 3 at
end-1999 was 47.2 %. 

Via Digital 
At the close of 1999, Via Digital's clients numbered 440,114 marking an annual
increase of 56.1% and 66,230 more clients than in September 1999. Throughout the
fourth quarter, the growing trend in net additions, begun in September,
quickened thanks to the improvement in sports contents, particularly broadcasts
of soccer games involving both European and Spanish league games. The net
additions incorporated in the fourth quarter represent nearly 52% of the
estimate market's growth in this period, while Via Digital enlarged its market
share by 3 p.p. to 35.0% thanks to the good headway in its share of new clients.


It should be noted that Via Digital's revenues in the period January-December
1999 exceeded 123 million, up 74% against 1998, a higher percentage than the
56.1% growth in its customer base.

In December 1999 a capital increase of 189.25 million was approved. It was
completed in January 2000, raising total share capital to 567.75 million. With
this increase, Telefonica Media, the main shareholder and responsible for the
platform's management, now has a stake of 48.63%.


Terra Networks Group 

Terra's successful stock market launch on 17 November underscores its
consolidation as Europe's largest internet company in terms of market
capitalisation and one of the world leaders, making it a benchmark stock in
European and North American markets.

Terra has continued to strengthen its market position through the strategy of
gaining critical mass in each country where Terra operates. In the ISP business,
Terra closed December with 1,317,233 subscribers, for an increase of more than
450,000 vis-a-vis September. Terra has acquired the internet assets of
Telefonica del Peru and the internet subsidiary of CTC (CTC Internet), and, in
association with International Discount Telecommunications Corp. (IDT), Terra
has created a joint venture, in which Terra has a 51% share, that will run ISP
services for the Spanish-speaking market in the United States.

The growth of portal business is evidenced in the volume of page views, which
rose to 1.147 billion in the final quarter, with 434 million page views in
December alone, for an increase of 64 million pages over the previous month.
Similarly, in Argentina, after the merger of the two Argentinean portals,
Gauchonet and Donde.com, the Terra Argentina portal was launched, while a joint
venture with IDT was created, in which Terra has a 90% stake, that has already
materialised in the launch of the Terra portal for the Spanish
speaking-community in the United States.

In addition, the contents and services of all Terra's portals have increased,
offering in turn new forms of internet access. Terra has signed an agreement to
offer, on an exclusive basis, the Disney Club Blast channel in Spain and Latin
America, and it now offers wide-band access (ADSL and cable) not only in Spain
but also in Brazil. At the same time, it has acquired 30% of Latin America's
largest auction portal, Deremate.com, and 49% of the bank Uno-e as part of its
global alliance with BBVA, strengthening the strategy of e-commerce both in
internet auctions and in the field of financial services.

It also participates in activities with other companies of the Grupo Telefonica.
Telefonica Moviles and Terra have created the first portal in Spain and Latin
America for access with WAP (wireless access protocol) terminals. There is
active collaboration between Terra and TPI-Paginas Amarillas, which is
materialised in the joint offer of products and in the presence of the yellow
pages of TPI-Paginas Amarillas in Terra's portals.

The advance in activity in the final quarter of 1999 is reflected in 73%
quarterly growth in revenues, representing around 40% of total annual revenues
(proforma data). Year-on-year growth in revenues stands at approximately 50%. 


TPI - Paginas Amarillas

In 1999, TPI-Paginas Amarillas has consolidated its leadership position in the
Spanish yellow pages and advertising market, benefiting from the opportunity
provided by the internet in these fields (a market that ranks among the lowest
in Europe in revenues in terms of per capita income) and closing the year with a
share of more than 6% of total advertising expenditure in Spain. It has in turn
begun to expand abroad to Spanish and Portuguese-speaking countries such as
Chile and Brazil. 

