Recommended Cash Offer

Telefonica SA
31 October 2005



FOR IMMEDIATE RELEASE

31 October 2005

Not for release, publication or distribution in whole or in part in or into the
                   United States, Canada, Australia or Japan


                             RECOMMENDED CASH OFFER

                  BY GOLDMAN SACHS INTERNATIONAL AND CITIGROUP

                           ON BEHALF OF TELEFONICA

                (OR A WHOLLY-OWNED SUBSIDIARY OF TELEFONICA)

                                     FOR O2

The Boards of Directors of Telefonica and O2 are pleased to announce today that
agreement has been reached on the terms of a recommended cash offer to be made
by Goldman Sachs International and Citigroup, on behalf of Telefonica, or a
wholly-owned subsidiary of Telefonica, to acquire the entire issued and to be
issued share capital of O2.  The Offer will be at 200 pence in cash for each O2
Share which values O2 at approximately £17.7 billion.

Highlights:

•    The combination with O2 is a logical step for Telefonica in pursuing its
strategic goal of providing its shareholders with both growth and cash returns.
Telefonica believes that the combination with O2 will:

-  accelerate Telefonica's superior growth profile relative to its peers

-  provide enhanced scale by entering two of Europe's largest markets,
   Germany and the UK, with critical mass

-  balance Telefonica's portfolio across businesses and regions

-  generate an estimated run-rate of EUR 293 million (£199 million) of
   quantified annual operating cost and capital expenditure synergies by 2008

-  be immediately accretive to earnings per share, cash earnings per share
   and free cash flow per share(1)

-  enable Telefonica to preserve its stated shareholder remuneration policy
   based on dividends and share buy backs

•   The Offer of 200 pence per O2 Share represents a premium of
approximately 22 per cent. over the middle market price of an O2 Share of 164.25
pence at the close of business on 28 October 2005, being the last dealing day
before this announcement.

•   O2 Shareholders will be entitled to receive an interim dividend for the
six months ended 30 September 2005 of 1.54 pence per O2 Share, which is expected
to be paid on 2 December 2005 to the registered holders of O2 Shares at the
close of business on 11 November 2005.

•   O2 will retain its existing brand and will continue to be based in the
UK.  O2's operating business will be led by the current management and Sir David
Arculus and Peter Erskine will join the Board of Directors of Telefonica.

•   The Directors of O2, who have been so advised by JPMorgan Cazenove and
Merrill Lynch, consider the terms of the Offer to be fair and reasonable.  In
providing advice to the Directors of O2, JPMorgan Cazenove and Merrill Lynch
have taken into account the commercial assessments of the Directors of O2.
Accordingly, the Directors of O2 unanimously intend to recommend holders of O2
Shares to accept the Offer as they have irrevocably undertaken so to do in
respect of their own aggregate beneficial shareholdings.  Merrill Lynch is
deemed to be a connected party to Telefonica.  As a result, only JPMorgan
Cazenove is acting as the independent financial adviser to O2 for the purposes
of providing independent advice to the Board of O2 on the Offer under Rule 3 of
the City Code.

•   Telefonica has received irrevocable undertakings to accept the Offer
from the Directors of O2 in respect of 2,820,573 O2 Shares in aggregate,
representing approximately 0.032 per cent. of O2's issued share capital.  These
undertakings will remain binding in the event of a higher competing offer.

•   A Loan Note Alternative of up to £1 billion will, subject to certain
conditions, be made available.

•   The acquisition will be implemented by way of the Offer unless
Telefonica elects to implement it by way of a Scheme of Arrangement.

The Offer is conditional, amongst other things, upon receiving the required
regulatory clearances.  Telefonica expects the Offer to complete in January
2006.  Further information on the terms and conditions to which the Offer will
be subject are set out in Appendix I and will be set out in the Offer
Documentation, which Telefonica expects to despatch to O2 Shareholders in
November.

The Chairman of Telefonica, Mr. Cesar Alierta said:

'O2 is an excellent company that, driven by a top class management team, has
been able to become one of the highest growth mobile operators in Europe. Its
integration in the Telefonica group will enhance our growth profile, it will
allow us to gain economies of scale, it will open the group to the two largest
European markets with sizeable critical mass and it will balance our exposure
across business and regions. This transaction will be accretive from year one,
it will allow us to preserve our shareholder remuneration policy and, in short,
it will reinforce Telefonica's strategic goal of offering the best combination
of growth and cash returns to our shareholders.'

Commenting on the Offer, Sir David Arculus, Chairman of O2, said:

'This Offer from Telefonica, which reflects the value created since demerger and
the potential of the O2 Group going forward, is an excellent opportunity for O2
Shareholders to realise significant value in cash now. The combination of O2 and
Telefonica will be a powerful force in international communications.  Our
successful brand will be retained and extended bringing benefits to both
customers and employees as part of an enlarged, strengthened group.'



Commenting on the Offer, Peter Erskine, the Chief Executive of O2, said:



'Since the emergence of O2 as a listed company in 2001, it has enjoyed
considerable operational success and, in the process, delivered real value to
shareholders. This transaction brings together two companies which are growing
strongly with highly complementary geographical activities.'



Goldman Sachs International and Citigroup are acting as financial advisers and
corporate brokers to Telefonica.  JPMorgan Cazenove and Merrill Lynch are acting
as financial advisers and corporate brokers to O2.

This summary should be read in conjunction with, and is subject to, the full
text of the following announcement. Appendix 2 of this announcement contains
definitions of certain terms used in this summary and the following
announcement. Appendix 3 of this announcement contains the sources and bases of
certain information used in this summary and in the following announcement.

There will be a call with analysts at 10a.m. London time (11a.m. Madrid time)
today (Monday 31 October 2005).

Dial in                       [phone]
                              [phone]

Replay Number                 UK:  [phone]         PIN: 685099#
Webcast                       http://www.Telefonica.es/investors



Enquiries:

Telefonica                                    Tel:  [phone]

Investor Relations Office                     Fax:  [phone]

Citigroup Global Markets Limited              Tel: [phone]

Mark Simonian

William Kennish

Matthew Smith


Goldman Sachs International - Madrid          Tel: [phone]

David Jimenez-Blanco

Juande Gomez-Villalba

Goldman Sachs International - London          Tel: [phone]

Luca Ferrari

Nick Reid

Phil Raper (Corporate Broking)

Hudson Sandler                                Tel:  [phone]

Andrew Hayes                                  Fax:  [phone]

Sandrine Gallien


O2


Richard Poston, Director Corporate Affairs    Tel: [phone]

David Nicholas                                Tel: [phone]

David Boyd                                    Tel: [phone]

John Crosse                                   Tel: [phone]

JPMorgan Cazenove                             Tel: [phone]

Charles Harman

Edward Banks

David Harvey-Evers

Merrill Lynch                                 Tel: [phone]

Philip Yates

Richard Taylor

Mark Astaire (Corporate Broking)



Goldman Sachs International, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for
Telefonica and no one else in connection with the matters described in this
announcement and is not advising any other person and accordingly will not be
responsible to any person other than Telefonica for providing the protections
afforded to clients of Goldman Sachs International or for providing advice in
relation to the matters described in this announcement.

Citigroup Global Markets Limited, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Telefonica and no one else in connection with the matters described in this
announcement and is not advising any other person and accordingly will not be
responsible to any person other than Telefonica for providing the protections
afforded to clients of Citigroup Global Markets Limited or for providing advice
in relation to the matters described in this announcement.

JPMorgan Cazenove, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is acting exclusively for O2 and no one else
in connection with the matters described in this announcement and is not
advising any other person and will not be responsible to any person other than
O2 for providing the protections afforded to clients of JPMorgan Cazenove or for
providing advice in relation to the matters described in this announcement.

Merrill Lynch is acting exclusively for O2 and no one else in connection with
the matters described in this announcement and is not advising any other person
and will not be responsible to any person other than O2 for providing the
protections afforded to clients of Merrill Lynch or for providing advice in
relation to the matters described in this announcement.

