Merger Plan TEF-TEM

Telefonica SA
29 March 2006




                      RAMIRO SANCHEZ DE LERIN GARCIA-OVIES
                             General Secretary and
                      Secretary of the Board of Directors
                              TELEFONICA, S.A.


TELEFONICA, S.A., pursuant to Section 82 of the Securities Market Act (Ley
del Mercado de Valores), hereby communicates the Securities Market National
Commission (Comision Nacional del Mercado de Valores) the following

                                 PUBLIC NOTICE

The Boards of Directors of TELEFONICA, S.A. and TELEFONICA MOVILES,
S.A. have agreed, in their meetings held today, the approval of a Merger Plan
regarding the merger between TELEFONICA MOVILES, S.A. and TELEFONICA,
S.A., resulting in the extinction, upon dissolution without liquidation of
TELEFONICA MOVILES, S.A., and the en bloc transmission of its net worth to
TELEFONICA, S.A., which shall acquire, by universal succession, all rights
and obligations of TELEFONICA MOVILES, S.A.


The exchange ratio for the shares of the companies participating in the merger,
determined on the basis of the current value of the corporate assets of
TELEFONICA MOVILES, S.A. and TELEFONICA, S.A., shall be (with no
supplemental cash compensation) of four (4) shares of TELEFONICA, S.A., each
having a face value of one euro (€1), for every five (5) shares of TELEFONICA
MOVILES, S.A., each having a face value of fifty cents of euro (€0,50).
Additionally, the Merger Plan sets forth the distribution by TELEFONICA
MOVILES, S.A. of an extraordinary dividend against the distributable reserves
for a gross amount of euro 0.085 per share and an interim dividend, also
extraordinary, against the result obtained from January 1 to March 28, 2006 for
a gross amount of euro 0.35 per share.

In compliance with the terms of Section 226 of the Commercial Registry
Regulations (Reglamento del Registro Mercantil), a copy of the Merger Plan,
enclosed herewith as Annex 1, shall be filed with the Commercial Registry of
Madrid.

Moreover, the press release to be distributed today by the Company is enclosed
herewith as Annex 2.

All the above-mentioned is communicated for the relevant purposes in Madrid, on
March 29, 2006.



ANNEX 1


 Free translation of the Merger Plan originally issued in Spanish. In the event
             of discrepancy, the Spanish-language version prevails.



                                  MERGER PLAN

                                       OF

                                TELEFONICA, S.A.

                                      AND

                            TELEFONICA MOVILES, S.A.






                             Madrid, March 29, 2006





Free translation of the Merger Plan originally issued in Spanish. In the event
of discrepancy, the Spanish-language version prevails.

For the purposes of the provisions of Sections 234, 235 and related sections of
the Corporations Act, approved by Royal Legislative Decree no. 1564/1989, of
December 22 (hereinafter referred to as the 'Corporations Act'), the
undersigned, in their capacity as members of the Boards of Directors of
TELEFONICA, S.A. (hereinafter referred to as 'TELEFONICA') and
TELEFONICA MOVILES, S.A. (hereinafter referred to as 'TELEFONICA
MOVILES'), have drawn up the present merger plan (hereinafter referred to as
the 'Merger Plan' or the 'Plan'), which shall be submitted for approval of the
shareholders at their respective General Shareholders' Meetings pursuant to the
provisions of Section 240 of the abovementioned Corporations Act. The contents
of such Plan are as follows.

1. INTRODUCTION


    1.1. Reasons for the merger

    The situation in the telecommunications markets in general and in the mobile
    telecommunications markets in particular, has varied significantly in the
    last years. These changes in the competition environment, technology and
    clients' needs have brought about the convenience to amend the strategic
    model on which to base the growth of the business that TELEFONICA and
    TELEFONICA MOVILES have been developing independently until now.

