Share Capital Increase

Telefonica SA
22 December 2000


           Share capital increase on account of distributable reserves

In  compliance  with Article 158 of the Stock Companies Act, 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 April 7th , 2000, resolved
by way of the resolutions adopted on November 16th and 29th 2000 and on December
20th, 2000 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), 
B) and C) paragraphs of point V of the Agenda of the aforementioned
Shareholders' Meeting, increasing the Company's share capital by the amount of 
Euros 86,814,214 through the issue of 86,814,214 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 win 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.  Tne 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 Stock Companies Act, this operation    
    will be based on the Balance sheet approved by the General Ordinary         
    Shareholders' Meeting held on April 7th , 2000, and  referred to December
    31, 1999.  The said Balance sheet was duly verified by the Company's        
    Accounts Auditor 'Arthur Andersen y Cia. S. Com.' on February 24, 2000.

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 Companies Registry Gazette ('Boletin Oficial del Registro     
    Mercantil' or  'BORME') of this announcement (January 4th, 2001), 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 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 will begin on 
    January  5th, 2001 (the  following  working  day after the day  of  the     
    publication  of  this  announcement) and will end, in any event, on January 
    19th, 2001.

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 Stock Companies Act, 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  1987,  executed under the provisions of article  3  of  the  Law  of
    December  31,  1945),  and will take place when  the  Company's  Board  of
    Directors  or  its Standing Committee, 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, 2000.

10. Issue prospectus: TELEFONICA has prepared a reduced informative  prospectus,
    in   accordance  with  the  requirements  established  under  the  Spanish
    Securities  Market Regulations, which has been verified and filed  by  the
    Spanish  Securities  and  Exchange  Commission  ('Comision  Nacional   del
    Mercado  de  Valores') on December 21st , 2000, and is publicly  available
    at  TELEFONICA's registered office (Gran Via 28, Madrid) and  the  Spanish
    Securities and Exchange 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, December 22, 2000.
    
                                                The Secretary of the Board of
                                                Directors