Re Capital Increase

Telefonica SA
11 January 2002


'TELEFONICA, S.A.', on behalf of whom and represented by Joaquin de Fuentes
Bardaji, Vice- Secretary of the Board of Directors of this same Company,
hereby announces the following:

As the Prospectus corresponding to the increase in the share capital of
'Telefonica, S.A.', to be charged to freely disposable reserves, has today
been verified and registered by the Spanish National Securities Market
Commission, by which 93,438,317 new ordinary Company shares, will be issued of
one single existing series, with a nominal value of 1.00 Euro each, to be
provided to the Company's shareholders totally free-of- charge, in the ratio
of one (1) new share for every fifty (50) held, Telefonica states its intetion
to publish the corresponding announcement of the capital increase in the
Official Gazette of the Mercantile Register of January 24th, 2002, thus
marking the start of the period of the free allocation of the new shares. The
period for the negotiation of the rights of free allocation will begin the
following day, January 25th, 2002.


The aforementioned official announcement is the following:


                               TELEFONICA, S.A.


         Share capital increase on account of distributable reserves




In compliance with Article 158 of the Law of Corporations, it is made public
that the Board of Directors of TELEFONICA, S.A. (hereinafter, 'TELEFONICA' or
the 'Company') under the authorisation granted in its favour by the Annual
General Shareholders' Meeting of the Company held on June 15th , 2001,
resolved by way of the resolutions adopted on December 19th ,2001 to execute
the resolution on the increase in the share capital of Telefonica, S.A. to be
charged to freely distributable reserves, to which A) and B) paragraphs of
point VI of the Agenda of the aforementioned Shareholders' Meeting, increasing
the Company's share capital by the amount of Euros 93,438,317 through the
issue of 93,438,317 new ordinary shares, which will be freely allocated to the
Company's shareholders in the proportion of one (1) new share for every fifty
(50) currently existing shares of the Company, with the following
characteristics:


        1.Face value of the new shares: The face value of each new share will
        be Euro 1.00.


2.Form: The new shares will be represented by book entries and will be ruled
by the regulations of the Securities Market, being the Spanish Securities
Settlement and Clearance Service (hereinafter the 'SCLV') the entity in charge
of the accounting records.


3.Type of issue: The issue price is par value, that is to say, Euro 1.00 per
share. The issue will be completely paid-up out of distributable reserves.


The allocation of the new shares is free of expenses and commissions.
Notwithstanding, the participating entities may apply, in accordance with the
current legislation in force, the commissions and expenses for the trading of
the free allocation rights.


4.Balance sheet on which the operation will be based: In compliance with that
provided for in article 157.2 of the Law of Corporations, this operation will
be based on the Balance sheet approved by the General Ordinary Shareholders'
Meeting held on June 15th, 2001, and referred to December 31st, 2000. The said
Balance sheet was duly verified by the Company's Accounts Auditor 'Arthur
Andersen y Cia. S. Com.' on February 28th , 2001.


5. Free allocation rights: TELEFONICA's shareholders who appear as such
according to the accounting records of the SCLV or its member entities
('entidades adheridas') at 24:00 on the day of publication at the Official
Gazette of the Mercantil Register ('Boletin Oficial del Registro Mercantil' or
'BORME') of this announcement (January 24th , 2002), will enjoy the right of
free allocation of the new shares in the proportion of one (1) new share for
every fifty (50) held.


In order to maintain the ratio of one (1) new share for every fifty (50) old
ones held, the Company has renounced 35 of the free allocation rights derived
from its treasury stock.

6. Period for the allocation and transfer of the rights of free allocation in
the Stock Exchange (hereinafter the 'Period of Free Allocation'):. The period
for the negotiation of the rights of free allocation on the Spanish Stock
Exchanges of Madrid, Barcelona, Bilbao and Valencia through the Automated
Quotation System , will begin on January 25th, 2002 (the following working day
after the day of the publication of this announcement) and will end, in any
event, on February 8th , 2002 .


7. Non allocated shares: Once the period of free allocation of the new shares
has ended, the shares which are not allocated for reasons not attributable to
TELEFONICA, will be kept in deposit at the disposal of such person who may
evidence his/her rightful ownership. Once three years have elapsed from the
end of the period of free allocation, the shares which are still pending
allocation may be sold according to that provided for in article 59 of the Law
of Corporations, on behalf and at the risk of the persons concerned. The
proceeds of this sale, once the expenses of this sale and the above mentioned
deposit are deduced, shall be deposited at the disposal of the persons
concerned at the Bank of Spain ('Banco de Espana') or at the General Deposit
Fund ('Caja general de Depositos').


8. Disbursement: The disbursement will be made in its entirety from the
disposable reserves (specifically it will be debited to the Revaluation
Reserve account, for the Regularization of Balance Sheets for the Fiscal Year
1986, executed under the provisions of article 3 of the Law of December 31st ,
1945), and will take place when the Company's competent governing body, once
the period of free allocation has ended, formally applies the reserves, in the
amount of the increase, to share capital.


9. Voting and economic rights: The new shares will entitle the shareholders,
from the date of their allocation, to the same rights as those of currently
existing TELEFONICA shares. The new shares will be entitled to receive any
dividends which could be paid from the date of their issue, including,
therefore, any dividends which may be paid out of profits for the fiscal year
that commences January 1st , 2001.


10. Issue prospectus: TELEFONICA has prepared a abridged informative
prospectus, in accordance with the requirements established under the Spanish
Securities Market Regulations, which has been verified and filed by the
Spanish National Securities Market Commission ('Comision Nacional del Mercado
de Valores') on January 10th , 2002, and is publicly available at TELEFONICA's
registered office (Gran Via 28, Madrid) and the Spanish National Securities
Market Commission.


11.Entities through which the allocation may be conducted: The allocation of
the new shares may be conducted through any entity member to the SCLV within
the period of free allocation.


Banco Bilbao Vizcaya Argentaria, S.A. will act as agent entity.


12. Listing on the Stock Exchange: The Company will apply for the listing of
the shares subject to this capital increase on the four Spanish Stock
Exchanges and on the Automated Quotation System ('Sistema de Interconexion
Bursatil'), as well as for listing on the foreign Stock Exchanges on while the
Company's shares are already traded, and their inclusion in the Stock Exchange
Automated Quotation System (SEAQ International).


Notwithstanding the foregoing, the applicable rules and regulations of the
respective countries in which the Company's shares are traded should be
considered, by virtue of the fact that the Company's shares are traded on the
stock exchanges of New York, London, Paris, Frankfurt, Tokyo, Buenos Aires,
Lima, and Sao Paulo.







                                                   Madrid, January 10th , 2002


                                The Vice - Secretary of the Board of Directors