Exchange procedure

Telefonica SA
24 July 2006


TELEFONICA, S.A. and TELEFONICA MOVILES, S.A., as provided in article 82 of
the Spanish Securities Market Act (Ley del Mercado de Valores), hereby reports
the following



                              SIGNIFICANT EVENT

Pursuant to the provisions of the absorption Merger Plan of TELEFONICA MOVILES,
S.A. (TELEFONICA MOVILES) by TELEFONICA, S.A. (TELEFONICA) and in accordance
with the resolutions passed at the General Shareholders' Meetings of both
companies held on June 20, 2006 and June 21, 2006, respectively, publication is
hereby made of the rules and procedures for the exchange of shares of TELEFONICA
MOVILES for shares of TELEFONICA, as well as for the exchange of American
Depositary Shares (ADSs) of TELEFONICA MOVILES.



I. Rules and Procedure for the Exchange of Shares of TELEFONICA MOVILES for
Shares of TELEFONICA

1. Treasury Shares to be Delivered by TELEFONICA

In order to satisfy the merger exchange, TELEFONICA will deliver treasury shares
to the shareholders of TELEFONICA MOVILES pursuant to the exchange ratio fixed
in the Merger Plan of four (4) shares of TELEFONICA, each having a par value of
one (€ 1) Euro, for every five (5) shares of TELEFONICA MOVILES, each
having a par value of fifty (€ 0.50) Euro cents, without any additional
cash compensation. TELEFONICA will not issue any new shares for such purpose
and, therefore, will not increase its share capital as a result of the merger.

By application of the provisions of Section 249 of the Business Corporations Law
(Ley de Sociedades Anonimas), shares of TELEFONICA MOVILES that are held by
TELEFONICA MOVILES, TELEFONICA or other persons acting in their own name but on
behalf of these companies will not participate in the exchange and will be
cancelled and voided. Given that there are 4,025,120,881 shares of TELEFONICA
MOVILES affected by these provisions and that the entirety of its capital stock
is represented by 4,330,550,896 shares, the number of shares of TELEFONICA
MOVILES that will be involved in the exchange is 305,430,015 shares, each having
a par value of fifty (€ 0.50) Euro cents. Based on the foregoing,
TELEFONICA will deliver a total of 244,344,012 treasury shares, each having a
par value of one (€ 1) Euro, to satisfy the merger exchange pursuant to
the exchange ratio mentioned above.

Pursuant to the provisions of the Merger Plan and the resolutions adopted for
such purpose at the General Shareholders' Meetings of TELEFONICA and TELEFONICA
MOVILES, the exchange and delivery of TELEFONICA shares shall be performed
automatically in the manner set forth below.

2.   Procedure for the Exchange

2.1. Award of Shares of TELEFONICA

Those holders of TELEFONICA MOVILES shares that are recognized in the book-entry
records of the Sociedad de Gestion de los Sistemas de Registro, Compensacion y
Liquidacion de Valores, S.A.(Securities Registration, Clearing and Liquidation
Systems Management Company) (IBERCLEAR) and entities participating therein on
the date of registration of the merger instrument with the Commercial Registry
of Madrid shall have the right to receive TELEFONICA shares in accordance with
the exchange ratio established for the merger.

It is expected that the merger instrument will be recorded with the Commercial
Registry of Madrid on July 29, 2006 and, once the one month period for the
opposition of creditors has elapsed and the credits of those who opposed the
merger, if any, have been guaranteed, Friday, July 28, 2006 (the Reference Date)
will therefore be the last day of trading on the Spanish stock exchanges for
shares of TELEFONICA MOVILES, which shares will be cancelled as a result of the
merger.

2.2. Agent Entity

The entities participating in the merger have named Banco Bilbao Vizcaya
Argentaria, S.A. (the Agent Entity) as the entity in charge of all agency duties
relating to the exchange, through which ownership of the TELEFONICA MOVILES
shares must be substantiated in accordance with the relevant operative rules and
through which the procedures, if any, appropriate for the best execution of the
exchange must be handled.

