Re Agreement

Telefonica SA
25 January 2001


Telefonica, S.A. and Telefonica Moviles S.A., in accordance with that set forth
in article 82 of the Stock Market Law and Circular Letter 14/1998 of December
28th, hereby announce the following to the National Spanish Securities
Commission (CNMV).

                              SIGNIFICANT EVENT

Telefonica and Portugal Telecom have today reached an agreement by which both
companies undertake the commitment to channel all the mobile telephony assets
that the two groups currently hold or may, at a future date, hold in Brazil,
into a joint venture to be incorporated as a subsidiary of both Telefonica
Moviles and Portugal Telecom Movais, and which will be jointly managed through
this new subsidiary.

The execution of this agreement, as well as the schedule to be followed, are
subject to the fulfilling of the conditions imposed by the Brazilian and
community regulatory framework, and the valuation processes to be carried out on
the asset.

Likewise both parties have expressed their interests in increasing their current
reciprocal participations, the development of which is also subject to the
fulfilling of the corresponding regulatory and statutory conditions.

'Telefonica S.A.' is, as always, at the entire disposal of the Spanish National
Securities Market Commission in order to provide any clarification or additional
information that should be requested.

PORTUGAL TELECOM AND TELEFONICA JOIN FORCES IN BRAZIL TO CREATE SOUTH AMERICA'S
LARGEST MOBILE PHONE OPERATOR

- Portugal Telecom ('PT') and Telefonica announced today the formation of a
US$10Bn Strategic Joint Venture ('JV') for mobile services in Brazil.

- The JV will combine, to the extent that Brazilian regulations permit, all of 
the two partner's existing mobile phone assets in Brazil, currently representing
9.3 million customers and will be Latin America's largest mobile operator.

- The JV will cover 70% of Brazil's GDP and a population of over 94 million. 
Currently the JV has market shares of more than 60% in the areas where it
operates.

- The JV will allow the partners to dedicate resources to further business      
development in the region, improving their overall financial profile.

- The JV is expected to bring about significant synergies in operations,
marketing and customer care.

- The JV will be owned 50/50 and will have joint management and equal Board 
Representation. PT will appoint the CEO and Telefonica the Chairman.

- As part of this agreement, and pending approval at the PT AGM scheduled for
23rd April, Telefonica is expected to increase its stake in Portugal Telecom to
as much as 10% through secondary market purchases. In addition, PT is
considering the possibility of increasing its holding in Telefonica to 1.5%.

Lisbon/Madrid/Sao Paulo, 24 January 2001 - Portugal Telecom and Telefonica  
today announced the signing of a definitive agreement to create a Joint Venture 
('JV') combining all their assets in mobile telephony in Brazil as soon as 
possible, subject to obtaining necessary waivers from the relevant regulatory
authorities (ANATEL).

Francisco Murteira Nabo, Chairman of Portugal Telecom, said 'Our signing today 
of an agreement forming a JV with Telefonica, to manage our combined interests
in mobile operations in Brazil marks the most significant step yet in the 
consolidation of the Brazilian mobile industry. The new joint venture will start
life as soon as liberalisation allows, and will be the largest Mobile company in
Latin America from day one. PT Group and Telefonica have agreed to combine
forces to fund the aggressive expansion of this new company to ensure that it
capitalises on its leading market position.  Furthermore, Telefonica has agreed
to cement this relationship with the purchase of a further 5% of PT Group shares
to take its shareholding to 10% and, potentially, to invest directly in our
mobile holding company PT Movies. With this strengthened alliance and new joint
venture, PT Group will work with Telefonica to further consolidate mobile
activities in Brazil and create one of the world's top ten cellular companies
over the next five years'.

Cesar Alierta, Chairman of Telefonica, S.A. today said: 'At a time when a new 
stage is opening in mobile telephony in Brazil, Portugal Telecom and Telefonica 
share the same vision of the development of the market.  As a result, we will
become the undisputed leader in the sector in Brazil and the leading mobile
phone operator in South America. The creation of this joint venture, which will 
be developed in accordance with Brazilian regulatory norms, underscores the
confidence which Portugal Telecom and Telefonica have in Brazil as a strategic
market and is the fruit of our working together in recent years. This global
accord, which also includes an increase in the shareholding of Telefonica in 
Portugal Telecom, strengthens the relations and the alliance between the two 
companies and is a decisive step in the process which is taking place in the
international communications sector.'

The JV, to be managed by PT Moveis and Telefonica Moviles, will be the largest 
cellular operator in Brazil and Latin America, with 9.3 million clients under
management and a potential market of 94 million inhabitants. The second-largest 
operator in Brazil manages approximately 4 million clients.  The joint venture
operates in areas accounting for over 70% of the country's total GDP and
currently has a market share of over 60% in these areas.

The joint venture will bring together the stakes of Portugal Telecom in Telesp 
Celular (Sao Paulo), Global Telecom (Santa Catarina and Parana) and CRT Celular
(Rio Grande do Sul); and those of Telefonica Moviles in Tele Sudeste Celular
(Rio de Janeiro and Espiritu Santo), CRT Celular (Rio Grande do Sul) as  well as
Tele Leste Celular (In Bahia and Sergipe, subject to approval by the partners).

The JV will be strongly capitalised from its foundation and has the full support
of PT and Telefonica to ensure it can aggressively pursue a business plan
centred on market share gains, exponential expansion of the subscriber base,
leadership in the launching of new services, wireless data and mobile internet
access.

PT and Telefonica strongly believe that the inevitable consolidation of the
Brazilian mobile industry will create significant synergies and shareholder
value. In announcing their intention to form a joint venture which will create 
the largest mobile company in Brazil and providing for this new entity to have
adequate capital, the companies have created the natural consolidator in this 
market. The unmatched scale of  the joint venture ensures PT and Telefonica are
in a position to reinforce their market leadership and provide superior returns
to their shareholders.

The parties are now engaged in the detailed work remaining to, amongst others, 
quantify the synergies from the combination of PT and Telefonica's mobile
activities in Brazil. The parties intend to take advantage of the leading
positions of Telefonica Moviles and Portugal Moveis in the development of new 
mobile telephone services in Brazil, such as the launching of the first WAP
services in the country.

The new company will be owned 50/50 by the two partners and will have a Board of
Directors consisting of six members. Three of them, including the Chairman, will
be appointed by Telefonica. The other three, including the vice-chairman, will
be named by Portugal Telecom, which will also name the Chief Executive Officer
(CEO). Telefonica will appoint the Chief Financial Officer of the company.

The two partners are confident that the effective combination of their cellular 
businesses in Brazil will take place in the shortest period of time, following
publication of regulation allowing migration of current cellular concessionaires
(SMC) into PCS authorizations (SMP) and after preliminary consultation with
ANATEL.

As part of this agreement, and pending approval at the PT AGM  scheduled for 
23rd April, Telefonica is expected to increase its stake in Portugal Telecom to
10% through secondary market purchases.