The Offer will not be made, directly or indirectly, in or into, or by use of the
mails of, or by any means or instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or any
facility of any securities exchange of, the United States, Canada, Australia or
Japan and will not be capable of acceptance by any such use, means,
instrumentality or facility or from within the United States, Canada, Australia
or Japan. Accordingly, neither this announcement nor the Offer Documentation is
being, and must not be, mailed or otherwise forwarded, transmitted, distributed
or sent in, into or from the United States, Canada, Australia or Japan.  Doing
so may render invalid any purported acceptance of the Offer. All O2 Shareholders
or other persons (including nominees, trustees or custodians) who would or
otherwise intend to, or may have a contractual or legal obligation to, forward
this announcement or the Offer Documentation to any jurisdiction outside the
United Kingdom should refrain from doing so and seek appropriate professional
advice before taking any action.

The Offer will be capable of acceptance only by persons outside the United
States. Offering materials with respect to this Offer will not be, and may not
be, distributed in or sent to the United States and may not be used for the
purpose of solicitation of an offer to purchase or sell any securities in the
United States.  Any tenders received from persons resident in the United States
or with United States mailing addresses will be rejected.

The Loan Notes have not been and will not be registered under the United States
Securities Act of 1933, as amended, or under the securities laws of any state of
the United States and are not and will not be registered under the securities
laws of any other country.  Therefore, the Loan Notes may not be offered, sold
or delivered, directly or indirectly, in the United States.  O2 Shareholders in
the United States, Canada, Australia or Japan or any other overseas jurisdiction
in respect of which the issue of Loan Notes to them would be unlawful will not
be entitled to elect to receive Loan Notes.

Any person who, acting alone or acting together with any person(s) pursuant to
an agreement or understanding (whether formal or informal) to acquire or control
securities of O2, owns or controls or becomes the owner or controller, directly
or indirectly, of one per cent. or more of any class of securities of O2 is
generally required under the provisions of Rule 8 of the City Code to notify a
Regulatory Information Service as specified in the Listing Rules and the Panel
by not later than 12:00 noon (London time) on the London business day following
the date of the transaction of every dealing in such securities during the offer
period to the date on which the Offer becomes or is declared unconditional in
all respects or lapses or is otherwise withdrawn (or, if implemented by way of
the Scheme of Arrangement, to the date of the relevant Court Meeting or the date
on which the Scheme of Arrangement is withdrawn). Dealings by Telefonica or O2
or by their respective 'associates' (as defined in the City Code) in any class
of securities of O2 until the end of such offer period must also be disclosed.
If you are in doubt as to the application of Rule 8 to you, please contact an
independent financial adviser authorised under the Financial Services and
Markets Act 2000, consult the Panel's website at www.thetakeoverpanel.org.uk or
contact the Panel on telephone number [phone]; fax [phone].
The above provisions reflect the disclosure requirements as at the date of this
announcement.  Revised disclosure requirements will apply with effect from 7
November 2005 which will require the public disclosure of dealing by persons
interested in one per cent. or more of any class of relevant securities in O2.
If in any doubt about the effect of the changes, you should visit the Panel's
website for further details of the revised disclosure requirements.

This document contains statements that constitute forward looking statements in
its general meaning and within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
document and include statements regarding the intent, belief or current
expectations of the customer base, estimates regarding future growth in the
different business lines and the global business, market share, financial
results and other aspects of the activity and situation relating to Telefonica.
The forward-looking statements in this document can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends', '
believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.



Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and actual results may differ materially from
those in the forward looking statements as a result of various factors.


FOR IMMEDIATE RELEASE

31 October 2005

Not for release, publication or distribution in whole or in part in or into the
                   United States, Canada, Australia or Japan



                             RECOMMENDED CASH OFFER

                  BY GOLDMAN SACHS INTERNATIONAL AND CITIGROUP

                           ON BEHALF OF TELEFONICA

                (OR A WHOLLY-OWNED SUBSIDIARY OF TELEFONICA)

                                     FOR O2

1.            Introduction

The Boards of Directors of Telefonica and O2 are pleased to announce today that
agreement has been reached on the terms of a recommended cash offer to be made
by Goldman Sachs International and Citigroup, on behalf of Telefonica, or a
wholly-owned subsidiary of Telefonica, to acquire the entire issued and to be
issued share capital of O2.  The Offer values each O2 Share at 200 pence and the
entire issued and to be issued share capital of O2 at approximately £17.7
billion.

The Offer, which is subject to the conditions and further terms set out below
(and in Appendix 1) and to be set out in the formal Offer Documentation when
issued, will be made on the following basis:

                for each O2 Share              200 pence in cash

The Offer represents a premium of approximately 22 per cent. over the middle
market price of an O2 Share of 164.25 pence at the close of business on 28
October 2005, being the last dealing day before this announcement.

O2 Shareholders will be entitled to receive an interim dividend for the six
months ended 30 September 2005, which will be 1.54 pence per O2 Share.

2.         The Loan Note Alternative

As an alternative to all or some of the cash consideration of 200 pence per O2
Share, holders of O2 Shares (other than certain Overseas Shareholders) who
validly accept the Offer may elect to receive Loan Notes on the following basis:

for every £1 of cash consideration                      £1 nominal of Loan Notes

The Loan Notes will be issued credited as fully paid in amounts and integral
multiples of £1 nominal and any fractional entitlements will be disregarded.
The Loan Notes will be issued by or guaranteed by Telefonica and will bear
interest, payable in arrears in half-yearly instalments on 30 June and 31
December each year, at a rate of 0.5 per cent. below six month sterling LIBOR as
determined on the first business day of each interest period.  The first payment
of interest will be on 30 June 2006.  The Loan Notes will not be transferable.

No application will be made for the Loan Notes to be listed or dealt in on any
stock exchange.  The Loan Notes will not be available to O2 Shareholders in the
United States, Canada, Australia or Japan or in certain other jurisdictions
including those in respect of which the issue of Loan Notes would be unlawful.

The Loan Notes will be redeemable, at the option of their holders, on any
interest payment date between 31 December 2006 and 31 December 2010.  On 31
December 2010, all outstanding Loan Notes will be redeemed.  The offeror will
have the right to redeem all (but not some only) of the Loan Notes if, at any
time on or after 30 June 2008, the total nominal amount of Loan Notes
outstanding is less than either £50 million or 10 per cent. of the originally
issued nominal value.

The issue of Loan Notes will be subject to a maximum nominal amount of £1
billion.  In the event that elections by O2 Shareholders for the Loan Notes
exceed this nominal value, O2 Shareholders will receive their election reduced
pro rata so that the total issued Loan Notes do not exceed a nominal value of £1
billion.

If valid elections for the Loan Note Alternative will not result in the issue of
at least £75 million nominal of Loan Notes, no Loan Notes will be issued, unless
the issuer otherwise determines, in which event O2 Shareholders who have validly
accepted the Offer and elected for the Loan Note Alternative will receive cash
in accordance with the basic terms of the Offer.

Elections for the Loan Note Alternative will be conditional, amongst other
things, on the Offer becoming or being declared unconditional in all respects.

Full details of the Loan Notes will be set out in the formal Offer
Documentation.

3.         Terms and Conditions of the Offer

The O2 Shares will be acquired by the offeror fully paid and free from all
liens, equities, charges, encumbrances and other interests and together with all
rights now or hereafter attaching thereto, including the right to receive and
retain all dividends and other distributions declared, made or paid hereafter,
except for the interim dividend of 1.54 pence which is expected to be paid on 2
December 2005 to the registered holders of O2 Shares at the close of business on
11 November 2005.  The conditions and certain further terms of the Offer are set
out or referred to in Appendix 1.

4.            Irrevocable Undertakings

Telefonica has received irrevocable undertakings to accept the Offer from the
Directors of O2 in respect of 2,820,573 O2 Shares representing in aggregate
approximately 0.032 per cent. of the issued share capital of O2.

The irrevocable undertakings given by the Directors of O2 will remain binding if
a higher competing offer is made for O2.

5.            Background to and reasons for the Offer

Telefonica believes that the Offer will create significant value for its
shareholders by delivering a combination with an attractive growth profile
relative to its peers in the telecommunications sector, enhanced scale and a
portfolio balanced across businesses and regions.

Telefonica has developed a leading position in Spain in both mobile telephony
and fixed line, has exposure to the higher growth markets with a leading
position in Latin America and has demonstrated a consistent focus on cash
returns to shareholders through dividend payments and share buybacks.
Telefonica believes that the Offer is a logical step in pursuing this strategy
of delivering value to Telefonica shareholders through a combination of growth
and cash returns.