    Synthetically, these changes have been particularly apparent in the
    following areas:

     a. There have been major changes in the market and in competition, aimed at
        allowing the commercial distribution of combined offers including fixed
        and mobile telephony, broadband and audiovisual services that include
        (i) the appearance of great mobile operators that enjoy the benefits of
        scale and scope economies, (ii) the competition of operators that
        combine scale benefits with an integrated offer of fixed and mobile
        services, (iii) the appearance of several services providers without
        differentiating the network or device through which they are connecting,
        or (iv) regulatory changes, which are aimed at allowing the entry of new
        commercial competitors, thus encouraging the establishment of virtual
        mobile operators or increasing the broadband offer by making it
        compulsory to allow clients to use the access loop.

     b. Significant technological changes that can be summarised as follows: (i)
        a tendency to develop - fixed and mobile - telecommunication networks
        based on the so called 'IP Protocol', in such a way that both the
        establishment of communication networks and the development of related
        services will develop in this IP environment, thus removing most of the
        barriers existing between mobile and fixed network services enabling
        significant scale economies in the future investments of these networks,
        together with the corresponding savings in networks and platforms; (ii)
        the development of new hybrid terminals that can connect fixed and
        mobile networks and access all types of multimedia contents; and (iii)
        the development of third generation mobile networks with voice, data,
        internet and multimedia contents.

     c. Finally, from the demand side, clients are starting to see mobile phones
        as an indispensable item in their voice communications, not only in
        terms of mobility. Likewise, the fast penetration of the use of the
        Internet is producing a considerable growth of broadband technology and
        an increasing demand for these means of access to be available from
        fixed or mobile terminals indistinctly. In conclusion, increasingly more
        and more clients demand services and solutions for communication,
        information and entertainment in their fixed broadband access and at the
        same time they require equivalent services and solutions through mobile
        telecommunications.

    The changes mentioned above have had a fundamental impact in fixed and
    mobile operators in the last few years, forcing them to make their business
    plans and their strategies progress in order to acquire a higher flexibility
    which allows a faster adaptation to the market and, consequently, a higher
    competitivity and future growth.

    In this context, the Boards of Directors of TELEFONICA and TELEFONICA
    MOVILES believe that the focus in a strategy of higher orientation to
    clients' needs relating to communication, entertainment and information
    services as a whole and, more specifically, for each specific client
    segment, combining the communication platforms available in each market in
    the most optimum manner will produce a very positive effect, ensuring the
    growth in the penetration of mobile and fixed broadband services, and a
    higher clients' fidelity by means of a wider offer of new services and
    solutions, reinforcing the competitive position and allowing a greater
    acceleration of the growth pace, especially fundamental in markets with
    higher penetration. Likewise, it will increase the efficiency in the use of
    infrastructures, especially concerning the development of the fixed and
    mobile broadband, thus providing our clients with more possibilities of use
    and, therefore, more value to the shareholders of TELEFONICA and
    TELEFONICA M(C)MOVILES and facilitating the achievement of a profitable
    and sustainable growth.

    The merger proposal between TELEFONICA and TELEFONICA MOVILES
    responds to these needs of adapting their current business strategy to the
    new competitive environment described above. The Boards of Directors of both
    companies consider that the planned merger is the most efficient mechanism
    to face the new demands from clients, the technological change and the new
    competitive environment in the market, resulting into a higher value growth
    for the shareholders of TELEFONICA and TELEFONICA MOVILES, and
    allowing the shareholders of TELEFONICA MOVILES to become shareholders
    of TELEFONICA, thus consolidating the shareholding basis of both
    companies.

    1.2. Structure of the transaction


    The legal structure selected for the integration of businesses is a merger
    pursuant to the terms of Article 233 et. seq. of Corporations Law (Ley de
    Sociedades Anonimas). The planned merger will take place specifically
    through the acquisition of TELEFONICA MOVILES (acquired company) by
    TELEFONICA (acquiring company), with the termination, through dissolution
    without liquidation, of the former company, and the en bloc transmission of
    all its assets to the latter company, which, through universal succession,
    will acquire the rights and obligations of TELEFONICA MOVILES. As a
    result of the merger TELEFONICA MOVILES's shareholders will receive
    and exchange of shares of TELEFONICA, pursuant to the terms specified
    below.

    The merger of TELEFONICA MOVILES with the parent company of the
    TELEFONICA Group has notable advantages. The most pertinent ones consist
    of ensuring liquidity for TELEFONICA MOVILES's shareholders, inasmuch
    as, in exchange, they will receive shares of TELEFONICA, which probably
    are the most liquid ones on the Spanish market.