In operating terms, 1999 was a good year for the company. In the traditional
segment of paper products, TPI has consolidated its leadership in the Spanish
market of Yellow Pages (61 books), with 324,193 clients at end-1999, and it has
also considerably increased the number of white page books published, 47 in 1999
versus 38 in 1998. Particularly notable in new products in the multimedia field
is the growth of Paginas Amarillas On-line, which has become the fifth-ranking
company in the internet market in terms of pages views, closing the year with
more than 78 million pages views since March (of which more than 35 million
occurred in the final quarter of the year), and sixth in terms of the number of
visits, with more than 3.3 million accumulated since March (more than 1.6
million in the fourth quarter). In Paginas Amarillas Habladas (talking yellow
pages), it is worth noting that the number of calls since march accounted for
932,217. 

When understanding the results of TPI-Paginas Amarillas, various accounting
criteria for revenues and expenses should be borne in mind:

- In Paginas Amarillas, the revenues from advertising and costs directly
associated with each telephone book are recognised at the time of the book's
publication.

- In Paginas Blancas, the revenues generated by advertising are recognised at
different times, depending on whether it is Telefonica or TPI which makes the
sale. If it is Telefonica, the revenues are recognised as they are reported by
Telefonica during the period the book is in effect. If TPI makes the sale, it is
recognised upon the book's publication. Costs are recognised at the time of
publication, except the cost of sale, which Telefonica passes on to TPI and they
are recorded monthly in the results.

Paginas Amarillas On-line applies the same criterion as Paginas Amarillas. 

In Paginas Amarillas Habladas, to 1998 the revenues and expenses arising prior
to the inclusion of the advertisement in the data bases were accrued monthly
throughout the period of the contracts' duration, and the other revenues and
expenses generated by traffic were recorded in the profit and loss account on an
accrual basis. In 1999 they were entered in the accounts at the time of the
advertisement's publication. The impact on the 1999 profit and loss account as a
result of this change in criterion is 318,536. 

Because of these accounting criteria, it is hard to compare results from one
quarter to the next, as they depend on the timetable of the telephone books'
publication. In addition, given the greater concentration of the telephone
books' publication at end-year, the quarterly results cannot be extrapolated to
the end of the year. 

Taking into account these criteria for the recording of revenues and expenses by
product, it should be noted that TPI's revenues grew 28.5% in 1999 to 334.8
million. This growth is explained by the good performance of paper products,
which rose 18.5% with respect to the previous year to 305.8 million. 

Revenues from multimedia products rose 469.4% in 1999 to 5.2 million, up from
0.9 million in 1998. Paginas Amarillas On-line registered 198.2% growth in
revenues to 2.7 million. This advance is partly explained by the good response
to the company's new internet developments and initiatives. The number of paying
clients increased from 157 in February to 17,000 at end-year. Paginas Amarillas
Habladas in turn registered revenues of 2.5 million, with more than 42,500
clients at the close of 1999. 

In expenses, the 15.8% increase for the whole of the year stems from the higher
costs associated with the publication of a larger number of telephone books,
including higher production costs, growth in personnel costs (14.4%), marketing
expenses (43.3%) and the higher commissions paid to salespersons owing to the
greater volume of sales. 

The overall effect of revenues and expenses left the company's EBITDA at 108.3
million, up 58.6% vis-a-vis 1998. But the most notable development is the
improvement of the group's EBITDA margin, which went from 26.2% to 32.2%. This
primarily reflects the growth of multimedia products, and even though they still
represent a small percentage of the group's revenues, market trends signal their
importance in the future. 

Net income was 82.8 million, 93.0% more than in 1998. This reflects the positive
impact of extraordinary profits of 20.5 million from the sale of Venturini,
Estratel and Doubleclick, as well as the extraordinary expenses derived from the
cancellation of the previous contract of Paginas Blancas with Telefonica. Had
these extraordinary circumstances not arisen, the group's net income would have
grown by around 57%. 

In 1999 TPI expanded its international activity in Latin America. In Brazil, in
conjunction with Telefonica Internacional, it created Telefonica Publicidade e
Informacao S.L., in which it has a 51% stake. To date it has signed contracts
with the operators Telesp and CTBC whereby it becomes the publisher for the
sale, publication and distribution of the LOTG (white pages) in Sao Paolo and
Rio Grande do Sul. On the basis of these contracts, in 1999 it published a total
of 12 joint telephone books with yellow and white pages and nine street guides.
The company obtained revenues of 6.2 million. 