Accelerates Telefonica's growth profile

Telefonica believes that, following the Offer, its superior growth profile
relative to its peers will be further enhanced.  O2 has historically achieved
higher growth rates relative to other mobile operators in the markets in which
it is present and is expected to continue to do so.  Additionally, with a mobile
subscriber base of 116 million subscribers on a pro forma basis following the
Offer (including O2 as at June 2005), Telefonica's exposure to the faster
growing mobile sector is expected to be greater than its peers.

Realises benefits of scale

Telefonica believes that scale is increasingly important in the
telecommunications sector to enable operators to improve the service provided to
its customers.  In addition, benefits in areas such as purchasing, network
optimisation and access to content services provide further scope for
operational efficiencies.  O2, which as at 30 June 2005 had 24.6 million
customers, will significantly expand Telefonica's mobile footprint by providing
entry into Europe's two largest mobile markets, the UK and Germany, with
well-established operations that have achieved critical mass within those
markets.  This enhanced scale will provide benefits to both O2's and
Telefonica's existing European operations.

Telefonica's recent acquisitions of the BellSouth Latin America assets and Cesky
Telecom demonstrate Telefonica's success in achieving meaningful scale-driven
benefits in areas such as handset purchasing, unified logistic processes,
roll-out of products and services into new geographies.  Telefonica expects to
exceed the synergies announced for the BellSouth Latin America acquisition by
approximately 50 per cent.

Balances portfolio across businesses and regions

The combination with O2 enhances Telefonica's growth prospects through increased
exposure to the mobile sector and through greater geographical diversity.  On a
standalone basis, analysts' expect Telefonica, during the period 2005 to 2008,
to generate over half its EBITDA from its fixed line operations and
approximately two thirds of its EBITDA from Spain.  Based on analysts' forecasts
for Telefonica and O2, on a pro forma basis following the Offer, over half of
Telefonica's EBITDA is expected to be generated from the faster growing mobile
business and the majority of its EBITDA from outside Spain.

Building on a successful platform

O2 has been successful in commercial and product development as well as brand
innovation.  In addition, O2 has demonstrated an excellent track record of
delivery with strong service revenue and EBITDA growth in the UK, critical mass
and market leading ARPU in Germany with significant potential for further
revenue growth and a highly cash generative business in Ireland.  In addition,
its digital emergency services communications network, Airwave, has grown
significantly over the last two years and is expected to benefit from additional
revenue generating contracts.  Telefonica is looking forward to the ongoing
involvement of O2's management team, which will continue to lead O2 and is
committed to developing O2.  O2 will remain a UK-based entity.

Significant synergies

The combination of O2 and Telefonica is expected to generate substantial
synergies.  Telefonica expects to achieve these benefits in areas such as
network cost efficiencies, handset and equipment purchasing and other cost
savings.  Telefonica has calculated that the combination is expected to generate
annual savings of EUR 293 million (£199 million) by 2008, comprising EUR 186
million (£127 million) of pre-tax operating cost savings and EUR 107 million
(£73 million) of capital expenditure savings.  Telefonica estimates that the net
present value of these quantified synergies will be EUR 3.3 billion (£2.2
billion).  Additionally, Telefonica expects to benefit from O2's existing net
operating losses, which Telefonica estimates as having net present value of EUR
1.4 billion (£950 million).  Telefonica expects that the one-off pre-tax cost of
achieving these synergies is EUR 39 million (£27 million) (2).

Telefonica has also identified but not quantified a number of areas where
further synergies could also be achieved including incremental benefits from IT,
product and software development, content purchasing, advertising, corporate
solutions development, content services development, new services and roaming.
Additionally, Telefonica has not taken into account any potential benefits from
tax deductible goodwill amortisation.

Financial impact on Telefonica

The Offer is expected to be immediately accretive to earnings per share, cash
earnings per share and free cash flow per share for Telefonica.(3)  Telefonica's
ratio of net debt to EBITDA is expected to increase as a result of this
transaction and Telefonica is currently in discussions with the rating agencies
in relation to the Offer.  Telefonica has structured the financing for the Offer
to achieve a single A- rating or no more than one notch below.  Telefonica
confirms that it will continue its ongoing share buyback programme and it
reaffirms its current dividend policy.  Telefonica is not contemplating an issue
of equity as a consequence of the Offer.

6.         O2 Management and Brand

The O2 Group will continue to be based and to operate from within the UK.
Further, the powerful and successful O2 brand will be maintained.

7.            Information on O2

O2 has one hundred per cent. ownership of mobile network operators in three
countries: the UK, Germany and Ireland - as well as a leading mobile internet
portal business.  All of these businesses are branded as 'O2'.  O2 also has
operations on the Isle of Man (Manx Telecom) and owns O2 Airwave, an advanced,
digital emergency communication service.  In addition, O2 has established the
Tesco Mobile and Tchibo Mobilfunk joint venture businesses in the UK and Germany
respectively.  O2 recently launched the i-mode mobile internet service in the UK
and Ireland, and will introduce a similar service in Germany in 2006.

O2 has around 25 million customers and some 15,000 employees.  For the year
ended 31 March 2005 it reported revenues of £6.683 billion, EBITDA of £1.768
billion and net assets of £10.281 billion.

8.            Information on Telefonica

Telefonica is one of the leading companies in the telecommunications sector
globally, with a presence in Europe, Africa and Latin America.  As at June 2005,
Telefonica had 145 million customers of which approximately 72 per cent. were
outside Spain.  Telefonica is listed on a number of stock exchanges, including
the Madrid, New York, London, Frankfurt, Paris, Tokyo and Buenos Aires stock
exchanges and, as at 28 October 2005, the last dealing day before this
announcement, Telefonica had a market capitalisation of EUR 67.0 billion (£45.6
billion).

In Spain, Telefonica has over 80 years' experience of telecommunications, with
over 16 million fixed lines and close to 5 million data and internet access
lines and, as at June 2005, more than 19 million mobile customers.

Telefonica has had a presence in Latin America for over 15 years, with
cumulative investments in infrastructure and acquisitions of over EUR 70 billion
for the period from 1990 to 2004. Telefonica is a leading operator in Brazil,
Argentina, Chile and Peru and it has substantial operations in Colombia,
Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Puerto Rico, Uruguay
and Venezuela as at June 2005. It is a leading operator in the region, and as at
December 2004 it had 22.8 million fixed lines, and over 56.5 million cellular
customers, in addition to offering data and internet access as well as integral
communications solutions for businesses.

As at 31 December 2004, Telefonica had over 173,000 employees, of which 34 per
cent. were located in Spain and 62 per cent. in Latin America.  The largest
number of employees by country are in Spain (nearly 60,000) and Brazil (over
51,000), followed by Argentina (over 15,000), and Peru and Chile (with over
10,000 each).

For the year ended 31 December 2004, Telefonica reported revenues of EUR 30.3
billion, EBITDA of EUR 13.2 billion and earnings per share of EUR 0.581 per
Telefonica share.  As at 31 December 2004, Telefonica reported shareholders
equity of EUR 16.2 billion.

9.            Financing the Offer

Telefonica has obtained committed financing, arranged by Citigroup, Goldman
Sachs International and the Royal Bank of Scotland, sufficient to enable
Telefonica to satisfy in full the cash consideration payable to O2 Shareholders
and otherwise to fulfil its commitments under the terms of the Offer.  Further
information on the financing of the Offer will be set out in the Offer Document.

10.            Management and Employees

The board of Directors of Telefonica has confirmed that the existing employment
rights, including pension rights, of the management and employees of the members
of the O2 Group will be fully safeguarded.

The board of Directors of Telefonica will procure, as soon as practicable
following the date the Offer becomes or is declared wholly unconditional the
appointment of (a) two persons nominated by O2, as members of the board of
Directors of Telefonica, one of whom will also be appointed to the executive
committee of the Board of Directors of Telefonica and will be part of
Telefonica's management committee, and (b) one person, nominated by O2, as a
member of the Board of Directors of Telefonica Moviles SA.



O2 has decided to nominate Sir David Arculus and Peter Erskine to the board of
Telefonica, with Peter Erskine also to be nominated to the Telefonica executive
committee and management committee.  Rudolf Groeger will be nominated to the
board of Telefonica Moviles S.A.