    It is also noted that, within the framework of the planned merger and as a
    transaction aimed at reorganising its participation, it is foreseen that
    TELEFONICA purchases on the date hereof the stake of nine hundred and
    twenty seven million nine hundred and seventeen thousand six hundred and
    twenty (927,917,620) shares of TELEFONICA MOVILES, which represent
    21.427% of its share capital, that is currently owned by TELEFONICA
    INTERNACIONAL, S.A. Unipersonal, a company which, in turn, is wholly owned
    by TELEFONICA. This intra-group transfer allows that the shareholding
    stake of TELEFONICA in TELEFONICA MOVILES becomes totally a direct
    participation, avoiding the creation of indirect treasury stock as a
    consequence of the merger. The transaction shall be carried out at the
    average market price of the TELEFONICA MOVILES shares from the date of
    the initial public offering until the date of execution of this Merger Plan
    or, where appropriate, at the price authorised by the Spanish Stock
    Exchanges Company (Sociedad de Bolsas).

2. IDENTIFICATION OF THE ENTITIES PARTICIPATING IN THE MERGER


    2.1. TELEFONICA (Acquiring Company)

    TELEFONICA, domiciled in Madrid, at calle Gran Via, no 28, which was
    incorporated for an indefinite time by means of a public deed executed
    before the Notary Public of Madrid Mr. Alejandro Rosello Pastor, on April
    19, 1924, with the number 141 of his files.

    TELEFONICA adjusted its by-laws to the Corporation Law in force by means
    of a public deed executed on July 10, 1990, before the Notary Public of
    Madrid Mr. Miguel Mestanza Fraguero.

    TELEFONICA is registered with the Commercial Registry of Madrid, at
    Volume 12.534, Folio 21, Page M-6164.

    TELEFONICA's Tax Identification number is A-28015865.

    2.2. TELEFONICA MOVILES (Acquiring Company)

    TELEFONICA MOVILES, domiciled in Madrid, at calle Goya 24, which was
    incorporated for an indefinite time by means of a public deed executed
    before the Notary Public of Madrid Mr. Jose Antonio Escartin, on February
    14, 2000, with the number 582 of his files.

    TELEFONICA MOVILES is registered with the Commercial Registry of
    Madrid, at Volume 14,837, Folio 155 of Section 8, Page M-246786.

    TELEFONICA MOVILES's Tax Identification number is A-82573759.

3. MERGER EXCHANGE RATIO

The exchange ratio for the shares of the entities participating in the merger,
which was determined on the basis of the current value of the corporate assets
of TELEFONICA and TELEFONICA MOVILES, will be as described hereinafter
(with no supplemental cash compensation):


    Four (4) shares of TELEFONICA, each having a face value of one euro (€1),
    for every five (5) shares of TELEFONICA MOVILES, each having a face
    value of fifty cents of euro (€0,50).

The determination of the exchange ratio has taken into consideration the
dividends that both companies are expected to distribute, to which reference is
made in Section 8 below.

Credit Suisse Securities (Europe) Limited, as TELEFONICA's financial advisor
for this transaction, has expressed to the company's Board of Directors in its
fairness opinion that the agreed-upon exchange ratio is equitable for
TELEFONICA's shareholders. For TELEFONICA MOVILES's part, Morgan
Stanley & Co. Limited (financial advisor and assessor for this transaction) and
Lehman Brothers Europe Limited (assessor for this transaction), have expressed
to TELEFONICA MOVILES's Board of Directors in its fairness opinion that
the agreed-upon exchange ratio is equitable for TELEFONICA MOVILES's
shareholders other than its majority shareholder, TELEFONICA.

4. MERGER BALANCE SHEETS

For the purposes set forth in Section 239.1 of the Corporations Act, the balance
sheets for the merger shall be deemed to be the balance sheets of TELEFONICA
and TELEFONICA MOVILES as of December 31, 2005. Such balance sheets have
been prepared by the respective Boards of Directors on February 28 and 27,
respectively, have been duly verified by the auditors of both companies and will
be submitted for the approval of the shareholders at the General Shareholders'
Meetings of each of the companies that must decide on the merger, prior to the
adoption of the merger resolution itself.

