Capital Increases

Telefonica SA
19 February 2001


                              PRIOR COMMUNICATION

In accordance with that stated in articles 5.2. and 9 of Royal Decree 291/1992
of March 27th, regarding the Issuance and Public Offering of Securities, and in
order to verify the issue, we would like to inform you of the following:

The introduction of a new retribution scheme linked to the trading price of the
Company's shares, with the subscription to its shares and the entitlement to
options on its shares, coming under the name the 'TIES Programme',  aimed at
non-management personnel belonging to the  Telefonica  Group, required the
approval of two capital increases in the share capital of Telefonica, S.A.

The Annual General Shareholders' Meeting of 'Telefonica, S.A', held  on second
call on April 7th, 2000, resolved under the ninth resolution of its Agenda,  to
increase the share capital of the Company through the aforementioned two capital
increases. The Board of Directors on its meeting held on June 28th, 2000,
resolved to start the corresponding procedure in order to these capital
increases take place.

(i)  First capital increase ('Primera Ampliacion de Capital'): The Annual
General Shareholders' Meeting approved to increase the capital stock of
Telefonica with foreseen incomplete subscription and total exclusion of
the pre-emptive rights, through the issuance and listing of one million
one hundred and ninety-seven thousand and eight hundred and eighty
(1,197,880) new ordinary shares, of the same class and series as those
currently outstanding, with a par value of one (1) euro and with an issue
premium of four (4) euros each, thereby resulting in an issue price of five
(5) euro per share.

On November 16th, 2000, the Spanish National Securities Commission verified the
corresponding  abridged Prospectus regarding the first capital increase.  On
January 9th,  2001,  the  Spanish National Securities Commission registered  a
supplement to this Prospectus, in order to include the changes made to the TIES
Programme, approved by the Board of Telefonica, S.A. Subsequently, on February
14th, 2001, the first capital increase was executed, and on February 15, 2001,
the deed of this increase was recorded on the Madrid Mercantile Register. The
listing was verified on February 16th, 2001. Finally, 1,123,072 Telefonica, S.A.
shares of those issued in the first capital increase have been subscribed.

(ii) The second capital increase ('Segunda Ampliacion de Capital') should take
place in accordance with the aforementioned Shareholders' Meeting  resolution,
once the first increase has been executed.

The second capital increase, to which this Prior Communication refers, is for a
nominal amount of Euros 31,504,244 (hereinafter, the 'Increase') and the details
of this are as follows:


(a) Issuer

The Issuer is TELEFONICA S.A., with its registered head office in Madrid, Gran
Via 28 and its Fiscal Identification Number (N.I.F). A-28015865.

Telefonica, S.A. is registered in the Madrid Mercantile Register, in volume 
12,534,  Page 21, Sheet M-6,164, inscription 1,359, through the deed signed in
Madrid, on April 15th, 1999, before the notary Agustin Sanchez Jara, registered
under number 2,720.

(b) Nature and characteristics of the new shares

Amount of the Issue
-------------------
The General Ordinary  Shareholders' Meeting of Telefonica approved under the
ninth resolution of its Agenda a capital increase in the nominal amount of Euros
of thirty one million five hundred and four thousand and two hundred and
forty-four euros (31,504,244) through the issue and listing of the same number
of ordinary shares of the same class and series as those Company shares already
outstanding, and represented by book entries. These shares will be issued with 
a nominal value of one (1) Euro each and an issue premium of four (4) euros per
share, which results in an issue rate of five (5) euros.

Nature
------
The new shares will be ordinary shares, with the same class and series as  those
currently outstanding. As a result of this, these new  shares will  be  entitled
to the same political and economic  rights  as  the shares  already  outstanding
at the execution date.  Particularly,  the holders  of  the  new  shares will be
entitled to receive  interim  and final  dividends  paid to the shareholders of
Telefonica,  S.A.,  from the moment of subscription.

Representation
--------------
The newly issued shares will be represented by book entries registered by the
Settlement and Clearance Service (SCLV), the entity responsible for the carrying
of the accounts register.

Admission to trading
--------------------
Telefonica, S.A. will apply for the listing of these new  shares on the  four
Spanish Stock Exchanges,  Madrid, Barcelona, Bilbao and Valencia, (through the
Spanish Automated Quotation System). Likewise, the Company will apply  for 
their listing on the foreign  stock exchanges on which the Company's shares are
already traded.

c) Group of subscribers to whom the issue will be offered

The Increase exclusively aims to address the needs derived from the delivery of
the Stock Options included in the TIES Programme, under the terms and conditions
agreed by the Board of Telefonica, S.A. at its meeting held on June 28th, 2000.

In order to achieve this, all the shares issued in the Increase will be
subscribed and paid-in through cash payments made by the financial entities
Banco Bilbao Vizacaya Argentaria, S.A. (BBVA) and Caja de Ahorros y Pensiones  
de Barcelona.  La Caixa  ('La Caixa') (hereinafter the 'Subscibers').  The
Subscribers were appointed by the Board of Telefonica, S.A. at its meeting held
on June 28th, 2000. The Subscribers subscribe the increase on an equal ratio and
therefore each Subscriber will subscribe 15,752,122 shares.

Madrid February 16, 2001