2.3. Procedure for the Acquisition of Odd-Lots

Pursuant to the provisions of the Merger Plan, shareholders holding shares that
represent a fraction of the number of TELEFONICA MOVILES shares set as the
exchange ratio may acquire or transfer shares in order to exchange them in
accordance with such exchange ratio. Each shareholder must individually make
timely decisions for such purpose to either purchase or sell TELEFONICA MOVILES
shares in the market in order to reach the number of TELEFONICA MOVILES shares
that are a multiple of five (5).

Without prejudice to the foregoing, and pursuant to the provisions of the Merger
Plan, the companies participating in the merger have agreed to establish a
mechanism designed to facilitate the exchange with those TELEFONICA MOVILES
shareholders who are holders of a number of shares that is not a multiple of
five (5).A  The basic terms and conditions of such mechanism are as follows:

(i)  Taking into account that the exchange ratio for the merger is
equivalent, in unitary terms, to the delivery of one TELEFONICA for every 1.25
shares of TELEFONICA MOVILES, as of the close of the last session for trading of
TELEFONICA MOVILES shares on the Spanish stock exchanges on the Reference Date,
each shareholder of TELEFONICA MOVILES who, by application of such unitary
exchange ratio of one TELEFONICA share for every 1.25 TELEFONICA MOVILES shares,
is entitled to receive a whole number of TELEFONICA shares, and who has an
odd-lot residue of less than 1.25 TELEFONICA MOVILES shares, may transfer such
residue to the Agent Entity, which will also act as the odd-lot agent
(hereinafter, the Odd-Lot Agent), all with the understanding that for the
calculation of the odd-lot corresponding to each shareholder position, all of
the TELEFONICA MOVILES shares forming such position will be included. Likewise,
a TELEFONICA MOVILES shareholder who is the owner of less than 1.25 TELEFONICA
MOVILES shares may transfer such shares to the Odd-Lot Agent.It shall be deemed
that each shareholder of TELEFONICA MOVILES accepts the odd-lot acquisition
system herein provided for, without having to remit instructions to the relevant
IBERCLEAR-participant, which shall inform the shareholder of the results of the
transaction once it has been concluded.

(ii) Given the agreed exchange ratio, it is hereby noted for the
record that, regardless of the number of shares comprising each shareholder'
position, the only circumstances under which the acquisition of odd-lots may
take place are the following:

Number of Telefonica Moviles Corresponding Telefonica    Odd-lot shares of Telefonica
           shares             shares by virtue of the   Moviles subject to the odd-lot
                                     exchange                 acquisition system
             1                           0                             1
             2                           1                           0.75
             3                           2                           0.50
             4                           3                           0.25
             5                           4                             0

Therefore, in any shareholder position, an odd-lot will range between a minimum
of 0.25 TELEFONICA MOVILES shares and a maximum of 1 TELEFONICA MOVILES share.
     
(iii) The acquisition price of the odd-lots will be determined based on
the arithmetical mean of the average weighted price of TELEFONICA MOVILES shares
on the Automated Quotation System (Sistema de Interconexion Bursatil)
(Continuous Market) for the last three trading sessions for TELEFONICA MOVILES
stock on the Spanish stock exchanges (which is expected to be the 26th, 27th and
28th days of July, 2006). If the odd-lot in question is one share of TELEFONICA
MOVILES, its acquisition price shall be the arithmetical mean of the average
weighted price of TELEFONICA MOVILES shares for the last three trading sessions
for TELEFONICA MOVILES; similarly, if the odd-lot in question is other than one
share, its acquisition price shall be calculated based on the same criterion set
forth herein, but in a proportion corresponding to the specific amount of the
odd-lot.