5. PROCEDURE FOR THE EXCHANGE OF SHARES


    The procedure for the exchange of shares of TELEFONICA MOVILES for
    shares of TELEFONICA shall be as follows:


         a. Once the merger has been approved at the General Shareholders'
            Meetings of both companies, the equivalent documentation referred to
            in Sections 26.1 d), 40.1 d) and related provisions of the Royal
            Decree 1310/2005, dated November 4, has been filed with the Comision
            Nacional del Mercado de Valores (the Spanish National Securities
            Commission, hereinafter referred to as the 'CNMV'), and the merger
            public deed has been recorded with the Commercial Registry of
            Madrid, the TELEFONICA MOVILES shares will be exchanged for
            TELEFONICA shares.

         b. The exchange will take place beginning on the date indicated in the
            announcements to be published in one of the widely-circulated daily
            newspapers in Madrid, in the Official Gazettes of the Spanish stock
            exchanges and, as the case may be, in the Official Gazette of the
            Commercial Registry. A financial institution shall be appointed to
            act as an Agent for such purpose, and such institution shall be
            named in the above-mentioned announcements.

         c. The exchange of the TELEFONICA MOVILES shares for TELEFONICA
            shares will take place through the participants in Sociedad de
            Gestion de los Sistemas de Registro, Compensacion y Liquidacion de
            Valores, S.A. (Securities Registration, Clearing, and Liquidation
            Systems Management Company, also referred to as Iberclear) that are
            depositaries thereof, in accordance with the procedures established
            for the book-entry system, pursuant to the provisions of Royal
            Decree no. 116/1992, of February 14, and with the application of the
            provisions of Section 59 of the Corporations Act, to the extent
            applicable.

         d. Shareholders who hold shares representing a fraction of the number of
            TELEFONICA MOVILES shares designated as the exchange ratio may
            purchase or transfer shares in order to exchange them in accordance
            with such exchange ratio. Notwithstanding the foregoing, the
            companies participating in the merger may establish mechanisms for
            the purpose of facilitating the implementation of the exchange for
            those TELEFONICA MOVILES shareholders who own a number of
            shares which, according to the merger ratio, will not entitle them
            to receive a whole number of shares of TELEFONICA, including the
            appointment of a Fractional Agent.

         e. As a result of the merger, the TELEFONICA MOVILES shares will
            become null and void.

It is noted for the record that, as of the date of this Plan, TELEFONICA is
the holder, either directly or indirectly, of four thousand and three million
nine hundred thousand seven hundred and forty nine (4,003,900,749) TELEFONICA
MOVILES shares, representing 92.457% of its share capital and that said
participation, as set forth in Section 1.2 above, will be entirely direct on the
date of execution of the merger. Therefore, pursuant to the provisions of
Section 249 of the Corporations Act and of the regulations governing treasury
stock, all the mentioned shares of TELEFONICA MOVILES that will be held by
TELEFONICA will not be exchanged for shares of TELEFONICA.

In addition, it is noted for the record that TELEFONICA MOVILES holds up
to date one thousand five hundred and ninety nine (1,599) of its own shares in
treasury.

Additionally, regarding the hedging of TELEFONICA MOVILES's stock options
plan (MOS Plan), TELEFONICA MOVILES has a call option over twenty million
nine hundred fifty seven thousand seven hundred and eighty four (20,957,784)
shares of TELEFONICA MOVILES (the 'Hedging Shares') owned by Caja de
Ahorros y Pensiones de Barcelona and Banco Bilbao Vizcaya Argentaria, S.A.,
which were subscribed by such institutions in the terms of the reduced
informative prospectus verified by the CNMV on September 28, 2001. MOS Plan
ended on last January 3, 2006 and is currently under liquidation, which will
conclude before the execution of the projected merger, without prejudice of
which TELEFONICA will succeed TELEFONICA MOVILES in any pending
obligation resulting from the above-mentioned liquidation. TELEFONICA
MOVILES will use the number of Hedging Shares required for the liquidation of
MOS Plan and the rest will be acquired by TELEFONICA MOVILES by exercise
of its call option against the above-mentioned financial institutions.

TELEFONICA MOVILES's current shares in treasury, as well as those that may
be acquired by TELEFONICA MOVILES through the execution of the
above-mentioned call option (at the most, in this latter case, 20,957,784
shares) will not be part of the exchange, in compliance with the provisions of
Section 249 of the Corporations Act and related provisions.

6. INCREASE IN TELEFONICA'S SHARE CAPITAL

TELEFONICA will increase its share capital by the exact amount needed to make
the exchange for TELEFONICA MOVILES shares in accordance with the exchange
equation established in this Merger Plan.