11.       O2 Share Option Schemes

The Offer (but not necessarily the Loan Note Alternative) will extend to any O2
Shares unconditionally allotted or issued whilst the Offer remains open for
acceptance pursuant to the exercise of options under the O2 Share Option Schemes
or any O2 Shares which vest pursuant to the O2 Share Option Schemes.

To the extent that options under the O2 Share Option Schemes are not so
exercised, and if the Offer becomes or is declared unconditional in all
respects, Telefonica will make appropriate proposals to option holders in due
course.

12.            Framework Agreement

Telefonica has entered into a framework agreement with O2 under which O2 has
undertaken amongst other things to pay Telefonica one per cent. of the value of
the Offer calculated on a fully diluted basis in accordance with the City Code
if following this announcement but before the Offer lapses or is withdrawn any
competing offer is announced and the Offer subsequently lapses or is withdrawn
and such competing offer becomes or is declared wholly unconditional (or, if it
is implemented as a Scheme of Arrangement, becomes effective).  The framework
agreement also contains provisions governing the conduct of the transaction and
of the parties.

13.            Recommendation

The Directors of O2, who have been so advised by JPMorgan Cazenove and Merrill
Lynch, consider the terms of the Offer to be fair and reasonable.  In providing
advice to the Directors of O2, JPMorgan Cazenove and Merrill Lynch have taken
into account the commercial assessments of the Directors of O2.  Accordingly,
the Directors of O2 unanimously intend to recommend holders of O2 Shares to
accept the Offer as they have irrevocably undertaken so to do in respect of
their own aggregate beneficial shareholdings.  Merrill Lynch is deemed to be a
connected party to Telefonica.  As a result, only JPMorgan Cazenove is acting as
the independent financial advisor to O2 for the purposes of providing
independent advice to the Board of O2 on the Offer under Rule 3 of the City
Code.

14.       De-listing and compulsory acquisition

If the Offer becomes or is declared unconditional in all respects, and
sufficient acceptances are received, Telefonica intends to procure that O2 will
make an application to de-list the O2 Shares from the Official List and to
cancel trading of O2 Shares on the London Stock Exchange's market for listed
securities.

It is anticipated that cancellation of listing on the Official List and
admission to trading on the London Stock Exchange will take effect no earlier
than 20 business days after Telefonica has acquired or agreed to acquire 75 per
cent. of the voting rights attaching to the O2 Shares.  De-listing would
significantly reduce the liquidity and marketability of any O2 Shares not
assented to the Offer at that time.

If the offeror receives acceptances under the Offer in respect of, or otherwise
acquires, 90 per cent. or more of the O2 Shares to which the Offer relates, the
offeror will exercise its rights pursuant to the provisions of sections 428 to
430F (inclusive) of the Companies Act to acquire compulsorily the remaining O2
Shares in respect of which the Offer has not been accepted.

It is also intended that, following the Offer becoming or being declared
unconditional, O2 will be re-registered as a private company under the relevant
provisions of the Companies Act.

In accordance with Rule 2.10 of the City Code, as at the close of business on 30
October 2005, the issued share capital of O2 comprised 8,766,496,589 ordinary
shares of 0.1 pence each.  In addition, as at 30 September 2005, the most recent
date for which information is available, options to subscribe for and awards to
acquire a total of 142,289,639 ordinary shares of 0.1 pence each remained
outstanding.  No further share awards have been made or options granted since
this date.  The International Securities Identification Number for O2 Shares is
GB00B05KYV34.

15.            General

It is expected that the Offer Documentation, which will include a letter of
recommendation from the Chairman of O2, will be despatched to O2 Shareholders by
Telefonica in November 2005.  The Offer is expected to close in January 2006.

The Offer will be on the terms and subject to the conditions set out herein and
in Appendix I and to be set out in the Offer Documentation.

The Offer will be governed by English law and will be subject to the
jurisdiction of the English courts.

The acquisition will be implemented by way of the Offer unless Telefonica elects
to have it implemented by way of a Scheme of Arrangement.

Save as set out above neither Telefonica, nor any of its directors, nor, so far
as Telefonica is aware, any person deemed to be acting in concert with it, owns
or controls any O2 Shares or has any option to acquire any O2 Shares or any
rights to subscribe for or purchase the same, or has entered into any derivative
referenced to securities of O2 which remains outstanding. In view of the
requirement for confidentiality, Telefonica has not made any enquiries in
respect of certain parties who may be deemed by the Panel to be acting in
concert with it for the purposes of the Offer.

Appendix 2 contains definitions of certain terms used in this announcement.
Details of the sources and bases of certain information set out in this
announcement are included in Appendix 3.

This announcement does not constitute an offer or an invitation to purchase any
O2 Shares.  Any response to the Offer should be made only on the basis of the
information contained in the Offer Documentation.

Enquiries:

Telefonica                                   Tel:  [phone]

Investor Relations Office                    Fax:  [phone]


Citigroup Global Markets Limited             Tel: [phone]

Mark Simonian

William Kennish

Matthew Smith



Goldman Sachs International - Madrid         Tel: [phone]

David Jimenez-Blanco

Juande Gomez-Villalba

Goldman Sachs International - London         Tel: [phone]

Luca Ferrari

Nick Reid

Phil Raper (Corporate Broking)

Hudson Sandler                               Tel:  [phone]

Andrew Hayes                                 Fax: [phone]

Sandrine Gallien



O2


Richard Poston, Director Corporate Affairs    Tel: [phone]

David Nicholas                                Tel: [phone]

David Boyd                                    Tel: [phone]

John Crosse                                   Tel: [phone]

JPMorgan Cazenove                             Tel: [phone]

Charles Harman

Edward Banks

David Harvey-Evers

Merrill Lynch                                 Tel: [phone]

Philip Yates

Richard Taylor

Mark Astaire (Corporate Broking)



Goldman Sachs International, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for
Telefonica and no one else in connection with the matters described in this
announcement and is not advising any other person and accordingly will not be
responsible to any person other than Telefonica for providing the protections
afforded to clients of Goldman Sachs International or for providing advice in
relation to the matters described in this announcement.

Citigroup Global Markets Limited, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Telefonica and no one else in connection with the matters described in this
announcement and is not advising any other person and accordingly will not be
responsible to any person other than Telefonica for providing the protections
afforded to clients of Citigroup Global Markets Limited or for providing advice
in relation to the matters described in this announcement.

JPMorgan Cazenove, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is acting exclusively for O2 and no one else
in connection with the matters described in this announcement and is not
advising any other person and will not be responsible to any person other than
O2 for providing the protections afforded to clients of JPMorgan Cazenove or for
providing advice in relation to the matters described in this announcement.

Merrill Lynch is acting exclusively for O2 and no one else in connection with
the matters described in this announcement and is not advising any other person
and will not be responsible to any person other than O2 for providing the
protections afforded to clients of Merrill Lynch or for providing advice in
relation to the matters described in this announcement

The Offer will not be made, directly or indirectly, in or into, or by use of the
mails of, or by any means or instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or any
facility of any securities exchange of, the United States, Canada, Australia or
Japan and will not be capable of acceptance by any such use, means,
instrumentality or facility or from within the United States, Canada, Australia
or Japan. Accordingly, neither this announcement nor the Offer Documentation is
being, and must not be, mailed or otherwise forwarded, transmitted, distributed
or sent in, into or from the United States, Canada, Australia or Japan.  Doing
so may render invalid any purported acceptance of the Offer. All O2 Shareholders
or other persons (including nominees, trustees or custodians) who would or
otherwise intend to, or may have a contractual or legal obligation to, forward
this announcement or the Offer Documentation to any jurisdiction outside the
United Kingdom, should refrain from doing so and seek appropriate professional
advice before taking any action.

The Offer will only be capable of acceptance by persons outside the United
States. Offering materials with respect to this Offer will not be, and may not
be, distributed in or sent to the United States and may not be used for the
purpose of solicitation of an offer to purchase or sell any securities in the
United States.  Any tenders received from persons resident in the United States
or with United States mailing addresses will be rejected.

The Loan Notes have not been and will not be registered under the United States
Securities Act of 1933, as amended or under the securities laws of any state of
the United States and are not and will not be registered under the securities
laws of any other country.  Therefore, the Loan Notes may not be offered, sold
or delivered, directly or indirectly, in the United States.  Holders of O2
Shares in the United States, Canada, Australia or Japan or any other overseas
jurisdiction in respect of which the issue of Loan Notes to them would be
unlawful will not be entitled to elect to receive Loan Notes.