(iv)  The Odd-Lot Agent, acting on its own behalf, will acquire the
odd-lot shares remaining in the positions existing at the close of the trading
session for TELEFONICA MOVILES on the Reference Date.The shares or fractional
shares of TELEFONICA MOVILES acquired by the Odd-Lot Agent shall be exchanged
for the corresponding number of TELEFONICA shares as provided in the Merger
Plan.

2.4.  Performance of the Exchange

It is expected that, upon completion of the trading session on the Reference
Date, and after the acquisition of odd-lots by the Odd-Lot Agent, the exchange
of TELEFONICA MOVILES shares for TELEFONICA shares will be carried out after the
registration of the merger with the Commercial Registry of Madrid (expected to
occur on July 29, 2006).

The exchange will be carried out through entities participating in IBERCLEAR
that are depositaries of TELEFONICA MOVILES shares, in accordance with the
procedures established for the book-entry system, pursuant to the provisions of
Royal Decree 116/1992, of February 14 and, to the extent applicable, the
provisions of Section 59 of the Business Corporations Law.A

It is expected that on Monday, July 31, 2006, the beneficiaries of the exchange
will have possession of the TELEFONICA shares delivered in the exchange, after
the performance by IBERCLEAR of settlements that are customary in these types of
transactions.

II. Rules and Procedure for the Exchange of American Depositary Shares (ADSs)
and Delisting of the TELEFONICA MOVILES ADSs from the New York Stock Exchange.

As a result of the merger, the holders of TELEFONICA MOVILES ADSs will receive
four (4) ADSs of TELEFONICA for every fifteen (15) ADSs of TELEFONICA MOVILES
that they hold (or one (1) full TELEFONICA ADSs for every three point
seventy-five (3.75) TELEFONICA MOVILES ADSs surrendered).

The entities participating in the merger have instructed Citibank, N.A. as the
entity in charge of performing all the duties to execute the exchange in the
United States with respect to TELEFONICA MOVILES ADSs through which ownership of
the TELEFONICA MOVILES ADSs must be substantiated and through which the
procedures, if any, appropriate for the execution of the exchange must be
handled.

Furthermore, the holders of TELEFONICA MOVILES ADSs who are the holders of a
number of ADSs that is not a multiple of fifteen (15) or three point
seventy-five (3.75) will receive a cash payment (Cash-in-Lieu Payment) through
Citibank, N.A. corresponding to the net cash proceeds from the sale of
fractional entitlements to TELEFONICA ADSs.

As stated above, it is expected that, insofar as the last day for trading on the
Spanish Stock Exchanges of the TELEFONICA MOVILES shares is July 28, 2006 and
insofar as the merger instrument is registered with the Commercial Registry of
Madrid on July 29, 2006, the last day for trading of the TELEFONICA MOVILES ADSs
on the New York Stock Exchange is expected to be Friday, July 28, 2006.

In accordance with the above, it is also expected that, beginning on Monday,
July 31, 2006, holders of TELEFONICA MOVILES ADSs through The Depository Trust
Company (DTC) that are beneficiaries of the exchange will receive the TELEFONICA
ADSs delivered in the exchange, within the following two days, subject to the
performance of settlements that are customary in these types of
transactions.Holders of TELEFONICA MOVILES ADSs registered in their own name
will have the ability to present the American Depositary Receipts evidencing
their TELEFONICA MOVILES ADSs on and after July 29, 2006 and for a period of six
months, after which the TELEFONICA MOVILES ADR facility will be terminated and
the TELEFONICA ADSs being held by Citibank as depositary for the TELEFONICA
MOVILES ADSs will be sold. After the sale, persons presenting TELEFONICA MOVILES
American Depositary Receipts to Citibank will be entitled to the net cash
proceeds resulting from the sale of the applicable TELEFONICA ADSs (subject to
the applicable escheatment laws in the U.S.A.).

Finally, a request for deregistering the securities issued by TELEFONICA MOVILES
will be filed with the Securities and Exchange Commission, after which the
obligations to provide information to this entity under the Securities Exchange
Act of 1934 shall cease.





                                                      In Madrid, July 24th, 2006


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