The increase will be carried out through the issuance of a precise number of
shares, each having a face value of one euro (€1), belonging to the same single
class and series as the current TELEFONICA shares, as represented by
book-entry accounts, with the application, in any event, of the provisions of
Section 249 of the Corporations Act. In particular, the TELEFONICA MOVILES
shares controlled by TELEFONICA will not be exchanged, and will be retired.

The maximum amount of the capital increase to be carried out by TELEFONICA
pursuant to the established exchange ratio may be reduced through the delivery
to TELEFONICA MOVILES shareholders of shares held in TELEFONICA's
treasury.

The difference between the net book value of the assets received by
TELEFONICA by virtue of the merger covered by this Plan and the face value of
the new shares issued by TELEFONICA - adjusted, if necessary, by the
proportion represented by the new shares of the total shares delivered in
exchange - shall be treated as additional paid-in capital.

Both the face value of such shares and the corresponding additional paid-in
capital shall be entirely paid-up as a result of the en bloc conveyance of the
corporate assets of TELEFONICA MOVILES to TELEFONICA, which, through a
general devise, shall acquire the rights and obligations of TELEFONICA
MOVILES.

7. DATE FROM WHICH THE SHARES DELIVERED IN EXCHANGE WILL CARRY THE RIGHT TO
PARTICIPATE IN CORPORATE EARNINGS

The shares which may be issued by TELEFONICA in connection with the capital
increase mentioned in Section 6 above, shall entitle their owners to participate
in the corporate earnings obtained by TELEFONICA starting on January 1, 2006.

Previously existing TELEFONICA shares and shares delivered or issued in
connection with the exchange will participate, with equal rights in proportion
to the face value of each share, in distributions made after the public deed of
merger is recorded with the Commercial Registry.

8. DIVIDENDS

For the preparation of this Merger Plan and the determination of the exchange
ratio indicated in Section 3 above, the Boards of Directors of TELEFONICA and
TELEFONICA MOVILES have taken into consideration the following
dividend-payment plans:


 a. TELEFONICA plans to make the following distributions:

     i. Payment of a euro 0.25 gross interim dividend per share, against the
        results of fiscal year ended on December 31, 2005, which will be paid on
        May 12, 2006. This dividend was approved by the Board of Directors at
        the meeting held on February 28, 2006 and communicated to the market on
        the same day.

        Those shareholders of TELEFONICA MOVILES who become shareholders
        of TELEFONICA upon the merger will not benefit from said dividend.
        Consequently, it has been taken into consideration for the determination
        of the exchange ratio.

    ii. As communicated to the market on February 28, 2006, the Board of
        Directors of TELEFONICA has the intention to distribute an additional
        gross dividend of euro 0.25 per share during year 2006, by means of the
        approval of the relevant corporate resolutions. This dividend will in
        any case be paid after the registration of the merger at the Commercial
        Registry of Madrid.

        In contrast to the dividend mentioned in paragraph (i) above, both the
        shareholders of TELEFONICA and those shareholders of TELEFONICA
        MOVILES who will become shareholders of TELEFONICA upon the merger
        will benefit from this dividend. Consequently, this has not been taken
        into consideration for the determination of the exchange ratio.

 b. TELEFONICA MOVILES plans to make the following distributions:


     i. Previously communicated dividend:

        Payment of a euro 0.205 gross dividend per share of TELEFONICA
        MOVILES, charged against distributable profit for year 2005 and
        distributable reserves. The proposal of such distribution was approved
        by the Board of Directors during its meeting held on February 27, 2006
        and communicated to the market on the following day. The effectiveness
        of the distribution is subject to the approval of the General
        Shareholders' Meeting of TELEFONICA MOVILES. Said dividend is
        expected to be paid on July 21, 2006 and, in any case, before the merger
        between TELEFONICA and TELEFONICA MOVILES is recorded with the
        Commercial Registry. Therefore, provided that only the shareholders of
        TELEFONICA MOVILES will benefit from such distribution, this has
        been taken into consideration for the determination of the exchange
        ratio.

    ii. Dividend proposed by the Board of Directors of TELEFONICA MOVILES
        for its approval by the General Shareholders' Meeting, within the
        framework of negotiation between TELEFONICA and TELEFONICA
        MOVILES, which effectiveness is subject to the approval of the
        projected merger by the General Shareholders' Meetings of both
        companies:

          • Payment of a euro 0.085 gross dividend per share of TELEFONICA
            MOVILES, charged against the issue premium reserve and other
            distributable reserves. The Board of Directors of TELEFONICA
            MOVILES, during its meeting held on March 29, 2006, has agreed to
            submit this proposal to the General Shareholders' Meeting of
            TELEFONICA MOVILES for its approval.

