Further re Cesky Telecom

Telefonica SA
12 April 2005



Press Release




12/04/2005



TELEFONICA AND THE CZECH GOVERNMENT SIGN THE CONTRACT FOR THE PURCHASE OF 
CESKY TELECOM



•         Cesar Alierta, Chairman of the Board and CEO of Telefonica, and
Stanislav Gross, Prime Minister of the Czech Republic, have presided over the
signing ceremony for the purchase of the Czech operator in Prague today.



•         With the acquisition of Cesky Telecom, Telefonica expands its
activities to a country with the second largest and healthiest economy among
last year's new European Union members.



•         The deal is a well-grounded acquisition of an integrated operator with
a leading position in its market, providing attractive financial returns for
Telefonica's shareholders from the very beginning.



•         The acquisition of Cesky Telecom will increase Telefonica's customers
worldwide to more than 130 million.



Prague, April 12th, 2005.- Cesar Alierta, Telefonica's Chairman and CEO of the
Board, and Stanislav Gross, Prime Minister of the Czech Republic, have presided
today over the signing ceremony for the acquisition of a 51.1% stake in Cesky
Telecom by the Spanish operator.  The contract has been signed six days after
the Czech Government unanimously approved the sale of Cesky Telecom to
Telefonica, following the recommendation of the Czech Privatisation Committee.


Well-grounded acquisition of a leading integrated operator in its market


The acquisition of Cesky Telecom further develops Telefonica's strategy of
organic growth complemented with selective acquisitions of fixed and/or mobile
telecommunication operators with strong positions in their respective markets.
The acquisition  allows Telefonica to benefit from increased economies of scale,
in order to further improve its competitive position and its return on
operations.



Cesky Telecom is the leading operator in fixed and mobile services in the Czech
Republic, with an edge over its competitors thanks to being the sole integrated
operator in its market. In December 2004, the company operated 3.4 million fixed
lines and had 4.6 million mobile subscribers. Last year's turnover amounted to
EUR 1,948 million, with an EBITDA of EUR 911 million and a 46.8%  margin .



It is the most profitable and efficient operator in the region, with low
indebtedness and attractive credit ratings (S&P rating: A-, Moody's rating:
Baa1).

Given its high and stable margins, significant cash generation and relative size
compared to Telefonica, the acquisition of Cesky Telecom is a low-risk
transaction.



Telefonica supports the plans laid out by Cesky Telecom's successful management
team, and is confident that the integration of the company into a group with
global presence and experience will bring synergies and higher efficiency.
Telefonica will particularly support Cesky Telecom in developing and capturing
the high growth potential of the Czech broadband and 3rd generation markets.



Financially attractive deal for Telefonica shareholders



The acquisition of the 51.1% of Cesky Telecom amounts to EUR 2,746 million;
payable in euros, at an exchange rate of CZK 30.09 per euro. The price per share
(CZK 502) was 20.8% higher than the company's trading price at closing on the
day preceding the submission of bids and only 4.3% higher than the second
highest bid.



The price offered implies an acquisition multiple of 6.4 times EBITDA 04, which
could be further reduced to approximately 6.0 times after the compulsory tender
offer for up to the remaining 48.9% shares in the company.



The price of the tender offer,  to be decided in due course, will be set as the
highest of the following: 85% of the price paid for the 51.1% stake; the average
price of Cesky Telecom shares during the six months prior to closing; or a
valuation prepared by an independent expert(1).



The transaction will increase Telefonica's earnings per share by +0.3% in 2006
and +0.8% in 2007 and free cash flow to shareholders in the range of 2.5% - 3.0%
in 2006 and 2007. These value creation indicators are expected to be even more
favourable after the tender offer; earnings per share could increase by +1.0% in
2006 and +1.7% in 2007, with free cash flow increasing by approximately 5.0% -
5.5% in 2006 and in 2007.



Telefonica's remuneration to shareholders and its credit solvency is further
reinforced with the acquisition of an asset with high operating margins and
strong and growing cash generation.



Telefonica, third largest telecom operator worldwide



Telefonica, third largest telecom operator worldwide in terms of market
capitalisation and second largest integrated operator, is confident about the
growth potential of Cesky Telecom in its market, where it has maintained a
leading position in both fixed and mobile services. As a result of its
management policy, Cesky Telecom has shown excellent operating results, high
margins and presents a healthy financial situation.



Incorporating Cesky Telecom into the Telefonica Group is fully in line with
Telefonica's strategic goal of becoming the largest and best integrated
telecommunications company in the world by the year 2008. The acquisition of the
Czech operator will allow Telefonica to reach  more than 130 million customers
worldwide.



Cesar Alierta, Chairman and CEO of the Board of Telefonica, thanked the Czech
Government for the trust vested into the Spanish company and expressed
Telefonica's wish to contribute to the economic and social growth in the Czech
Republic through a sector as dynamic as telecommunications. 'We are delighted to
be able to include Cesky Telecom among our assets. It is a well-managed company
and we believe that our long-term experience in the industry will enable us to
capture its full potential in terms of growth and quality of services,' said
Cesar Alierta.



Integration schedule



The transaction is subject to the approval of regulatory and competition
authorities of the Czech Republic and the European Commission. This process is
expected to be completed within three months.



After the acquisition of the 51.1% stake, Telefonica will incorporate Cesky
Telecom's fixed and mobile activities into its own operations, in which
Telefonica has a leading position in the majority of the markets where it is
present.



After closing the acquisition of the 51.1% stake, and in compliance with the
Czech Republic legislation, Telefonica will launch a tender offer on the
remaining Cesky Telecom shares. The tender offer process is expected to be
finalised in the last quarter of 2005.



(1) Note: All estimates in this press release in relation to the tender offer
impacts are assuming a tender offer price equal to 85% of the price paid for the
51% stake, and assuming 100% acceptance in the tender offer.





For more information on TELEFONICA please refer to:

www.telefonica.es













For further information:

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