Any person who, acting alone or acting together with any person(s) pursuant to
an agreement or understanding (whether formal or informal) to acquire or control
securities of O2, owns or controls or becomes the owner or controller, directly
or indirectly, of one per cent. or more of any class of securities of O2 is
generally required under the provisions of Rule 8 of the City Code to notify a
Regulatory Information Service as specified in the Listing Rules and the Panel
by not later than 12:00 noon (London time) on the London business day following
the date of the transaction of every dealing in such securities during the offer
period to the date on which the Offer becomes or is declared unconditional in
all respects or lapses or is otherwise withdrawn (or if implemented by way of a
scheme of arrangement to the date of the relevant Court Meeting or the date on
which the scheme is withdrawn).  Dealings by Telefonica or O2 or by their
respective 'associates' (as defined in the City Code) in any class of securities
of O2 until the end of such offer period must also be disclosed.  If you are in
doubt as to the application of Rule 8 to you, please contact an independent
financial adviser authorised under the Financial Services and Markets Act 2000,
consult the Panel's website at www.thetakeoverpanel.org.uk or contact the Panel
on telephone number [phone]; fax [phone]. The above provisions
reflect the disclosure requirements as at the date of this announcement.
Revised disclosure requirements will apply with effect from 7 November 2005
which will require the public disclosure of dealing by persons interested in one
per cent. or more of any class of relevant securities in O2. If in any doubt
about the effect of the changes you should visit the Panel's website for further
details of the revised disclosure requirements.

This announcement contains statements that constitute forward looking statements
in its general meaning and within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this document and include statements regarding the intent, belief or current
expectations of the customer base, estimates regarding future growth in the
different business lines and the global business, market share, financial
results and other aspects of the activity and situation relating to Telefonica.
The forward-looking statements in this announcement can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends', '
believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.



Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and actual results may differ materially from
those in the forward looking statements as a result of various factors.


                                   APPENDIX 1

               Conditions and certain further terms of the Offer

1.            Conditions

The Offer, which will be made by Goldman Sachs International and Citigroup on
behalf of Telefonica (or a wholly-owned subsidiary of Telefonica), will be
subject to the following conditions:

(A)             valid acceptances being received (and not, where permitted,
withdrawn) by not later than 3.00 pm on the first closing date of the Offer (or
such later time(s) and/or date(s) as the offeror may, subject to the rules of
the City Code, decide) in respect of not less than 90 per cent. (or such lesser
percentage as the offeror may decide) in nominal value of O2 Shares to which the
Offer relates, provided that this condition will not be satisfied unless the
offeror (and/or any of its wholly-owned subsidiaries) shall have acquired, or
agreed to acquire, whether pursuant to the Offer or otherwise, and whether
directly or indirectly, O2 Shares carrying, in aggregate, more than 50 per cent.
of the voting rights then normally exercisable at general meetings of O2.

For the purposes of this condition:

(i)                   O2 Shares which have been unconditionally allotted shall
be deemed to carry the voting rights they will carry upon being entered in the
register of members of O2; and

(ii)                  the expression 'O2 Shares to which the Offer relates'
means (i) O2 Shares unconditionally allotted or issued on or before the date the
Offer is made and (ii) O2 Shares unconditionally allotted or issued after that
date but before the time at which the Offer ceases to be open for acceptance (or
such earlier date, not being earlier than the date on which the Offer becomes
unconditional as to acceptances or, if later, the first closing date of the
Offer, as Telefonica may, subject to the City Code, decide) but excluding any
issued O2 Shares which are held in treasury, except to the extent that they are
transferred out of treasury whilst the Offer remains open for acceptance and any
O2 Shares which, on the date the Offer is made, are held or (otherwise than
under such a contract as is described in s.428(5) Companies Act 1985) contracted
to be acquired by Telefonica and/or its associates (within the meaning of s.430E
Companies Act 1985);

(B)            to the extent that the acquisition of all the O2 Shares by
Telefonica constitutes a concentration with a Community dimension within the
scope of Council Regulation (EC) 139/2004 (the 'ECMR'):

(i)                   the Commission of the European Communities (the 'European
Commission') adopting a decision under Article 6(1)(b) of the ECMR in terms
satisfactory to Telefonica declaring such acquisition to be compatible with the
common market; or

(ii)                  such acquisition being deemed to have been declared
compatible with the common market pursuant to Article 10(6) of the ECMR; or

(iii)                in the event that a request is made under Article 9(2) of
the ECMR by a European Union state, the European Commission indicating, in terms
satisfactory to Telefonica, that it does not intend to refer such acquisition or
any aspect of it to the competent authorities of such state in accordance with
Article 9 of the ECMR and no such referral being deemed to have been made
pursuant to Article 9(5) of the ECMR;

(C)            the receipt of evidence in a form and substance satisfactory to
Telefonica that, if required, all filings have been made and all the waiting
periods relating to the Offer have expired or been terminated pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended);

(D)            the waiting period under any other applicable anti-trust or
competition laws of any other affected jurisdictions expiring, and all related
consents, licences, registrations, or declarations of, or filings with, any
competent authority in any such jurisdictions required to be obtained or made
prior to the implementation of such acquisition having been obtained or made on
a basis satisfactory to Telefonica;

(E)            no government or governmental or quasi-governmental authority
(whether supranational, national, regional, local or otherwise) or statutory or
regulatory or investigative body or other authority (including any anti-trust or
merger control authority), court, tribunal, arbitrary body, trade agency,
association, institution or professional or environmental body or (without
prejudice to the generality of all the foregoing) any other person or body in
any jurisdiction (each a 'Relevant Authority') having decided to take,
institute, implement or threaten any action, proceedings, suit, investigation,
enquiry or reference, or made, proposed or enacted any statute, regulation,
order,  decision or judgment, or taken any other steps which would or might
reasonably be expected to:

(i)                   make the Offer, or its implementation, or the proposed
acquisition of any O2 Shares by Telefonica or any of its subsidiaries,
subsidiary undertakings, associated undertakings or any joint venture,
partnership, firm or company in which any of them has a substantial interest
(together, the 'Wider Telefonica Group') or the subscription by, or allotment
to, any member of the Wider Telefonica Group of O2 Shares or any matter arising
therefrom or relating thereto, void, illegal or unenforceable under the laws of
any relevant jurisdiction or otherwise, directly or indirectly, restrain,
prohibit, restrict or delay the Offer, its implementation or such proposed
acquisition by any member of the Wider Telefonica Group or any matter arising
therefrom or relating thereto or impose additional conditions or obligations
with respect thereto, or otherwise challenge or interfere therewith;

(ii)                  result in a delay in the ability of any member of the
Wider Telefonica Group, or render any member of the Wider Telefonica Group
unable, to acquire all or some of the O2 Shares or other securities in O2 or
require, prevent or delay a divestiture by any member of the Wider Telefonica
Group of any such shares or securities;

(iii)                require, prevent or delay the divestiture or surrender by
Telefonica or any member of the Wider Telefonica Group or by O2 or any of its
respective subsidiaries, subsidiary undertakings, associated undertakings or any
joint venture, partnership, firm or company in which any of them has a
substantial interest (together, the 'Wider O2 Group') of all or any material
portion of their respective businesses, assets or properties; or of any consent,
licence, permission or approval necessary to carry on their respective
businesses or which would or might impose any material limitation on the ability
of any of them to conduct all or any material portion of their respective
businesses or own all or any material portion of their respective assets or
properties;

(iv)                impose any material limitation on the ability of Telefonica
or any other member of the Wider Telefonica Group or of the Wider O2 Group to
acquire, or to hold or exercise effectively, directly or indirectly, any rights
of ownership in respect of shares or other securities (or the equivalent) in any
member of the Wider O2 Group or to exercise management control over O2 or any
other member of the O2 Group;

(v)                 otherwise materially adversely affect the business or
profits of any member of the Wider Telefonica Group or of the Wider O2 Group,
the effect of which is material in the context of the Offer;

(vi)                except pursuant to Part XIII A of the Companies Act, require
any member of the Wider Telefonica Group or any member of the Wider O2 Group to
acquire, or offer to acquire, any O2 Shares or other securities (or the
equivalent) in any member of the Wider O2 Group owned by any third party;