          • Payment of a euro 0.35 gross interim dividend per share of
            TELEFONICA MOVILES, charged against the results obtained from
            January 1 to March 28, 2006. The Board of Directors of TELEFONICA
            MOVILES, during its meeting held on March 29, 2006, has agreed to
            submit this proposal to the General Shareholders' Meeting of
            TELEFONICA MOVILES for its approval.


                        Both of the two above-mentioned proposals are also
                        subject to the approval of the merger by the General
                        Shareholders' Meetings of both companies. In the event
                        that such proposals are approved by the General
                        Shareholders' Meeting of TELEFONICA MOVILES, and
                        upon fulfillment of the above-mentioned condition, the
                        payment of the relevant dividends (jointly amounting to
                        0.435 gross euros per share of TELEFONICA MOVILES)
                        will be accomplished on the same date as the date
                        foreseen for the payment of the previously communicated
                        dividend, referred to in Section 8 (b) (i) above, i.e.
                        on July 21, 2006. Consequently, only TELEFONICA
                        MOVILES's shareholders will benefit from this
                        distribution and thus it has been taken into
                        consideration for the determination of the exchange
                        ratio.

9. DATE OF THE ACCOUNTING EFFECTS OF THE MERGER

January 1, 2006 is hereby established as the date from which the TELEFONICA
MOVILES transactions shall be deemed for accounting purposes to have taken
place on behalf of TELEFONICA.

10. SPECIAL RIGHTS

There are no special TELEFONICA MOVILES shares, nor any special rights,
other than the shares. Nevertheless, it is noted that, as stated in Section 5
above, TELEFONICA MOVILES's stock option plan (MOS Plan) ended on January
3, 2006 and is currently under liquidation, which will conclude prior to the
execution of the projected merger, without prejudice of which TELEFONICA will
succeed TELEFONICA MOVILES as the entity bound by any possible pending
obligation resulting from the above-mentioned liquidation.

The TELEFONICA shares that are delivered to the TELEFONICA MOVILES
shareholders pursuant to the merger contemplated in this Plan shall not give the
holders thereof any special rights whatsoever.

11. BENEFITS EXTENDED TO DIRECTORS AND INDEPENDENT EXPERTS

No benefits of any type shall be extended to the directors of any of the
entities participating in the merger, or to the independent expert who
participates in the merger process.

12. TAX REGULATIONS

The planned merger shall be governed by the tax regulations set forth in Chapter
VIII of Title VII, and by the second supplemental provision of the Consolidated
Text of the Corporate Income Tax Act, as approved by Royal Legislative Decree
no. 4/2004.

For this purpose, and pursuant to the provisions of Section 96 of the
abovementioned Consolidated Text, the merger transaction will be reported to the
Department of Economy and Finance in the manner established by the regulations.

13. BY-LAWS AMENDENTS

TELEFONICA's Board of Directors shall submit for the approval of the
shareholders at the General Shareholders' Meeting of TELEFONICA wherein the
merger is approved, the appropriate by-laws amendments pursuant to this Merger
Plan.

14. APPOINTMENT OF INDEPENDENT EXPERT

Pursuant to the provisions of Section 236 of the Corporations Act, the directors
of TELEFONICA and TELEFONICA MOVILES shall ask the Commercial Registry
of Madrid to appoint a single independent expert for the preparation of a single
report on this Merger Plan and on the assets contributed by TELEFONICA
MOVILES to TELEFONICA as a result of the merger.

15. ADMINISTRATIVE AUTHORIZATIONS

The effectiveness of the planned merger shall be subject to the provision of
notices and to the acquisition of the applicable relevant authorizations and
registrations in Spain and in the other jurisdictions in which both companies
are present.

Pursuant to the provisions of Section 234 of the Corporations Act, the directors
of TELEFONICA and TELEFONICA MOVILES whose names appear below have
signed and, through their signature, authenticated, this Merger Plan, in the
form of three (3) original specimens, of identical form and content, which have
been approved by the Boards of Directors of TELEFONICA and of TELEFONICA
MOVILES on March 29, 2006.



