Provision on 1999 Results

Telefonica SA
17 January 2000


     TELEFONICA, S.A. WILL CREATE A PROVISION OF PTAS 143 MILLION
                          AGAINST '99 RESULTS

On December 1st 1998, the Spanish telecommunications market became fully-
liberalised.  During the course of 1999, and particularly in the fourth
quarter of the year, certain regulatory measures were introduced whose most
immediate consequence has been that of speeding up the opening to competition of
Spain's basic telephony services.

Telefonica has analysed the impact of these measures on the return on certain
assets in which investments were made, taking into account the regulatory
environment regarding the fulfilment of the obligations in terms of the basic
telephony service, undertaken by the Company as a result of the 1991 State
Contract.  Therefore, the Company will create a provision of approximately  Ptas
143 billion after tax at the close of fiscal 1999, which principally  derives
from replacing assets and assets to be replaced, assets with no or little usage
due to the total or partial loss of customers, and assets whose  low
profitability does not permit returns.

The negative effect of the provision on the 1999 results, will be neutralised by
the positive extraordinary results obtained by the Company through the sale  of
certain financial assets.

The following points provide a breakdown of the most significant sales that have
taken place since October 1st 1999 to December 31st 1999.

On November 17th 1999, Terra Networks began trading on the stock market.  The
result of this operation for the Group amounted to approximately Ptas 83 billion
derived from the issue premium paid by the new shareholders.

On December 16th 1999, the participated company Infonet Services Corporation was
floated on the New York Stock Exchange. As a result of this operation, the Group
registered approximately Ptas 26 billion, reducing its stake to 14.35%.

In December 1999, the Group sold its participation in Recoletos Compania
Editorial S.A. to 'Pearson plc' for the amount of Ptas 30 billion.  The pre-tax
profit registered from this operation amounted to approximately Ptas 6.8
billion.

On December 12th 1999, Telefonica presented a claim against the Development 
Ministry demanding compensation from the Spanish government for the financial 
imbalance caused by the provision of fixed telephony services under the terms 
and conditions of the State Contract.  This imbalance is due to the introduction
of competition in the telecommunications sector, and particularly in fixed
telephony services, as there has been no rebalancing of tariff structures
applied to these services.  The amount of this claim has not yet been set,
although it is expected that once the State Contract terminates (in the first
half of 2000), the exact amount of this imbalance will be calculated.

Over the first few months of 1999, in certain Latin American countries where
Telefonica holds investments, there was an atmosphere of uncertainty and
instability (the devaluation of the Brazilian real and the risk of the 
devaluation of the Argentinean peso and other foreign currencies, a high degree
of tension in the market, etc.). It was decided that a policy of prudence should
be applied, and as a result, a provision to be charged to results was created to
the amount of approximately Ptas 60 billion, in order to hedge against possible
risks.

Over the last quarter of the year, and bearing in mind how the previously 
mentioned events have evolved (improved general economic climate and
particularly in Brazil, the stabilising of the financial markets and currencies,
 particularly in the cases of Brazil and Argentina), the Company has updated its
analysis and considers that, at the  close of the fiscal year, a part of the
aforementioned provision will not be needed, it will therefore proceed to return
approximately Ptas 30 billion to be credited to results.