Share Capital Increase

Telefonica SA
23 February 2001


TELEFONICA

Share capital increase on account of distributable reserves

In compliance with Article 158 of the Law of Corporations, it is made public
that the Board of Directors of TELEFONICA, S.A. (hereinafter 'TELEFONICA' or the
'Company') under the authorisation granted in its favour by the Annual General
Shareholders' Meeting of the Company held on April 7th, 2000, resolved by way of
the resolutions adopted on January 24th 2001 to execute the resolution on the
increase in the share capital of Telefonica, S.A. to be charged to freely
distributable reserves, to which D), E) and F) paragraphs of point V of the
Agenda of the aforementioned Shareholders' Meeting, increasing the Company's
share capital by the amount of Euros 89,203,045 through the issue of 89,203,045
new ordinary shares, which will be freely allocated to the Company's
shareholders in the proportion of one (1) new share for every fifty (50)
currently existing shares of the Company, with the following characteristics:

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

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

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

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

4.     Balance sheet on which the operation will be based: In compliance with
that provided for in article 157.2 of the Law of Corporations, this operation
will be based on the Balance sheet approved by the General Ordinary
Shareholders' Meeting held on April 7th, 2000, and referred to December 31st,
1999.  The said Balance sheet was duly verified by the Company's Accounts
Auditor 'Arthur Andersen y Cia S.Com' on February 24th, 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 (March 5th, 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 15 of the free allocation rights derived
from its treasury stock.

6.     Period for the allocation and transfer of the rights of free allocation
in the Stock Exchange (hereinafter the 'Period of Free Allocation'): The period
for the negotiation of the rights of free allocation will begin on March 6th,
2001 (the following working day after the day of the publication of this
announcement) and will end, in any event, on March 20th, 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 Law of Corporations, on behalf and at the risk of the persons
concerned.  The proceeds of this sale, once the expenses of this sale and the
above mentioned deposit are deduced, shall be deposited at the disposal of the
persons concerned at the Bank of Spain ('Banco de Espana') or at the General
Deposit Fund ('Caja general de Depositos').

8.     Disbursement: The disbursement will be made in its entirety from the
disposable reserves (specifically it will be debited to the Revaluation Reserve
account, for the Regularization of Balance Sheets for the Fiscal Year 1987,
executed under the provisions of article 3 of the Law of December 31st, 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 an abridged 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 February 22nd, 2001, 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 Paolo.

Madrid, February 22nd, 2001 
The Secretary of the Board of Directors