                   BOARD OF DIRECTORS OF TELEFONICA, S.A.




_/s/ Cesar Alierta Izuel                                        /s/Isidro Faine Casas
Mr. Cesar Alierta Izuel                                         Mr. Isidro Faine Casas




/s/ Gregorio Villalabeitia Galarraga                            /s/ David Arculus
Mr. Gregorio Villalabeitia Galarraga                            Mr. David Arculus




/s/ Carlos Colomer Casellas                                     /s/ Alfonso Ferrari Herrero
Mr. Carlos Colomer Casellas                                     Mr. Alfonso Ferrari Herrero




/s/ Gonzalo Hinojosa Fernandez de Angulo                        /s/ Julio Linares Lopez
Mr. Gonzalo Hinojosa Fernandez de Angulo                        Mr. Julio Linares Lopez




/s/ Vitalino Manuel Nafria Aznar                                /s/ Enrique Used Aznar
Mr. Vitalino Manuel Nafria Aznar                                Mr. Enrique Used Aznar




/s/ Mario E. Vazquez
Mr. Mario E. Vazquez








It is noted for the record that the Directors Messrs. Jose Fernando de Almansa
Moreno-Barreda, Maximino Carpio Garcia, Luis Lada Diaz, Antonio Massanell
Lavilla and Antonio Viana-Baptista have abstained from participating in the
deliberations and voting on the Merger Plan because they believe that they are
subject to a potential conflict of interest. For this reason their signatures do
not appear in this document.

In addition, it is noted for the record that the Directors Messrs. Pablo Isla
Alvarez de Tejera and Peter Erskine did not physically attend the meeting at
which this Merger Plan was approved. Mr. Pablo Isla Alvarez de Tejera was
represented by Cesar Alierta Izuel and Mr. Peter Erskine attended the meeting
through video-conference. For this reason, their signatures also do not appear
in this document.




              BOARD OF DIRECTORS OF TELEFONICA MOVILES, S.A.
                                                      (He does not sign due to conflict of interest)
                                                      __________________________
                                                      D. Enrique Corominas Vila

/s/ Antonio Viana- Baptista
D. Antonio Viana-Baptista


(He does not sign due to conflict of interest)
__________________________
D. Luis Lada Diaz                                     /s/ Jose Maria Mas Millet
                                                      D. Jose Maria Mas Millet



(He does not sign due to conflict of interest)
_______________________________                       /s/ Lars M. Berg
D. Jose Maria Alvarez-Pallete Lopez                   D. Lars M. Berg
/s/ Miguel Canalejo Larrainzar
D. Miguel Canalejo Larrainzar
                                                      (He does not sign due to conflict of interest)
                                                      __________________________
                                                      D. Maximino Carpio Garcia


(He does not sign due to conflict of interest)        (He does not sign due to conflict of interest)
__________________________                            __________________________
D. Victor Goyenechea Fuentes                          D. Antonio Massanell Lavilla




/s/ Javier Echenique Landiribar                       /s/ Alfonso Merry del Val Gracie
D. Javier Echenique Landiribar                        D. Alfonso Merry del Val Gracie


(He does not sign due to conflict of interest)        (He does not sign due to conflict of interest)
__________________________                            __________________________________
D. Alejandro Burillo Azcarraga                        D. Fernando de Almansa Moreno-Barreda



It is noted for the record that the proprietary Directors appointed at the
request of Telefonica, S.A., i.e. Messrs. Corominas Vila, Lada Diaz,
Alvarez-Pallete Lopez, Carpio Garcia, Goyenechea Fuentes, Massanell Lavilla,
Burillo Azcarraga and Almansa Moreno-Barreda have abstained from participating
in the deliberations and voting on the merger plan, and consequently have not
signed it, because they believe that they are subject to a potential conflict of
interest. For this reason the signatures of Messrs. Corominas Vila, Lada Diaz,
Alvarez-Pallete Lopez, Carpio Garcia, Goyenechea Fuentes, Massanell Lavilla,
Burillo Azcarraga and Almansa Moreno-Barreda do not appear in this document.

In addition, it is noted for the record that Mr. Viana-Baptista, executive
Director of Telefonica Moviles, S.A., has adhered to the unanimous decision of
the independent Directors of Telefonica Moviles, S.A. and, consequently, has
signed the present Merger Plan.




