Exchange Contract Signed

Telefonica SA
20 July 2000


'TELEFONICA, S.A.', in accordance with that stated in article 82 of the Spanish
Stock Market Law and that set forth in the Circular Letter 14/1998 of the
Spanish Securities Commission of December 28th, 1998, hereby announces the
following:


                             SIGNIFICANT EVENT

'Telefonica Internacional, S.A.' (TISA) -a wholly-owned 'Telefonica, S.A.'
subsidiary- and 'Portugal Telecom, S.A.' have today signed an Exchange Contract
by which, once authorisation has been granted by the Brazilian regulatory
authority ANATEL,

        a) PT will transfer to TISA the share participation that it, directly   
          or indirectly, holds in the controlling holding company of the        
         operator 'Telecomunicacoes de Sao Paulo, S.A.' (Telesp), to be         
        precise, 23 per cent of the share capital of 'SP Telecomunicacoes       
       Holding, S.A.'; and

        b) TISA will transfer to PT the share participation that it, directly   
          or indirectly, holds in the controlling holding company of the        
         operator 'Telesp Celular, S.A.', to be precise, 35.8 per cent of the   
        share capital of 'Portelcom Participacoes, S.A.'.

        c) TISA will also pay PT the amount of $US 95,882,000 in the            
          installments set forth in the aforementioned Contract.

This operation comes within Telefonica strategy of increasing its share
participation in the Operators whose management it already controls.

'Telefonica, S.A.' is, as always, at the entire disposal of the Spanish National
Securities Commission to provide any further information that should be
required.

Madrid, July 19th, 2000

Spanish National Securities Commission
-Madrid-