(vii)              result in any member of the Wider O2 Group ceasing to be able
to carry on business under the name which it presently does so; or

(viii)             result in any member of the Wider Telefonica Group having to
dispose of any shares or other securities (or the equivalent) in any member of
the Wider O2 Group or the Wider Telefonica Group, the effect of which is
material in the context of the Offer.

and all applicable waiting and other time periods during which any Relevant
Authority could decide to take, institute, implement or threaten any such
action, proceeding, suit, investigation, enquiry or reference or otherwise
intervene having expired, lapsed or been terminated;

(F)             all necessary filings and applications in connection with the
Offer or its implementation having been made, all appropriate waiting periods
(including extensions thereof) in respect of the Offer or its implementation
under any applicable legislation or regulations of any jurisdiction having
expired, lapsed or been terminated and all authorisations, orders, recognitions,
grants, consents, licences, confirmations, clearances, permissions and approvals
('Authorisations') necessary or reasonably considered necessary or appropriate
for or in respect of the Offer and the proposed acquisition of any O2 Shares or
other securities in, or control of, O2 by the Wider Telefonica Group, or which
are necessary for any member of the Wider O2 Group to carry on its business,
having been obtained in terms and in a form satisfactory to Telefonica from all
appropriate Relevant Authorities or other bodies with whom any member of the
Wider Telefonica Group or the Wider O2 Group has entered into contractual
arrangements in each case where the absence of such authorisation is material in
the context of the Offer and all such Authorisations remaining in full force and
effect at the time at which the Offer becomes otherwise unconditional and all
appropriate waiting periods (including extensions thereof) under any applicable
legislation and regulations of any jurisdiction having expired, lapsed or been
terminated and no intimation or notice of an intention to revoke or not to renew
any of the same having been received, and all necessary statutory or regulatory
obligations in connection with the Offer and its implementation in any relevant
jurisdiction having been complied with;

(G)            since 31 March 2005 and except as disclosed in O2's annual report
and accounts for the year then ended or as publicly announced by O2 prior to 31
October 2005 (by the delivery of an announcement to a Regulatory Information
Service) (such information being 'publicly announced') or as can reasonably be
demonstrated to have been fairly disclosed to Telefonica prior to 31 October
2005 by or on behalf of O2 in the course of negotiations, there being no
provision of any material arrangement, agreement, licence, permit, franchise or
other instrument to which any member of the Wider O2 Group is a party or by or
to which any such member or any of their assets is or are or may be bound,
entitled or subject or any circumstance which, as a consequence of the making of
the Offer or the acquisition or proposed acquisition by any member of the Wider
Telefonica Group of some or all of the share capital or other securities in O2
or because of change in control or management of O2 or otherwise, could or might
reasonably be expected to result in, in any case to an extent which is or would
be material in the context of the O2 Group taken as a whole:

(i)                   any monies borrowed by or other indebtedness (actual or
contingent) of any member of the Wider O2 Group which is not already repayable
on demand being or becoming repayable or being capable of being declared
repayable immediately or prior to the stated maturity date or repayment date or
the ability of any such member to borrow monies or incur any indebtedness being
withdrawn or inhibited;

(ii)                  the creation of any mortgage, charge or other security
interest over the whole or any part of the business, property or assets of any
member of the Wider O2 Group or any such security (whenever arising or having
arisen) becoming enforceable;

(iii)                any such arrangement, agreement, licence, permit, franchise
or other instrument, or the rights, liabilities, obligations or interests or
business of any member of the Wider O2 Group under any such arrangement,
agreement, licence, permit franchise or other instrument, being terminated or
adversely modified or adversely affected or any material action being taken or
any material obligation arising thereunder;

(iv)                otherwise than in the ordinary course of business, any
assets or interest of any member of the Wider O2 Group being or falling to be
disposed of or charged or any right arising under which any such asset or
interest could be required to be disposed of or charged;

(v)                 the interest or business of any member of the Wider
Telefonica Group or the Wider O2 Group in or with any person, firm, company or
body (or any arrangements relating to such interest or business) being
terminated or adversely modified or affected;

(vi)                any member of the Wider O2 Group ceasing to be able to carry
on business under any name under which it presently does so; or

(vii)              the value of, or the financial or trading position or
prospects of, any member of the Wider O2 Group being prejudiced or adversely
affected;

(H)            no member of the Wider O2 Group having since 31 March 2005
(except as disclosed in the annual report and accounts of O2 for the year then
ended) and unless publicly announced or as can otherwise reasonably be
demonstrated to have been fairly disclosed to Telefonica prior to 31 October
2005 by or on behalf of O2 in the course of negotiations:

(i)                   issued, agreed or authorised or proposed the issue of
additional shares of any class, or securities convertible into, or rights,
warrants or options to subscribe for or acquire, any such shares or convertible
securities (save as between O2 and its wholly owned subsidiaries and save for
shares issued or options or other subscription rights granted under the O2 Share
Option Schemes);

(ii)                  recommended, declared, paid or made or proposed to
recommend, declare, pay or make any bonus, dividend or other distribution other
than the interim dividend 1.54 pence per O2 Share or to O2 or a wholly-owned
subsidiary of O2;

(iii)                other than a transaction between O2 and a wholly-owned
subsidiary of O2 or between such wholly-owned subsidiaries merged with any body
corporate or acquired or disposed of, or transferred, mortgaged or charged or
created any security interest over, any assets or any right, title or interest
in any asset (including shares and trade investments), or authorised, proposed
or announced any intention to propose any merger, demerger, acquisition,
disposal, transfer, mortgage, charge or security interest (other than in the
ordinary course of business);

(iv)                except as between O2 and its wholly-owned subsidiaries or
between such wholly-owned subsidiaries issued, authorised or proposed the issue
of any debentures or incurred or increased any indebtedness or contingent
liability which in any case is material in the context of the O2 Group taken as
a whole;

(v)                 purchased, redeemed or repaid or announced any proposal to
purchase, redeem or repay any of its own shares or other securities or redeemed
or reduced or made any other change to any part of its share capital to an
extent which (other than in the case of O2) is material in the context of the O2
Group taken as a whole;

(vi)                entered into, or varied, or authorised, proposed or
announced its intention to enter into or vary any contract, transaction,
arrangement or commitment (whether in respect of capital expenditure or
otherwise) which is of a long-term, onerous or unusual nature or magnitude, or
which involves or is reasonably likely to involve an obligation of such nature
or magnitude and which in any case is material in the context of the O2 Group
taken as a whole;

(vii)              except as between O2 and its wholly-owned subsidiaries or
between such wholly-owned subsidiaries implemented, authorised, proposed or
announced its intention to implement or enter into any reconstruction,
amalgamation, commitment, scheme or other transaction or arrangement otherwise
than in the ordinary course of business;

(viii)             entered into or made an offer (which remains open for
acceptance) to enter into or vary the terms of any service agreement or any
other agreement or arrangement with any directors or senior executives or any
connected person of any such person (within the meaning of s.346 Companies Act
1985);

(ix)                waived or compromised any claim other than in the ordinary
course of business which is material in the context of the O2 Group taken as a
whole;

(x)                 been unable, or admitted in writing that it is unable, to
pay its debts or having stopped or suspended (or threatened to stop or suspend)
payment of its debts generally;

(xi)                except as between O2 and its wholly-owned subsidiaries or
between such wholly-owned subsidiaries made or authorised or proposed or
announced an intention to propose any change in its share or loan capital;

(xii)              entered into any contract, transaction or arrangement which
is or is reasonably likely to be restrictive on the business of any member of
the Wider Telefonica Group or the Wider O2 Group and which is material in the
context of the O2 Group taken as a whole;

(xiii)             (save for O2) made any alteration to its Memorandum or
Articles of Association or other incorporation documents which is material in
the context of the Offer; or

(xiv)            entered into or made an offer (which remains open for
acceptance) to enter into an agreement or commitment or passed any resolution or
announced or made any proposal with respect to any of the transactions or events
referred to in this sub-paragraph (H);

(I)                save as publicly announced prior to 31 October 2005 or as can
otherwise reasonably be demonstrated to have been fairly disclosed to Telefonica
prior to such date by or on behalf of O2 in the course of negotiations, since 31
March 2005:

(i)                   there having been no adverse change, and no other
circumstance having arisen which would or might be likely to result in any
adverse change, in the business, assets, financial or trading position or
profits or prospects of any member of the Wider O2 Group which in any case is
material in the context of the O2 Group taken as a whole;

(ii)                  there not having been instituted or remaining outstanding
any litigation, arbitration proceedings, prosecution or other legal proceedings
to which any member of the Wider O2 Group is a party (whether as claimant or
defendant or otherwise) and no such proceedings having been announced or
threatened against any such member and no investigation by any government or
governmental, quasi-governmental, supranational, statutory, regulatory or
investigative body, authority or court (including, other than as a result of the
Offer, any anti-trust or merger control authority) against or in respect of any
such member or the business carried on by any such member having been threatened
in writing, announced, instituted or remaining outstanding by, against or in
respect of any such member which, in any case is material in the context of the
O2 Group taken as a whole;

(iii)                there having been no receiver, administrative receiver or
other encumbrancer appointed over any of the assets of any member of the Wider
O2 Group or any analogous proceedings or steps having taken place under the laws
of any jurisdiction and there having been no petition presented or resolution
passed for the administration of any member of the Wider O2 Group or any
analogous proceedings or steps taken place under the laws of any jurisdiction;
and

(iv)                no contingent or other liability having arisen, become
apparent or having been incurred which would or might reasonably be expected
adversely to affect any member of the Wider O2 Group and which, in any case, is
material in the context of the O2 Group taken as a whole;

(J)              Telefonica not having discovered prior to the date when the
Offer would otherwise become unconditional that:

(i)                   any financial, business or other information concerning O2
or the Wider O2 Group publicly disclosed at any time is misleading, contains a
misrepresentation of fact or omits to state a fact necessary to make the
information contained therein not misleading and which was not corrected prior
to 31 October 2005 by being publicly disclosed or fully and fairly disclosed in
writing to Telefonica by or on behalf of O2 prior to such date; or

(ii)                  any member of the Wider O2 Group is subject to any
liability, contingent or otherwise, existing at 31 March 2005, which is not
disclosed or reflected in the audited accounts of O2 for the financial year
ended on that date and which in any case, is material in the context of the O2
Group taken as a whole; and

(K)            Telefonica not having discovered other than as publicly disclosed
prior to 31 October 2005 or otherwise fully and fairly disclosed in writing to
Telefonica by or on behalf of O2 prior to such date, by or on behalf of O2 in
the course of negotiations prior to the date when the Offer would otherwise
become unconditional that:

(i)                   any member of the Wider O2 Group has not complied with all
applicable legislation and regulations of any jurisdiction, with regard to the
disposal, discharge, spillage, leak or emission of any waste or hazardous
substance or any substance likely to impair the environment or harm human health
or otherwise relating to environmental matters, or that there has otherwise been
any such disposal, discharge, spillage, leak,  or emission (whether or not the
same constituted a non-compliance by any person with any such legislation or
regulations and wherever the same may have taken place) from any land or other
asset now or previously owned, occupied or made use of by any past or present
member of the Wider O2 Group which would be likely to give rise to any liability
(whether actual or contingent) on the part of any member of the Wider O2 Group
and which, in any case is material in the context of the O2 Group taken as a
whole;

(ii)                  there is, or is reasonably expected to be, any liability
(whether actual or contingent) to make good, repair, reinstate or clean up any
property now or previously owned, occupied or made use of by any past or present
member of the Wider O2 Group or in which any such member may now or previously
had an interest under any environmental legislation, regulation, notice,
circular or order of any Relevant Authority or third party or otherwise which is
material in the context of the O2 Group taken as a whole; or

(iii)                circumstances exist whereby a person or class of persons
would be likely to have any claim or claims in respect of any product or process
of manufacture or materials used therein now or previously manufactured, sold or
carried out by any member of the Wider O2 Group which claim or claims would be
likely materially and adversely to affect any member of the Wider O2 Group which
is or would be material in the context of the O2 Group taken as a whole.

Subject to the requirements of the Panel, Telefonica reserves the right to
waive, in whole or in part, all or any of conditions (B) to (K) inclusive.  If
Telefonica is required by the Panel to make an offer for O2 Shares under the
provisions of Rule 9 of the City Code, Telefonica may make such alterations to
the above conditions, including condition (A), as are necessary to comply with
the provisions of that Rule.

The Offer will lapse if the European Commission initiates proceedings under
Article 6(1)(c) of Council Regulation (EC) 139/2004 or, following a referral by
the European Commission under Article 9 of such Regulation, the proposed
acquisition of O2 by Telefonica, or any matter arising therefrom, is referred to
the UK Competition Commission in either case before 3.00 pm on the first closing
date of the Offer or the time and date when the Offer becomes declared
unconditional as to acceptances, whichever is the later.

Conditions (B) to (K) inclusive must be fulfilled, determined by Telefonica to
be or remain satisfied or (if capable of waiver) be waived by midnight on the
twenty-first day after the later of the first closing date of the Offer and the
date on which condition (A) is fulfilled (or in each case such later date as
Telefonica may, with the consent of the Panel, decide) failing which the Offer
will lapse.  Telefonica shall be under no obligation to waive (if capable of
waiver), to determine to be or remain satisfied or to treat as fulfilled any of
conditions (B) to (K) (inclusive) by a date earlier than the latest date
specified above for the fulfilment of that condition, notwithstanding that the
other conditions of the Offer may at such earlier date have been waived or
fulfilled and that there are, at such earlier date, not circumstances indicating
that any condition may not be capable of fulfilment.

If the Offer lapses it will cease to be capable of further acceptance.  O2
Shareholders who have accepted the Offer and Telefonica shall then cease to be
bound by acceptances delivered on or before the date on which the Offer lapses.

2.            Certain further terms of the Offer

The Offer will not be made, directly or indirectly, in or into, or by use of the
mails, or by any means or instrumentality (including, without limitation,
facsimile transmission, telephonically or electronically) or interstate or
foreign commerce of, or any facilities of any securities exchange of, the United
States, Canada, Australia or Japan and will not be acceptable by any such use,
means, instrumentality or facility or from within the United States, Canada,
Australia or Japan.

The Offer will be capable of acceptance only by persons outside the United
States. Offering materials with respect to this Offer will not be, and may not
be, distributed in or sent to the United States and may not be used for the
purpose of solicitation of an offer to purchase or sell any securities in the
United States.  Any tenders received from persons resident in the United States
or with United States mailing addresses will be rejected.

The Loan Notes have not been and will not be registered under the United States
Securities Act of 1933, as amended or under the securities laws of any state of
the United States and are not and will not be registered under the securities
laws of any other country.  Therefore, the Loan Notes may not be offered, sold
or delivered, directly or indirectly, in the United States. O2 Shareholders in
the United States, Canada, Australia or Japan or certain other overseas
jurisdictions, including those, in respect of which the issue of Loan Notes to
them would be unlawful.

The availability of the Offer to persons not resident in the United Kingdom may
be affected by the laws of the relevant jurisdictions.  Persons who are not
resident in  the United Kingdom should inform themselves about and observe any
applicable requirements.

The acquisition contemplated by this announcement will be governed by English
law and be subject to the jurisdiction of the English Courts and to the terms
and conditions set out in this announcement and in the Offer Documentation.

Telefonica reserves the right to implement the acquisition of O2 Shares
contemplated by the Offer by way of a Scheme of Arrangement under section 425 of
the Companies Act.  In such event, the Scheme of Arrangement will be implemented
on the same terms (subject to appropriate amendments), so far as applicable, as
those which would apply to the Offer.  In particular, condition (A) will not
apply and the Scheme of Arrangement will become subject to the following further
conditions which are not intended to be capable of waiver:

(i)            approval of the Scheme of Arrangement at the Court Meeting by a
majority in number, representing 75 per cent. or more in value present and
voting, either in person or by proxy, of the holders of the O2 Shares (or the
relevant class or classes thereof);

(ii)        the resolution(s) required to approve and implement the Scheme or
Arrangement and to be set out in the notice of Scheme Extraordinary General
Meeting to the holders of O2 Shares being passed by the requisite majority at
such Scheme Extraordinary General Meeting; and

(iii)            sanction of the Scheme of Arrangement and confirmation of the
reduction of capital involved therein by the Court (in both cases with or
without modifications on terms reasonably acceptable to Telefonica) and an
office copy of the orders of the Court sanctioning the Scheme of Arrangement and
confirming the cancellation of share capital which forms part of it being
delivered for registration to the Registrar of Companies in England and Wales
and being registered by him.