Meanwhile, after the close of the year, it took a controlling stake in the
Chilean company Publiguias. The move will be implemented through the acquisition
of 51% of a joint company with TISA, which controls 51% of Publiguias via TPI.
This agreement is expected to materialise at the close of the first quarter of
2000. The main source of revenues of Publiguias is advertising, which it sells
in its paper products, and it also has an internet version, audiotext support
for paper advertisements, and a telephone assistance service, in addition to the
advertising management of telephone booths for Telefonica CTC Chile. 


Telefonica Intercontinental

Telefonica Intercontinental, a wholly owned subsidiary of TelefOnica S.A., is
the business line in charge of developing investment projects in countries other
than Spanish- and Portuguese-speaking countries.

The company started operations in February 1999 with the acquisition of 100% of
European Telecom, specialised in the sale and distribution of voice and data
services in Austria. Since then the company has continued its expansion process,
consolidating its position as the country's second alternative operator,
enlarging its client base by 254% to a total of 16,552 and increasing its sales
418% to 16 million. In 1999 the company has advanced in the development of its
network infrastructure as a part of its growth process and is working on the
development of optic fibre rings in six large cities in Austria, the
introduction of an IP network and complementary radioelectric access services,
while at the same time considering the rental possibilities of local loops. 

In June an agreement was signed for the creation of Telefonica Acea, a joint
company of Acea Spa and Telefonica, for the development of the second telecom
network to provide voice, data and internet services in the Rome area and Lazio
province. It was constituted as a company in October, with an initial investment
of 200 million and a calendar for the start-up of operations in the first
quarter of 2000. Notably, Acea Spa recently obtained a licence to provide
telephone services throughout Italy, thereby reinforcing the range of services
offered in the region of Lazio.

The third operation was consolidated in July via the award of the second mobile
telephone licence (GSM-900) in Morocco to the consortium Medi Telecom, led by
Telefonica Intercontinental and with the participation of Portugal Telecom and
its Moroccan partners BMCE, Caisse de Depots and Groupe AKWA (Afriquia). The
company's business plan envisages an investment of 226 million and the direct
creation of 1,100 jobs for the period 1999-2002. The service is scheduled to be
launched in March 2000 under the brand name Meditel.

On 22 December, Telefonica's Board of Directors authorised Telefonica
Intercontinental to take part in various tenders in the main European countries
for the award of the new third-generation mobile telephone licences (UMTS).

Atento
                                  
In 1999 Telefonica launched Atento, a new business line with global coverage
that offers call center services. 

Atento operates with the best and most innovative technology to guarantee the
performance and convergence of telecommunications and data-processing in serving
clients, offering the best prices on the market via a complete catalogue of
global services. 

The externalisation of clients' call center activity via Atento allows them to
concentrate their efforts and resources on their own business and final
customers, avoiding the need for major investments and the rapid technological
obsolescence which arise in this type of infrastructure. Atento handles the
management of human resources and ensures the security of the infrastructure and
data, benefiting from the economies of scale created in business of this type,
which are then passed on to the services offered. 

Most notable among the services offered by Atento are telemarketing, spanning
both inbound (information services, sales and customer assistance) and outbound
(sales, payments management, market research), value-added services (capture and
recruitment of personnel, management and control of call centers and consulting
services) and services focusing on the research and management of clients' data
bases. 

At end-1999 Atento was already operating in Spain, Brazil, Chile, El Salvador,
Guatemala, Peru and Puerto Rico, and in 2000 it will continue to expand its
business to other countries such as Costa Rica, Venezuela, Argentina, Mexico,
Colombia, Morocco and several European countries. 

Atento's operating capacity is reflected in the number of positions of its call
centers, which in December 1999 stood at 13,500.


FOR MORE INFORMATION CONTACT:
Departamento de Relaciones con Inversores. 
Gran Via 28, planta 3a. 28013 Madrid. 
Tel: [phone]. 
Fax: [phone]. 
E-mail: [e-mail] 
E-mail: [e-mail] 
E-mail: [e-mail] 
www.telefonica.es 


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