ANNEX 2



                                                                          Nota de Prensa
                                                                          Press Release








29/03/06




THE BOARDS OF DIRECTORS OF TELEFONICA AND TELEFONICA MOVILES APPROVE
THE MERGER PLAN




Telefonica Moviles has accepted the proposed exchange ratio of 4 shares of
Telefonica for every 5 shares of Telefonica Moviles.


Prior to completion of the merger, Telefonica Moviles will also pay to its
shareholders two special cash dividends for a total amount of 0.435 Euro per
Telefonica Moviles share, in addition to the annual dividend of 0.205 Euro
already proposed. The total amount of these three dividends (0,64 euros per
share) will be paid on the 21st of July, before the exchange of the shares.


The merger with Telefonica Moviles will improve Telefonica's flexibility to
address future customer needs and facilitate further interaction between
business lines.




Madrid, March 29th 2006.- Following the proposal made on March 17th, 2006 by
Telefonica to Telefonica Moviles to begin negotiations aimed at achieving a
possible merger of both Companies, the Boards of Directors of Telefonica and
Telefonica Moviles each met today and decided to approve the merger plan.


The merger plan sets that the exchange ratio will be 4 shares of Telefonica of 1
Euro nominal value each for every 5 shares of Telefonica Moviles of 0.5 Euro
nominal value each. The transaction is intended to be executed with treasury
stock of Telefonica complemented by a capital increase.


In addition, and prior to completion of the transaction, Telefonica Moviles will
pay to its shareholders two special dividends for a total amount of 0.435 Euro
in cash per Telefonica Moviles share. These additional payments are subject to
the merger approval by both the General Shareholders Meetings of Telefonica
Moviles and Telefonica. Telefonica Moviles will pay these special dividends in
addition to the ordinary dividend of 0.205 Euro. The record payment date for all
these dividends (0,64 Euro per share) will be on the 21st of July 2006, before
the exchange of the shares.


Telefonica S.A. will also pay its annual dividend of 0.25 Euro on the 12th of
May 2006. Furthermore, the Board of Directors of Telefonica, as announced last
28th of February, has the intention to pay during the present fiscal year an
additional dividend of 0.25 Euro per share aimed to present Telefonica's
shareholders and to Telefonica Moviles's shareholders who became Telefonica's as
a result of the merger.


The transaction is another important step in Telefonica's strategic evolution.
The merger will improve Telefonica's current positioning and enhance its ability
to extract maximum value from its unique business platform, allow it to exploit
better the growth from providing innovative information, communication and
entertainment services to its customers and provide a more flexible Group
structure from which to address future customer needs for converged services and
other developments.


During the past five years, the telecom industry has rapidly evolved. New demand
drivers have emerged, with mobile becoming a daily need for people, increasingly
substituting the use of traditional fixed line services, and broadband access
more and more commonplace for all customers. Additional technology advances are
creating new opportunities oriented towards the development of all-IP networks
that allow efficient mobile and fixed broadband access in support of this
enhanced connectivity and new value-added services. At the same time, market
dynamics are becoming more challenging with fewer, larger players taking
advantage of scale benefits and focused on the provision of combined offerings,
but also as new niche players enter different growth sectors as regulation and
technology evolves.


This new context presents attractive growth opportunities to those companies
able to anticipate and rapidly adapt to industry changes and customer needs.
Telefonica has demonstrated a strong operating and financial track record in the
face of these challenges in the past. The merger with Telefonica Moviles will
enhance its potential to reach these objectives in the future and it will also
improve Telefonica's capacity to respond to the needs of all its clients, adding
value to Telefonica and Telefonica Moviles shareholders.





    Key dates in the merger process are as follows:

  • Mid-Late May - Merger documentation will be made available

  • Mid-Late June - Shareholder vote at AGM's of Telefonica and Telefonica
    Moviles

  • July 21st 2006 - Record date for Telefonica Moviles ordinary (0,205 euros
    per share) and special (0,435 euros per share) dividends

  • Early August - Closing




Para mas informacion / For further information                                  Tel: [phone]
Direccion de Comunicacion Corporativa     Tel: [phone]                 Fax: [phone]
                                                                          e-mail: [e-mail]
Press Office     Fax: [phone]                                  http://www.telefonica.es/saladeprensa
Gran Via, 28 - 3a Planta      e-mail: [e-mail]
28013 - MADRID



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