                                   APPENDIX 2

                                  Definitions

The following definitions apply throughout this announcement, unless the context
requires otherwise:

'Act' or 'Companies Act'                         the Companies Act 1985, as amended

'ARPU'                                           means average revenue per user

'Citigroup'                                      Citigroup Global Markets Limited

'City Code'                                      the City Code on Takeovers and Mergers

'Court'                                          the High Court of Justice in England and Wales

'Court Meeting'                                  any meeting or meetings of the holders of O2 Shares (or
                                                 different classes thereof) as may be convened pursuant to
                                                 an order of the Court under section 425 of the Companies
                                                 Act for the purpose of considering and, if thought fit,
                                                 approving a Scheme of Arrangement (with or without
                                                 amendment) in the event the acquisition of O2 Shares is
                                                 elected by Telefonica to be implemented by a Scheme of
                                                 Arrangement

'Director'                                       an executive or non-executive director of O2 or Telefonica
                                                 as the case may be

'EBITDA'                                         earnings before interest, tax, depreciation and
                                                 amortisation

'Form of Acceptance'                             the form of acceptance, election and authority to be
                                                 distributed with the Offer Document

'FSMA'                                           the Financial Services and Markets Act 2000, as amended


'JPMorgan Cazenove'                              JPMorgan Cazenove Limited

'LIBOR'                                          London Interbank Offered Rate

'Listing Rules'                                  the Listing Rules of the UK Listing Authority as amended
                                                 from time to time

'Loan Note Alternative'                          the alternative under which holders of O2 Shares (other
                                                 than certain Overseas Shareholders) who validly accept the
                                                 Offer may, while the loan note alternative remains open for
                                                 acceptance, elect to receive Loan Notes in lieu of cash
                                                 consideration to which they would otherwise have been
                                                 entitled under the Offer

'Loan Notes'                                     the loan notes to be issued pursuant to the Loan Note
                                                 Alternative by Telefonica or a wholly-owned subsidiary of
                                                 Telefonica

'London Stock Exchange'                          London Stock Exchange plc

'Merrill Lynch'                                  Merrill Lynch International

'Offer'                                          the proposed recommended offer to be made by Goldman Sachs
                                                 International and Citigroup, on behalf of Telefonica (or a
                                                 wholly owned subsidiary of Telefonica) on the terms and
                                                 subject to the conditions to be set out in the Offer
                                                 Document, to acquire the entire issued and to be issued
                                                 share capital of O2 and, where the context admits, any
                                                 subsequent revision, variation, extension or renewal
                                                 thereof

'Offer Document'                                 the document containing the terms and conditions of the
                                                 Offer and where appropriate, any other document(s)
                                                 containing terms and conditions of the Offer proposed to be
                                                 sent to O2 Shareholders containing, inter alia, details of
                                                 the Offer

'Offer Documentation'                            the Offer Document and the Form of Acceptance

'Official List'                                  the Official List of the UK Listing Authority

'O2'                                             O2 plc

'O2 Group'                                       O2 and its subsidiary undertakings

'O2 Share Option Schemes'                        the O2 Share Ownership Plan, the O2 Success Sharing Share
                                                 Scheme (also known as 'S4'), the O2  Sharesave Plan, the O2
                                                 Sharesave Sub Plan for Irish Employees, the O2
                                                 International Sharesave Plan, the O2 Legacy Option Plan,
                                                 the O2 Deferred Equity Incentive Plan, the O2 Performance
                                                 Share Plan, the O2 Restricted Share Plan, the O2 Share
                                                 Option Plan and the O2 deferred bonus arrangements

'O2 Shares' or 'Shares'                          ordinary shares of 0.1 pence each in O2 in issue on the
                                                 date hereof and any such further shares which are
                                                 unconditionally allotted or issued after the date hereof
                                                 and before the date on which the Offer closes pursuant to
                                                 the exercise of options under the O2 Share Option Schemes
                                                 or otherwise

'O2 Shareholders'                                holders of O2 Shares

'Overseas Shareholders'                          holders of O2 Shares resident in, or nationals or citizens
                                                 of, jurisdictions outside the UK or who are nominees of, or
                                                 custodians, trustees or guardians for, citizens or
                                                 nationals of other countries

'Panel'                                          The Panel on Takeovers and Mergers

'Regulatory Information Service'                 any of services set out in Schedule 12 to the Listing Rules
                                                 published by the Financial Services Authority
'Scheme of Arrangement'                          the potential acquisition of O2 Shares by the offeror by
                                                 way of a scheme of arrangement under section 425 of the
                                                 Companies Act in accordance with this announcement in the
                                                 event that Telefonica elects to implement the acquisition
                                                 of O2 Shares by way of a scheme of arrangement

'Scheme Extraordinary General Meeting'           any extraordinary general meeting of O2 convened in
                                                 connection with the Scheme of Arrangement, including any
                                                 adjournment thereof

'substantial interest'                           a direct or indirect interest in 20 per cent. or more of
                                                 the equity or voting share capital or the equivalent

'Telefonica'                                     Telefonica S.A.

'UK Listing Authority' or 'UKLA'                 the Financial Services Authority acting in its capacity as
                                                 the competent authority for the purposes of Part VI of FSMA

'United States' or 'US'                          the United States of America, its territories and
                                                 possessions, any state of the United States of America and
                                                 the District of Columbia.


For the purposes of this announcement, 'subsidiary', 'subsidiary undertaking', '
undertaking' and 'associated undertaking' have the meanings given by the Act
(but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the Act).


                                   APPENDIX 3

                        Sources and bases of information

n       The value placed by the Offer on the existing issued share capital of O2
is based on 8,766 million O2 Shares in issue on 28 October  2005, being the last
dealing day prior to the date of this announcement. In addition, 142 million O2
shares were under option at 30 September 2005 (of which approximately 2.5
million were covered by existing issued O2 Shares), and have been taken into
account (net of proceeds of notional option exercise at the Offer price) in
determining the to be issued share capital of O2

n       The closing middle market price for an O2 Share on 28 October 2005,
being the last dealing day prior to the date of this announcement, is taken from
the Official List

n       The market capitalisation for Telefonica is based on 4,921.1 million
Telefonica shares in issue and the closing price of EUR 13.62 on 28 October
2005, being the last dealing day prior to the date of this announcement

n       Unless otherwise stated, the financial information relating to
Telefonica is extracted from the audited consolidated financial statements of
Telefonica for the relevant year

n       Unless otherwise stated, the financial information relating to O2 is
extracted from the audited consolidated financial statements of O2 for the
relevant year in UK GAAP

n       An exchange rate of EUR/GBP 1.47 has been used throughout this
announcement

n      Unless otherwise stated, the comparative statements regarding
Telefonica's current and prospective financial performance relative to its peers
and its market position have been arrived at from information contained in
recent brokers' research reports

n      Comparative statements regarding O2's current and prospective financial
performance relative to its competitors and its market position have been
arrived at from the information contained in recent brokers' research reports:

•           the above referenced research reports contain information from which
a 2005-2008 compound average growth rate for the combined group for EBITDA of
approximately 8 per cent. can be calculated

•           the above referenced research reports contain information from which
a market share of 16 per cent. for the combined group can be calculated

•           the above referenced research reports contain information from which
an estimated EBITDA for the combined group of approximately EUR 17.5 billion in
2005 and approximately EUR 22 billion in 2008 can be calculated

•           statements regarding subscribers have been either extracted from
annual reports or derived from market research reports


--------------------------


(1) This statement regarding earnings enhancement is not a profit forecast and
should not be interpreted to mean that Telefonica's future earnings per share
will necessarily match or exceed the historical published earnings per share of
Telefonica or O2.


(2) These estimated benefits, cost savings and one-off costs for achieving them
relate to future actions and circumstances which, by their nature, involve
risks, uncertainties and other factors.  Because of this, the benefits and
savings may not be achieved, or those achieved could be materially different
from those estimated.


(3) This statement regarding earnings enhancement is not a profit forecast and
should not be interpreted to mean that Telefonica's future earnings per share
will necessarily match or exceed the historical published earnings per share of
Telefonica or O2.


                      This information is provided by RNS
            The company news service from the London Stock Exchange