stake acquisition in PCCW

Telefonica SA
13 November 2006



As provided in article 82 of the Spanish Stock Market Act (Ley del Mercado de
Valores), TELEFONICA, S.A. (TELEFONICA) hereby reports the following


SIGNIFICANT EVENT


On November 12th, 2006, TELEFONICA reached an agreement to acquire through
its wholly-owned subsidiary TELEFONICA INTERNACIONAL, S.A.U. or any of its
affiliates, an 8% stake in PCCW Limited ('PCCW'), the Hong Kong
telecommunications operator, from Fiorlatte Limited ('Fiorlatte'), a company
100% owned by Mr. Francis P.T. Leung. Mr. Francis P.T. Leung agreed on July 9th
2006 to acquire a 22.65% stake in PCCW from Pacific Century Regional
Developments Limited ('PCRD'). On completion of such transaction, TELEFONICA
will acquire the aforementioned 8% of the PCCW shares. Completion is expected on
or before the first half of January 2007.


TELEFONICA and China Network Communications Group Corporation ('CNC'), which
currently owns approximately 19.94% of the issued share capital of PCCW, have
entered into an agreement whereby, once TELEFONICA has acquired the 8% of
PCCW, TELEFONICA and CNC would transfer their respective interests in PCCW
into a special purpose vehicle ('SPV') which will hold a combined 27.94% stake
in PCCW, becoming the largest individual shareholder of PCCW.


The acquisition is subject to, amongst other things, the approval of the sale to
Fiorlatte of 22.65% of PCCW by minority shareholders of PCRD at a Shareholders'
Meeting of PCRD which is expected to be held by the end of November 2006. The
acquisition of the PCCW stake represents an investment of approximately 323
million euros by TELEFONICA. However, TELEFONICA may receive a 10%
discount depending on the performance of PCCW's share price for a certain period
within 10 months after completion.


TELEFONICA has the right, in certain circumstances, to swap its shares in
PCCW for shares in China Netcom Group Corporation (Hong Kong) Limited ('CNC 
(HK)'), based on current market prices, consistent with previous announcements 
of TELEFONICA to increase its shareholding in CNC(HK) up to 9.9%.


In addition, TELEFONICA, CNC and PCCW have signed a MOU to develop a
strategic alliance in relation to certain areas of business in the
telecommunications and media sectors, including, amongst others, IPTV and
international wholesale services.



Furthermore, CNC (HK) and TELEFONICA have entered into a Supplemental
Agreement, in relation to the Strategic Alliance Agreement dated 14 November
2005, which entitles TELEFONICA to nominate two representatives as directors
of CNC (HK) with its current participation of 5%. Therefore, TELEFONICA has
the right and intends to nominate one new representative as a director of CNC
(HK) in addition to its current representative on CNC (HK)'s board.


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