European Commission decision

Telefonica SA
04 July 2007



PRESS RELEASE


The company has fully complied with the Spanish authority's regulation


TELEFONICA DISAGREES WITH EUROPEAN COMMISSION DECISION AND WILL  IMMEDIATELY
REQUEST ITS ANNULMENT BEFORE THE EUROPEAN COURTS


The EU decision is wholly unjustified given the satisfactory evolution of the
Spanish broadband market, publicly acknowledged by the national regulator.


Madrid, 4 July 2007.- Telefonica announced today its firm intention to lodge an
application for annulment of the European Commission ruling in connection with
the proceedings initiated against Telefonica de Espana for an alleged abuse of
dominance in the Spanish market for broadband Internet access. It will file its
request before the European Courts in the coming days.


Telefonica considers the Commission decision unjustified and disproportionate.
Telefonica contests the decision's legal, economical and market analysis, and
underlines that it has fully complied with the existing regulation imposed by
the Spanish authority, the Comision del Mercado de las Telecomunicaciones (CMT).
The company is convinced it has rigorously met the CMT's strict parameters
which, for the sake of competition and on an ex ante basis, regulate every
initiative taken by Telefonica to offer consumers a range of innovative and
varied products and services, both in terms of price and quality.


It is the first time that the Commission identifies an illegal margin squeeze
for a non-essential service such as wholesale indirect access, which does not
exist as a regulatory obligation in some of our neighbouring countries.
Moreover, the Commission's line of argument is totally contradictory, since high
retail prices by definition provide competitors with a margin.


Furthermore, as publicly acknowledged by the CMT, the Spanish broadband market
has seen increased competition, which makes the Commission decision even more
surprising. New operators have entered the market while Telefonica's share of
the broadband market has decreased steadily (from 95% in 2001 to the current
55%). To fine Telefonica for a breach of the competition rules is not
reasonable.


Spain has experienced an exponential growth in broadband connections between
2001 and 2005, in line with similar EU Member States. The European Commission
itself recognised this in its latest implementation report, stating that
broadband penetration in Spain is developing satisfactorily.


The Spanish broadband market is characterised by the presence of strong and
well-capitalised competitors, including cable operators who do not depend on
Telefonica's infrastructure to offer their services. This differentiates the
Spanish market from many other EU countries, further calling into doubt the
Commission's decision.

Legal uncertainty

Telefonica finds itself squeezed between two regulators - the national regulator
(CMT) and the European Commission - which are at odds with each other. As a
result, the decision by the Commission creates enormous uncertainty about the
role played by the regulatory bodies and the competition authorities in the
telecommunications sector, throwing into question the supervisory functions of
the Spanish authorities.

The legal uncertainty created by this decision will inevitably affect
Telefonica's and other operators' ability to launch new products and services,
with a direct impact on the entire European telecommunications sector to the
detriment of European consumers.


Telefonica will nevertheless continue to offer broadband services in the highly
competitive Spanish market, while at the same time maintaining its commitment to
guaranteeing fair competition and generating consumer benefits as core values
within Telefonica's corporate strategy.


The events date back to 2003, when Wanadoo (a company with public participation
of the French State) lodged a complaint before the European Commission against
Telefonica alleging an abuse of dominant position in the Spanish broadband
market through a so-called 'margin squeeze.' In February 2006, the European
Commission initiated formal proceedings against Telefonica de Espana on the
grounds of anti-competitive behaviour, without having considered the possibility
of imposing precautionary measures to remedy the situation. These proceedings
were initiated despite recurring and intense supervision by the Spanish
telecommunications regulator CMT, which has monitored and regulated the
company's pricing policy for broadband services without ever detecting a margin
squeeze. For this reason, Telefonica has legitimate reasons to believe it has
strictly adhered to the regulations governing fair competition and has acted in
good faith.



For further information

Press Office

Gran Via , 28 - 3a Planta

28013 MADRID

Tef: + 34 91 584 0920

Fax: + 34 91 532 7118

e-mail: [e-mail]

http:// www.telefonica.es/saladeprensa


                      This information is provided by RNS
            The company news service from the London Stock Exchange